I would like to approach the analysis on the Pakistani economy by looking at things from three perspectives: First, the government’s likely viewpoint on the subject, second, the critic’s opinion, and third, how our policy initiatives and focus compares with that in the neighboring Indian economy, being billed as currently the most happening large economy in the world. Staring from the government’s lens first, the arguments would be pretty straight forward. Nearly all international financial institutions (IMF-International Monetary Fund, WB-World Bank, ADB-Asian Development Bank, etc) are showing confidence in its performance and their engagement today with Islamabad stands much more entrenched than what it was 2 years back. We have recently seen statements both by IMF and WB area chiefs giving the thumbs up to Mr. Dar’s performance, showing satisfaction on the present foreign exchange position of the country and in the macro economic stability of Pak economy, which in their opinion has improved. Then the government takes a lot of heart from key global developments where the oil prices in particular and the commodity prices in general have fallen dramatically and helping it in:

a) Containing its Current Account Deficit (CAD), b) Keeping inflation under check, and c) Gaining extra fiscal space to spur its development related projects. Further, interest rates have come down both internationally and domestically and are likely to go down further. Ironically, with Government of Pakistan being the largest borrower from the Pak financial industry, this means that it also is the biggest beneficiary of these reduced rates, while of course the low rates also unleash other positive effects vis-à-vis boosting investment in the private sector and helping national growth.

The foreign remittances in the country are rising and en-route to cross the $15 billion mark. The government also claims that the single most important challenge facing the economy, power, is being addressed on fast track and where the priority list in supply has already been revisited – Large Scale Manufacturing is now being supplied with uninterrupted electricity 24/7 – and whether failure or success its undaunted focus remains on solving energy related issues in Pakistan. In its tenure, before the end of 2015 by rough estimates about 3000 MW (in a varied mix of fuels) will be added in the system and generation costs also largely stand improved (thanks to the external factors). Even the global or geographical developments are moving in its favor. USA’s needs Pakistan in Afghanistan and this means the main lending institutions, IMF, WB, etc. will go easy on Pakistan in the coming period and the growing nervousness of the House of Saud is likely to result in large monetary largess being lobbed Pakistan’s way in the foreseeable future. Last but not least, the Pak Rupee is not only stable against the US Dollar, but in fact it is gaining ground against major global currencies like the Euro, Sterling, Russian Ruble, Yen and Rinminbi. In short, ordinarily by any standard these indicators spell a successful 2 years stint for this government, which can only improve in its remaining tenure.

However, from the critic’s point of view, a thin scratch to the surface and the shine fades away. A visionary economic manager would instead look beyond these basic or kind of manageable indicators and go on to dissect the underlying health of the economy to determine whether or not it is indeed headed in the right direction. And this is where the reality dawns, because when one dives deep into the key elements of the economy one realizes that the Pak economy is in fact faltering. To start with the government’s priorities seem to be misplaced. Fancy infrastructure projects are given priority over say important areas like health, education, skill development (especially for the lower 50% of the population segment). The focus on the three most important things in an economy is missing: 1) Employment Generation, 2) Competitiveness & 3) Equitable Growth. Whereas, countries around the globe seem to revisiting past policies to revive national manufacturing our industry instead is slipping – Exports are declining; Both domestic and foreign investment is at an all time low; And declining exports also point towards eroding national competitiveness of Pakistan, a point further highlighted by the fact that foreign companies & financial institutions have either already exited our markets or are in the process of doing so. Even more disappointingly, two years down the road the Big Ticket Reforms are still missing and no signs either of undertaking them any time soon. These reforms relate to: Labor reforms, Corporate governance reforms (in SECP, CCP, etc), Reporting Mechanisms, Law & Order, Police, and Industrial reforms that see to it that, ease of doing business in Pakistan improves; Bureaucratic red tape is reduced; and taxation is made fair cum effective. Any kind of proactive approach on forward trade management is missing. As we know that with our main export markets, Euro-zone, China and to some extent Russia, not only slowing down but also showing signs of deflation, the challenge to maintain our present exports’ level is going to be enormous (February 2015 figures show that our month-on-month exports declined by 13%). A strong Pak Rupee in such a scenario and amidst the present global trade environment is perhaps more damaging than being beneficial, but the government needlessly continues to be stubborn on maintaining its current parity. Any loss of exports as we know has a direct bearing on unemployment in a country. Further, when it comes to the power sector the real users – the industrial sector – complains that its tariff is still not regionally competitive as government failed to share the fair impact of the reduced oil prices with the industry. Also, the intra-sector investment’s focus is back to the expensive mode of thermal generation, the earlier announced coal projects still await financial close and appear more and more as pipedreams, and the latest LNG scandal (once it surfaces) can turn out to be quite embarrassing for the government, to say the least. Privatization push remains flawed and lacks sound vision and meanwhile the PSE (Public Sector Enterprises) continue to be mismanaged in a way that borders malafide intent. Most alarmingly, the undocumented sector is thriving/expanding at the expense of the documented sector and by recent accounts is growing in double digits. The two most crucial sectors of the economy, agriculture and banking, are either seeing or entering the worst phase of their suffering in more than a decade while the government seems content on sacrificing recognized prudence of broad based cum long-term global economic linkages over narrow sighted dependence on extraordinary but short-term external developments – History seems to be repeating itself!

Whereas we can surely argue both sides, it will be helpful here to see how our neighbor India plans to drive its economy in 2015-16 and onwards. Given its recent success in turning around a fledgling outlook in the not too distant a past, a comparison can tell us if we are indeed swimming with the regional tide or against it. In its budget announced a couple of weeks back, the Indian leadership has taken upon itself to form economic policies that centre on increasing the “share of labor in the Indian economy”. To achieve this they have undertaken a clever mix of financial, corporate and industrial reforms in the country to help boost investment and the performance of the private sector. Capitalizing on its traditional strength of PSE – State Enterprises still form 25% of the Indian Corporate sector- it has devised an innovative plan to spur growth and investment by making its state enterprises partner and lead the private sector in order to also inspire them into making investments. For example, initiatives like announcing US $137 billion investment in Indian Railways, which in-turn will also open related projects for the private sector, and endeavoring to turnaround the national carrier, Air India Limited, to only name a few. Further, the Modi government has vowed to cut bureaucratic red tape, open up sectors previously closed to foreign investment and ring much awaited property rights’ legislative changes that formed the biggest impediment to attracting foreign direct investment. In the finance minister’s own words the aims are very straight forward: One, Improve India’s Competitiveness, Two, Ease up doing business in India, per se, Three, Ensure the share of Indian Labor increase in the Indian Economy, and Four, Make taxation in India affordable (bring tax slab down to 25%), easy (no coercive or counterproductive contact with the taxpayer) and based on reciprocity. Can we in Pakistan say with confidence that our government is also aiming to achieve similar objectives?