‘Mismanagement, policy inertia responsible for fragile economic growth’

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Pakistan Institute of Development Economics (PIDE) has noted with concern that the key problems afflicting the economy including energy shortages that have held back investment and growth have not been tackled effectively by the incumbent government, showing signs of mismanagement and policy inertia. This independent assessment has been made by PIDE in its macroeconomic brief for the current month released on Thursday. It worryingly notes that with the government embroiled in political controversies and election year approaching, pressing economic issues are likely to remain on the backburner dimming hopes of a reversal in economic situation at least in the near term. At the same time, the government may be tempted to adopt populist measures ahead of the elections that could further compound economic difficulties and challenging times lie ahead.
It finds that there is considerable uncertainty prevailing about the future course of economic policies, as the major political parties have largely confined their attention to popular sloganeering and have not come up with their detailed economic strategies so far. It says that despite some positive developments including easing of inflation and reduction in fiscal deficit, Pakistan’s economy remains in a precarious state with sluggish growth, fragile macroeconomic fundamentals, and heightened vulnerability to balance of payments shocks. The present government may have little inclination to undertake structural reforms at a time when it has its energies focused on the next elections, we believe that it still has an opportunity to implement a minimum agenda focused on correcting macroeconomic imbalances as well as on setting the future direction for sustainable economic growth. Pakistan cannot afford to lose time and the cost of policy paralysis would be very high in terms of macroeconomic instability and lost opportunities for growth. To begin with, the forthcoming budget should aim at achieving fiscal stability by avoiding politically driven public expenditures, cutting wasteful spending, and channeling resources into key public investments in energy, infrastructure and human resource development, the key drivers of economic growth and development. These measurers need to be supported by prudent public debt management through induction of professionals in the debt management office which will help reduce the cost of public debt. The government has already approved the Framework of Economic Growth which lays out a comprehensive strategy for long term competitiveness and growth focusing on governance and institutions, markets, connectivity and cities. The government would do well to expedite the process of operationalising this growth strategy by initiating specific policies and programs in key strategic thrust areas of the growth strategy.