Pakistan must leverage limited options effectively to foster sustained economic growth: experts

February 21, 2024

Amir Khan

In the face of escalating economic challenges, Pakistan is confronted with an urgent mandate shaped by the intertwining crises of climate change, flood-induced poverty and mounting debt distress. Talking to WealthPK, Rafiullah Kakar, a member of the development projects committee at the Ministry of Planning, Development and Special Initiatives, said that the nation was caught in a cycle of sluggish economic growth, further hindered by an extended period of double-digit policy rates, constraining domestic production, exports and revenue generation. He mentioned that the situation was further complicated by acute debt distress and soaring inflation. "These issues are fuelled by global supply disruptions and intensified by geopolitical tensions in Ukraine and the Middle East." "In light of these challenges, the new government faces a critical juncture where limited options must be leveraged effectively. The foremost economic imperative is the activation of a coordinated monetary and fiscal strategy, striking a balance between aggregate demand management and supply-side interventions in collaboration with the State Bank of Pakistan (SBP)," he pointed out. 

He recommended a comprehensive policy approach, including a planned reduction in policy rates, market governance initiatives to combat over-profiteering and hoarding, and a robust network of storage facilities. "This dual approach aims to stimulate the supply side, mitigate inflation, and foster economic growth." Additionally, Rafiullah said the government should prioritise the establishment of a price control commission, drawing inspiration from successful models such as China's "dual-price" policy to identify key economic sectors for domestic production and exports. "This commission would ensure price support subsidies to maintain stability in essential commodities, positively impacting the overall economy." Meanwhile, speaking to WealthPK, Dr Muhammad Afzal, Economic Advisory Council member at the Planning Commission, said to address fiscal challenges and create space for climate-related initiatives, the government should form a 'trilateral ministerial commission' comprising finance, foreign affairs and economic affairs.

"This commission would work towards negotiating an extended fund facility (EFF) programme with the IMF, emphasising non-austerity, counter-cyclical economic planning." He further said that the commission would engage with development partners to secure essential climate change support, including debt reprofiling efforts and increased financial assistance. He highlighted that the proposed "trilateral ministerial commission" would have to seek to shift the focus of the IMF programme from pro-cyclical austerity to a more sustainable, counter-cyclical approach, emphasising social safety nets and cost-of-living reductions. "A comprehensive financing plan and external debt reprofiling/restructuring would be pivotal components of this negotiation." Dr Afzal remarked that the new government must navigate a complex economic landscape by implementing a multifaceted strategy that balances monetary and fiscal measures, establishes effective price controls, and secures both IMF and development partners' support for sustainable economic growth amidst climate crisis and debt distress.

inpCredit: INP-WealthPk