OPINION
Uzair Younus
Too much growth?
indicate is that a 5 percent growth rate is basically the level at which the economy begins to start skidding off the track. Some may argue that this is not entirely true, because the external sector challenges are largely the result of rising international commodity prices, including oil. This exogenous shock, which was unforeseen just a few months ago, is creating external sector risks, causing the rupee to depreciate and forcing policymakers to make tough choices. While this is a fair point, it does not do much to answer the uring his visit to Washington in mid-October, Shaukat broader question: what have policymakers done over the past few Tarin had publicly stated that the issue with Pakiyears to increase the resiliency of the economy to these exogenous stan’s economy in the present moment was too much shocks? growth. He argued that the proverbial foot had to The answer: not much. Which is why so many economic be taken off the accelerator to sustain this economic watchers on social media are hoping and praying that the recent recovery and that this is what the government and the decline in oil prices continues, as this is the only way out of the central bank were planning to do. State Bank Governor Dr. Reza Baqir, near-term challenges facing the economy. who was also in Washington at the time, made similar comments, indiBut this pushback ignores the grim reality that this govcating that the central bank had taken proactive measures to stimulate ernment has, in so many ways, fueled the current crisis that we growth at the onset of the pandemic and was now ready to act in order are witnessing today. The core of the government’s economic to consolidate growth. policy has revolved around a construction amnesty scheme, the The subsequent policy actions taken by Pakistan’s economic longest-ever such scheme in the history of the country. This policy managers, when viewed within the context of these remarks, make a choice has directed large amounts of capital into real estate, with whole lot of sense. And while debate about the implications and effecthe argument being that Pakistan needs to build affordable housing tiveness of these choices is warranted and necessary, it ought to be set for underprivileged segments of society. But look at real estate aside for an issue of far more significant concern: Pakistan’s economy is prices and the types of projects coming up across the length and overheating within months of nearing a four percent rate of growth. breadth of the country, and you will realize that much of the gains Since the onset of the twenty-first century, and perhaps a few are coming from speculative investments being made by those with years before that, Pakistan’s economy has experienced a secular decline: capital and access. The outcome of this policy choice is that privpeak growth rates and the duration for which spurts of growth can ileged segments of society have gained even more wealth, which be sustained have both drastically fallen. Since 2000, Pakistan has had is translating into demand-side pressures on the economy and the lowest average rate of growth and the second-highest average rate the external sector. The result is that wealth has been amassed by of inflation among a group of peer economies that includes the likes of investors living in Plotistan at a time when tremendous pain and Nigeria, Morocco, Vietnam, and Bangladesh, according to World Bank trauma has been inflicted on ordinary citizens living in Pakistan. data. These spurts of growth are based on short-term spending, Dr. Baqir’s recent remarks in an interview, where he accepted catalyzed either by fiscal and monetary stimulus, or through amthat the economy is at “the stage of taking steps to prevent overheatnesties that create speculative bubbles. The ensuing crisis further ing,” are further evidence of this secular decline. What these comments indebts the country, fuels even more inflation, and makes it that much harder to find and tap into additional resources necessary to deliver growth. Lenders of last resort, including the International Monetary Fund (IMF) and Saudi Arabia, have also recognized that their capital is used to generate these unsustainable spurts of growth. This is exactly why the expected resumption of the IMF is dependent on the fulfillment of prior actions, including a 150 basis points hike and withdrawal of tax exemptions that distort the economy. The writer is Director of the What Pakistani policymakers need to realize is that the IMF program is not going to address, Pakistan Initiative at the in any significant way, the decades-long crisis that has hollowed out the country’s economy. Finding Atlantic Council, a Washington a way out of the crisis requires introspection and a fundamental change in who gets access to ecoD.C.-based think tank, and host nomic resources and for what purpose. It also requires a recognition among political and non-politiof the podcast Pakistonomy. cal elites that politically costly decisions, many that will hurt the very forces that have underpinned He tweets @uzairyounus. the country’s political economy, need to be made and sustained for years, if not decades.
Policymakers have done little to try and prevent Pakistan’s economy from overheating
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