The prevalent economic situation in Pakistan is becoming catastrophic. The new coalition government is trying to steer clear of unpopular but necessary economic decisions, as it inherits an economy troubled by rising inflation, widening fiscal and current account deficits, and shrinking foreign exchange reserves. Ironically, all the parties in the Pakistan Democratic Movement (PDM), which were badly criticising all the tough decisions of the PTI government a few weeks ago from the opposition benches, never realised that they were going to taste their own medicine so soon as they assume power and it is getting bitter and uglier with the passage of time. As per the latest report from the Institute for Policy Reforms (IPR), Pakistan must address its severe external debt and current account deficit problems in order to avoid a Sri Lanka-like default situation. Among other suggestions, the IPR called for making the energy sector financially sustainable, restructuring internal debt, increasing internal sources of energy and mineral resources and ensuring parliamentary scrutiny of all international agreements of economic nature. The coalition government may not have much time to undertake all these fiscal and productivity reforms, but it can initiate changes to restructure the economy for a long-term sustainable turnaround.

It is unfortunate that the political parties here do not have much experience in carrying out long-term economic and governance reforms. If the previous government’s economic experiments have taught us anything, it is that quick fixes do not work. Hence, it is high time that all political parties reach a consensus to draw up an “Economic Charter”, detailing a long-term political roadmap that should be supported by all parties, regardless of which side of the floor they are sitting on, fully backed by the military and the judiciary, in order to avoid a complete meltdown in the near future.

An elected government should deserve to move forward uninterrupted on the agreed roadmap without any compromise or interference, in order to ensure the country’s economic stability. If we look back in history, in the 1960s, South Korea was a small economy based on agriculture. Over the next five decades, South Korea managed to maintain its economic growth, and by 2016 it had become the 11th largest economy in the world. The reason is that South Korea had a robust economic growth model in place which was well supported by all sections of the society and had two pillars: human capital accumulation and productivity growth. Similarly, in the 1980s, Vietnam was in a state of severe economic crisis with a 700 percent inflation rate, trade deficit and economic stagnation. In 1986, Vietnam’s “Doi Moi” economic growth model was introduced which had five pillars: privatisation; foreign direct investment; end of subsidies to public sector enterprises and busting of domestic cartels and free trade. And as a reminder, Vietnam has signed 56 Free Trade Agreements (FTA’s) whereas Pakistan has only signed 5 FTAs).

This goes to show why the country desperately needs a new robust economic growth model as soon as possible to overcome the breakdown we are facing right now. We must embrace three things: savings, investments and productivity. We have to learn from South Korea and Vietnam. We have to privatise. We must end all subsidies to so-called public sector corporations. We need to dismantle domestic cartels. And we must move towards free trade by signing as many free trade agreements as possible, while pushing for more trade with Central Asian economies. Additionally, in-terms of savings, an estimated amount of Rs1 trillion needs to be raised from the energy sector by quadrupling petroleum prices and electricity tariffs for all households using more than 1000 kwh. All Pakistanis who own several luxury cars and run air conditioners indiscriminately have to pay through their nose. This is a sacrifice they must make to save the country, as the goal should be for the energy sector to become a major source of additional funds to reduce the current deficit rather than to increase it.

Unless there is a long-term commitment and unwavering support from all power corridors, we will be returning back to the IMF for bailout time. We are facing an existential crisis, which will worsen if difficult and painful steps are not taken immediately. Given the current scenario, it would certainly be more advisable for the new coalition government to not prolong its hold on power beyond the approval of the Budget 2022-23—and announce general elections as soon as possible. The longer we endure political uncertainty in the country, the deeper our economic crisis may become, despite our well-intentional efforts to bring it under control.

Lastly, the budget must not simply be an accounting exercise but must be accompanied with a clear future roadmap on how to address the myriad of challenges facing the economy, with the above-mentioned targets to achieve at hand. It will not be an easy journey, but desperate times call for desperate measures.

Fizza Ali
The writer is an Advocate of the High Courts of Pakistan and an Executive Member of the International Bar Association.