By Qamar Bashir
In their most recent publications, the IMF, Asian Development Bank and World
Bank separately assessed the worth and outlooks of world economies, including
Pakistan and India. These assessments present a diametrically opposed picture of
the two South Asian giants. The International Monetary Fund (IMF) stated in its
report released on May 11, 2023, while commenting on Pakistan's economic
outlook, that its team was very heavily engaged with Pakistani authorities, as
Pakistan is facing a very challenging situation, the economy is experiencing
stagflation, and it has very large financing needs. It has been hit by a series of
shocks, including particularly catastrophic floods, demanding significant additional
funds to support policy measures that are stalled due to the failure to sign the IMF's
ninth assessment. It also stated that the economy is experiencing domestic and
external imbalances, necessitating fiscal strengthening through permanent revenue
measures and reductions in un-targeted subsidies, scaling up social protection to
assist the most vulnerable and flood victims, allowing the exchange rate to be
market determined to gradually eliminate the foreign exchange shortage, and
improving energy provision by preventing further accumulation of circular debt.
The same study concluded that "India is a bright spot, both for the global economy
and, of course, for Asia." India is rapidly expanding, and the IMF sees it as a
crucial player in the region and a necessary support for the global economy." "In
terms of digital currency in India, the country is making rapid progress in
developing a digital public infrastructure, which has improved financial inclusion,
social inclusion, and has also aided in the delivery of healthcare services." The
IMF encourages non-performing economies to learn from India in order to improve
their economy.
This Indian success story did not take millennia, but only fifteen years. India's
actual per-capita income was just under $600 when it launched economic reform in
1991. This figure has more than tripled. Over the last 15 years, an estimated 400
million people in India have been lifted out of poverty, representing one of the
world's fastest rates of poverty alleviation. In 1991, the country was one of the
world's top assistance receivers, but it is currently a net donor. It is also the world's
third largest economy in terms of purchasing power parity, contributing about 15%
to global growth this year. Furthermore, with its G20 presidency this year, India is
taking the global lead. As such, its goal focuses on global public goods and
improving international coordination in sectors such as debt, crypto assets, climate
change, and digitalization. India accomplished this initially by gaining political
stability while also developing democratic institutions, and later by implementing
universal banking, adopting international best practices in regulation and
supervision, and establishing the National Stock Exchange. It also offered
electronic trading, allowing larger enterprises to get access to market-based finance
by utilizing both bond and equity markets. India has also pleased the international
community by encouraging financial inclusion via its public digital infrastructure,
with local firms using cellphones to execute the majority of financial transactions,
resulting in better public finance management efficiency. The digital payment
method enhanced general sales tax revenue collection while cutting enterprise tax
compliance costs. This also helped the government send 37 billion dollars in social
payments to people's bank accounts between 2020 and 2021, bypassing expensive
intermediaries and reducing leakages.
Asian Development Bank in its evaluation report issued on 4th April 2023 said that
Pakistan’s economic growth is expected to slow significantly in FY2023 due to last
year’s devastating floods, ballooning inflation, a current account deficit, and an
ongoing foreign exchange crisis. It said that Pakistan GDP growth is projected to
slow to 0.6% in FY2023 from 6% last fiscal year as it is struggling to recover, but
may rise to 2% in FY2024, provided the resumption of macroeconomic stability,
implementation of reforms, post-flood recovery, and improving external
conditions. The report added that the country is experiencing decelerated industrial
growth resulting from fiscal and monetary tightening, a significant depreciation of
the local currency and higher domestic oil and electricity prices. Average inflation
rate is projected to more than double from 12.2% in FY2022 to 27.5% this fiscal
year due to higher domestic energy prices, a weaker currency, flood-related
disruptions to supply, and restraint on imports caused by the balance of payment
crisis.
The same report while commenting upon India said that despite the global
slowdown, India’s economic growth rate is stronger than in many peer economies
and reflects relatively robust domestic consumption and lesser dependence on
global demand. It added the Government of India’s strong infrastructure push
under the Prime Minister’s Gati Shakti (National Master Plan for Multimodal
Connectivity) initiative, logistics development, and industrial corridor development
has contributed significantly to raising industrial competitiveness and boosting
future growth.”
In a statement issued on April 4, 2023, the World Bank stated that Pakistan's
economy is expected to grow by only 0.4 percent in the current fiscal year ending
June 2023, citing subdued private sector activity, deteriorating investors'
confidence, import controls, belated fiscal tightening, and the effects of the
unprecedented floods of summer 2022. It stated that due to intrinsic economic
vulnerabilities and consequent political uncertainty, Pakistan's economy was
unable to absorb shocks caused by disastrous floods, which increased global
commodity prices following Russia's invasion of Ukraine. The bank also identified
inconsistencies in policy responses, such as monetary tightening, new subsidies,
and an informal exchange rate cap, as well as depletion of foreign exchange
reserves, which was exacerbated by macro risks, tighter global liquidity conditions
and a lack of access to international capital markets. According to the report,
Pakistan faces rising debt, limited financial inflows, and record inflation. Private
sector inactivity has drastically weakened consumer and investor confidence, and
disruptions induced by administrative import limitations have caused the lower
middle-income poverty rate to rise to 37.2 percent in FY23.
Same report while commenting on the Economic outlook of India said that
although significant challenges remain in the global environment, India was one of
the fastest growing economies in the world and “Notwithstanding external
pressures, India’s service exports have continued to increase, and the current-
account deficit is narrowing.” The inflation remained at 5.2 percent in FY23/24,
India’s financial sector also remains strong, buoyed by improvements in asset
quality and robust private-sector credit growth. The debt-to-GDP ratio is projected
to stabilize, current account deficit is projected to narrow on the back of robust
service exports and a narrowing merchandise trade deficit. The overall growth
remains robust and is estimated to be 6.9 percent for the full year with real GDP
growing 7.7 percent year-on-year during the first three quarters of fiscal year
2022/23.
These reports, has asked the failing economies to benchmark India’s best
economic policies and have specifically asked Pakistan to introduce fundamental
economic reforms to unlock fresh financing, avoid a balance of payments crisis
and lay the foundation for a recovery of private investor confidence and higher
growth over the medium term” . These reports have also cautioned Pakistani
leadership to take IMF proposals seriously as the progress with the IMF-EFF
program depends heavily on securing new official external financing as ongoing
delays will contribute to a further deterioration of the investors confidence. It also
advised Pakistan to maintain overall sound macroeconomic management, including
a flexible exchange rate, controlling inflation through adoption of an appropriate
monetary policy stance; increase revenues, rationalize expenditure (including
reducing untargeted energy subsidies); and implement trade and private sector
reforms to support improvements in investment, competitiveness, and productivity.
These findings are not novel or out of the box, neither are the solutions proposed
by international financial institutions new or novel. These recommended policies
are off-the-shelf solutions that are pushed and forced down the throats of all non-
performing economies as a penalty for pursuing vested interests, spiteful and
vendetta-based politics, and constantly battling fires without instituting long-term
changes. These solutions are also pushed down the throats of economies where the
focus is on settling personal scores and there is a lack of innovation, creativity, and
original ideas, where national assets are looted to accumulate personal wealth, and
where there is a lack of ability to settle and resolve the underlying causes of issues
that cause political and social unrest. Where corruption is not an issue and
institutions are hellbent on destroying one another in order to gain as much power,
authority, and nuisance as possible. Where the constitution is shattered and laws
are flagrantly violated with total impunity. Where the media is suppressed and civil
society is terrified to express itself. Political dissent is punished, and the diversity
of beliefs and opinions is effectively suppressed. But, because we are not such a
country, we have the right to wonder why our economy is not performing.-Writer is former Press Secretary to the President
Former Press Minister to the Embassy of Pakistan to France Former MD, SRBC
