Published in Dawn, The Business and Finance Weekly To pull the economy out of stagflation, the simple solution may appear to be an increase in domestic production and the removal of supply constraints to meet the domestic demand for goods and services. That could possibly lead to a stabilisation of prices. In February, annualised food inflation shot up to 41.9 per cent in urban areas and 47pc in rural areas — a persistent trend along with growing unemployment resulting in a cost of living crisis. A sharp slowdown in economic activities is indicated by a 75pc plunge in bank credit to the private sector during the first eight months of this fiscal year. This has resulted in the retrenchment of industrial labour and a decline in export earnings. Foreign direct investment has simultaneously dropped by 88pc to $788 million, down from $1.315m in the same period of last fiscal year. At the same time, the distressed federal government is slashing its development spending. The economic growth rate is officially forecast to slow down to 2pc during FY23. Worse still, loans and grants worth $23 billion remain unutilised mostly because of poor governance. The country is also paying commitment charges against a certain chunk of the unused amount.

Only the resourceful big businesses somehow manage to overcome bureaucratic hurdles, while SMEs are discouraged

To improve ethics, leadership and governance, the Pakistan Leadership Conversation 2023, held recently, has recommended that participatory governance should be promoted through participatory community participation, public consultations and citizen engagement initiatives. A corporate executives’ conference was also of the view that citizens’ trust in the government’s ability to manage resources is vital for inclusive growth, social cohesion and fostering political stability. But for all this to happen, it is also necessary to have citizen-based democratic governance in place. Representatives elected to the parliament in free and fair elections must carry out the promises made to and approved by the voters. In a democracy, people lead and people are led. Empowerment theory, analysts say, envisions people’s participation in community uplift programmes that inculcate confidence among the citizens about their ability to change their own lives. There is a general consensus among development agents that the top-down approach be discarded in favour of involving the local population in the process of development. Those calling for reinventing or reimagining Pakistan suggest that the policy focus should shift to what matters most to the people. The problem, to quote Dr Hafiz Pasha, is that the richest 1pc of the population claims 9pc of the national income while the poorest 1pc gets just 0.15pc. The relief provided during the cost of living crisis through such schemes as the Benazir Income Support Programme is not considered by many as a permanent solution and is definitely not a substitute for decent jobs.

‘Nearly all the economic factors that powered (global) progress and prosperity over the last three decades are fading’

Political economists point out that article 38 of the 1973 Constitution envisages that well-being will be secured by preventing the concentration of wealth and means of production in few hands to the detriment of general interests. Newcomers must be encouraged to participate in diversified economic activities and build a competitive production-led domestic market economy. Trade bodies say regulations should be made simple as well as business-friendly, particularly to encourage investment in small and medium-sized enterprises. Only the resourceful big business somehow manages to overcome bureaucratic hurdles. Here one may refer to the provincial small and medium enterprises (SME) strategy for a “Prosperous Sindh powered by progressive and globally competitive SMEs”. A strategy management unit is proposed to be set up to monitor and support the progress and implementation of the strategy. The support includes budgetary allocations. The initiative is technically supported by the Growth for Rural Advancement and Sustainable Progress project, funded by the European Union and is being implemented by the International Trade Centre. The World Bank report on ‘Falling Long-term Growth Prospects: Trends, Expectations and Policies’ launched on March 27 noted that “nearly all the economic factors that powered (global) progress and prosperity over the last three decades are fading.” The study stressed the need for an ambitious policy push by national economies to boost productivity and the labour supply, ramp up investment and trade, and harness the potential of the services sector. “One positive thing that has come out from this crisis is that everyone (among multinationals) is trying really hard to indigenise,” says the President of the Overseas Chamber of Commerce and Industry (OCCI) Amir Paracha. Most multinationals are now focusing on the indigenisation of both raw materials and production. For example, in the case of Unilever, he says, 99.9pc production is in local factories. Similarly, up to 60pc of the company’s raw materials are locally sourced versus 30pc just four years ago. The country needs indigenous and sustainable economic development to reduce excessive imports and the big trade deficit. As it is, “uncertainties are exceptionally high with the outlook for the global economy likely to remain weak over the medium-term,” says International Monetary Fund (IMF) Managing Director Kristalina Georgieva. “At a time of higher debt levels, IMF chief says, the rapid transition from a prolonged period of low-interest rates to much higher rates — necessary to fight inflation — inevitably generates stresses and vulnerabilities, as evidenced by recent developments in the banking sector in some advanced economies.” In Pakistan, too, high-interest rates and rapid rupee depreciation, inflating the cost of doing business, pose a risk to banks piling up bad debts, as past experience shows. While suggesting sweeping reforms required to grant full autonomy to local governments, Dr Ishrat Hussain says the provincial governments should devolve the following functions completely: school education up to matric, primary and secondary health up to district hospitals, water supply, sewerage, solid waste disposal, population planning, sports, mass transit, roads, bridges within the district limits, prosecution, social welfare and community development and women’s development. To finance their enhanced functions, the local governments should be empowered to collect agricultural and property tax.