The Asian Development Bank (ADB) in its most recent economic assessment, through its publication ‘Asian Development Outlook’ (ADO) indicated low growth, and a high level of inflation facing the country. It indicated in this regard ‘In Pakistan, growth is estimated to have slowed to 0.3% in FY2023 (ended 30 June 2023)… In Pakistan, growth is forecast at 1.9% in FY2024, slightly below the April projection… Average inflation in Pakistan will soar from 12.2% in FY2022 to 29.2% on higher food prices caused by supply shortages, continued currency depreciation, import restrictions, and fiscal stimulus for post-pandemic recovery. Normalized food supplies and lower inflation expectations, albeit tempered by higher power and gas tariffs and likely currency depreciation, could ease inflation somewhat in FY2024, but Pakistan’s inflation rate is now expected to remain at 25.0% in FY2024, substantially higher than forecast in April.’
Hence, given the stagflationary situation that the country finds itself in, it is important to understand that the source of inflation is not just demand-pull, but also cost-push, and mainly through the channel of both overboard monetary tightening, and global aggregate supply-caused, and weak domestic currency induced imported inflation. It is therefore important that the current policy of monetary austerity should be reined in, for both reducing the significant impact on cost-push inflation, but also in terms of higher expenditures being incurred by the government, on account of higher interest payments on domestic debt. High expenditures, in turn, also put greater demands on the government to adopt fiscal austerity, which most often than not means cutting otherwise much-needed development expenditures; given the underlying weak domestic resource mobilization effort overall.
A high level of monetary and fiscal austerity has meant that necessary development and welfare spending is not being made. While this has a multi-sectoral, economy-wide negative impact, two exceedingly important areas which require a lot of spending for creating needed levels of resilience, are climate change, and the ‘Pandemicene’ phenomenon.
This is because Pakistan is among the top ten countries in terms of climate change vulnerability. Here, as rightly pointed out by the interim prime minister, Anwaar-ul-Haq Kakar, in his address to the United Nations General Assembly in its annual session, significant progress was needed with regard to climate finance inflows pledged internationally, on account of catastrophic flooding in the country last year. The interim PM indicated ‘Pakistan is gratified by the commitments of over $10.5 billion for the country’s comprehensive plan for recovery, rehabilitation, and reconstruction with resilience– the 4RF Plan– at the Geneva Conference last January… I hope our development partners will accord priority to allocation (release) of funds for our resilient recovery plan, which has been costed at $13 billion…’
Lack of fiscal space, once again, makes it difficult to make needed public health sector related development spending, and leaves it a lot under-prepared in case another pandemic hits.
Having said that, the policy of over-board monetary austerity internationally is also making it difficult for developing countries to have greater fiscal space, since high interest rates have put significant external and domestic debt distress on developing countries in general, including Pakistan. Yet, there is little revision of the current practice of overboard monetary austerity by major central banks globally, as pointed out by an article ‘Central banks will push economies into recession, says Hunt adviser’ published by The Guardian on August 29, as follows: ‘Jerome Powell, the chairman of the US Federal Reserve, Christine Lagarde, the president of the European Central Bank, and Ben Broadbent, one of the Bank of England’s deputy governors, all told the Jackson Hole event that it was too soon to say whether interest rates had peaked.’
Moreover, lack of fiscal space, once again, makes it difficult to make needed public health sector related development spending, and leaves it a lot under-prepared in case another pandemic hits.
A September 8 Project Syndicate (PS) published article ‘A new financing pact for climate-vulnerable countries’ highlighted with regard to much-needed climate finance for developing countries: Amid an escalating climate emergency and a global debt crisis, calls for a new “fit for climate” global financial architecture are growing louder throughout the developing world. The urgent need for decisive action has been underscored by Barbadian Prime Minister Mia Mottley’s Bridgetown Initiative, the V20 group of climate-vulnerable countries, and the recent Paris Summit for a New Global Financing Pact. This week’s Africa Climate Summit in Nairobi presented a unique opportunity to promote much-needed measures to support low-income countries in pursuing sustainable growth.’
Having said that, a recent Oxfam published report ‘Are G20 countries doing their fair share of global climate mitigation?’ pointed out a rather lacklustre attitude of G20 countries in terms of dealing with the climate change crisis. The Report indicated in this regard ‘The assessments of the fair share benchmarking approaches show that the G20– both collectively, and almost all of them individually– are failing to achieve their fair share of ambitious global mitigation required to limit global temperature increase to 1.5°C. The assessments from all three approaches also show that none of the individual NDC [Nationally Determined Contributions] targets of high-income G20 countries represent the level of ambition required for a 1.5°C global mitigation pathway, and their shortfalls are generally much bigger than for middle-income countries.’
