Business | Opinion
New economic thinking required to tackle the challenges
Pakistan's soaring budget deficit in the wake of an unprecedented oil price related pressure in the past year, promises to raise new challenges for the economy.
- Special to Gulf News
- Published: 23:41 February 5, 2008
Pakistan's soaring budget deficit in the wake of an unprecedented oil price related pressure in the past year, promises to raise new challenges for the economy.
But much still depends on how Pakistan's policy makers manage the effects of the oil price rise in a way that they do not further aggravate an economic slowdown already in progress.
These two extremes - managing the effect of the oil price for domestic consumers and avoiding an economic slowdown - stand at the heart of meeting this challenge.
For the moment, the added effect of fast growing political uncertainty ahead of elections provides little comfort to the choices before Pakistan's policy makers.
The bigger political challenge with implications for the economy is just not appealing. If political parties loyal to president Pervez Musharraf win the election, leaders of the opposition parties will undoubtedly cry foul and claim that the election was rigged.
On the other hand, if Musharraf's political foes win the election, the pressure to force the president out of his office will be immense.
Either of these two outcomes will only aggravate the outlook for the economy. The spectre of further uncertainty will only lead to turbulence in markets. The consequence of such turbulence in the markets could be a further flight of capital from the country, causing pressure on the rupee and foreign exchange reserves.
Meeting the future challenge will require at least two equally significant economic efforts backed by a third political effort.
First, there will have to be a new way of economic thinking for Pakistan. In the past few years, in spite of an economic recovery, a certain class of economically empowered Pakistanis have largely gained and become richer than before, while poverty levels have broadly remained unchanged as a large community of individuals below the poverty line suffered badly.
A new economic thinking will have to consider ways of changing this acute disorder.
Economic policies that do not deal with the real life difficulties faced by the have-nots of Pakistan will suffer from the effect of growing social tensions as Pakistanis living on the periphery of economic growth will go to any extent to demand their rights.
Riots that followed the December 27 assassination of former prime minister Benazir Bhutto should be an eye opener for policy makers, as they exposed the underlying tensions in Pakistan.
Second, there have to be a new effort to plug all the important economic holes.
These would involve issues such as widening the tax net to include more than just the one per cent of Pakistan's population who consist of taxpayers, discouraging luxury consumption at a time of economic distress and refocusing the areas of growth from just the large cities to the heartland of Pakistan's rural districts.
Pakistan remains a primarily agriculturally driven country as more than two-thirds of its population of 165 million rely directly or indirectly on farm incomes. This fundamental reality has been conveniently ignored for too long.
The time has now come to revitalise agriculture in a way never done before so that Pakistan returns to its high days of being a successful agrarian country. Once the farmlands become more productive, the prosperity level for at least 110 million people living in these areas will rise significantly.
But the third element, a political one, strikes at the heart of meeting this challenge. Musharraf continuing as head of the state only makes him a liability. In the past year, Musharraf has fought repeated battles and his ability to unite Pakistan today remains more in doubt than at any other time in his tenure.
The writer is a journalist based in Pakistan.
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