Amid all the doom and gloom, and one of the most controversial elections in Pakistan’s history, it is refreshing to see that the new Finance Minister, Muhammad Aurangzeb is a fresh face amongst the old guard of politics and finance.
As someone a few years senior to me both in high school and university, I know that he is an intelligent, competent and hardworking professional with a no-nonsense attitude, and with the right credentials in terms of international work experience with JP Morgan, Citigroup and ABN AMRO Bank along with an educational background from Aitchison College and the University of Pennsylvania’s Wharton School of Business. While he may not be a hardcore economist, he certainly has the skill set and gravitas to represent the country internationally, especially given the upcoming IMF negotiations, and can assemble the right group of economists and advisors. It would be beneficial if these advisors are mostly drawn from the pool of top young overseas Pakistani economists. Mr. Aurangzeb is also best advised to keep away from the tried and tested voodoo men of economics and finance.
Next to the perennial existential challenge of whether Pakistan will ever truly be a democracy governed by the constitution and rule of law, its economy is the biggest challenge with high inflation, slow growth, lacklustre employment creation and more and more people falling below the poverty line. Obviously, the weaker a country’s economy, the greater the threat to its national interests and sovereignty.
The real challenge for the new finance minister is if he will have enough space to maneuver beyond the clutches of the various vested interests in the corridors of power. Regardless of any political affiliations, sorting out the country’s economic mess would require utmost honesty and integrity. Whether successful or not, only time will tell. He will have to tread carefully in how he manages (i) the political wrangling given a coalition lacking legitimacy, (ii) the internal workings of Special Investment Facilitation Council and (iii) the impact of economic policies on the common man.
Aurangzeb also needs to come up with an economic vision that goes beyond the political divide and the usual five-year term of any government as well as have clear short, medium, and long-term goals for the economy that are effectively implemented. The long-term goal should be that by 2047 or earlier, Pakistan is in the world’s top 10 to 15 economies in GDP and is in mid to top rankings of the middle-income countries with much improved social and health indicators. It is difficult to foresee long-term sustainable economic growth without the rule of law. This needs to be complemented with wealth creation for all while ensuring that after a maximum of 10 to 12 years, Pakistan will never require another IMF bail-out.
Pakistan’s economic challenges pose significant risks to the country’s sovereignty. However, with bold and decisive action, these challenges can be overcome through fundamental and structural reforms. By prioritizing fiscal discipline, revenue mobilization, export-led growth, import substitution where necessary, debt restructuring, and prudent debt management, Pakistan can set itself on a path to sustainable and inclusive development. The time for action is now, and the stakes could not be higher.
While finalizing the ongoing $3 billion SBA from IMF as well as the larger, longer EEF of $6-8 billion would be a priority for the new finance minister, a host of economic challenges threaten Pakistan’s stability and prosperity. Three key issues— fiscal deficit, current account deficit, and mounting debt— cast a shadow over the country’s economic future. To navigate these challenges and set Pakistan on a path to sustainable growth, fundamental and structural reforms are imperative. Several key measures can help tackle the root causes of fiscal deficit, current account deficit, and mounting debt problem:
- Fiscal Discipline and Revenue Mobilization: Implementing measures to enhance revenue collection, broaden the tax base, and improve tax administration are critical for reducing fiscal deficits. Reforms aimed at rationalizing expenditures, including subsidies and government spending, are essential to contain budgetary pressures and promote fiscal sustainability. Strengthening fiscal institutions and enhancing transparency and accountability in public finance management can help ensure effective fiscal discipline.
- Export-Led Growth and Import Substitution: Promoting export-led growth and diversifying Pakistan’s export base are essential for narrowing the current account deficit. This entails supporting export-oriented industries, enhancing competitiveness, and removing barriers to trade. Additionally, fostering import substitution industries and reducing reliance on imports for essential goods and services can help rebalance the current account and reduce external vulnerabilities.
- Debt Restructuring and Management: Addressing Pakistan’s mounting debt problem requires a comprehensive strategy that includes debt restructuring, debt sustainability analysis, and prudent debt management practices. Renegotiating terms of existing loans, prioritizing concessional borrowing, and improving debt transparency and disclosure are essential steps to mitigate debt-related risks. Additionally, enhancing debt management capacity and implementing fiscal rules and debt ceilings can help prevent debt accumulation and ensure long-term fiscal sustainability. Pakistan should not be buried under the burden of debt that is bound to undermine its national security and sovereignty.
- Use of Data, Artificial Intelligence and Digitalization of Economy: The importance of the digital economy cannot be stressed enough. Use of data, data analytics and AI in economic decision making can be tremendously beneficial and this can be helpful in ensuring that there is minimal impact of adverse outcomes of the IMF programme on the low-income groups of the society as well as for tax reforms. Pakistan should learn and seek assistance from China in this matter, which has recently inaugurated the National Data Administration (NDA), a national bureau dedicated to data-centred economic development and market regulation. Its main mission includes unifying industry data standards, facilitating data sharing across industries and streamlining data regulations from various government agencies. The NDA’s mission is to unlock data’s multiplier effects in all industries. Its eventual goal is to build a digital China.
Pakistan’s economic challenges pose significant risks to the country’s sovereignty. However, with bold and decisive action, these challenges can be overcome through fundamental and structural reforms. By prioritizing fiscal discipline, revenue mobilization, export-led growth, import substitution where necessary, debt restructuring, and prudent debt management, Pakistan can set itself on a path to sustainable and inclusive development. The time for action is now, and the stakes could not be higher.
