Economic Triangulation


Dr Qaisar Rashid

Pakistan is still naïve to realize that financial institutions have developed a consensus on the way they should deal with this country. The International Monetary Fund (IMF) took the lead, followed by the World Bank (WB) and now the Asian Development Bank (ADB) – all of them are asking Pakistan to reform the economy.
On December 6, the ADB announced to have “approved three projects totaling $658.8 million to help Pakistan achieve its goal of more inclusive and sustainable growth and development.” As spelled out by ADB Director General for Central and West Asia, Yevgeniy Zhukov, the projects would be focusing on three areas: improving domestic resource mobilisation, rehabilitating schools damaged by the devastating August 2022 floods, and enhancing agricultural productivity to improve food security.
The focus of the ADB on three areas to fund elicits its priority. To elaborate, like the IMF and WB, the ADB wants an improvement in Domestic Resource Mobilisation (DRM), a process through which countries make choices of raising and spending their own funds on their people with the goal of achieving long-term broad-based sustainable inclusive growth and development. Years ago, Pakistan used to announce its five year development plans. The declaration helped a government focus its attention on the announced aims and goals. The declaration – as a touchstone – also helped the people evaluate the performance of the given government. This is no more the case. Politics has overwhelmed economic decisions, bringing the country to the dead end of bankruptcy.
Perhaps, Pakistan’s presence at the doorstep of every available fund lender has evoked annoyance. In the context of the DRM, the three financial institutions have agreed on one point: Pakistan’s earning and spending are lopsided, constraining the country to knock at the door of loan givers or aid providers persistently. All the three have reached a consensus that there is an inherent wrong with the structure of Pakistan’s economy, without addressing which there is available no way forward.
The ADB is also offering funds for rehabilitating schools damaged by the devastating August 2022 floods. It took the ADB more than one year to provide the funds, giving the message that the affected country has to manage its own affairs first.
Earlier, on November 28, Martin Raiser of the World Bank had announced that Pakistan’s poor economic conditions had rendered the country highly vulnerable to climate shocks, as Pakistan had been left with insufficient public resources to cope with and do financial development and climate adaptation. That is, Pakistan was devoid of economic reserves to do neither financial development nor climate adaption. Pakistan had hit rock bottom.
The immediate sources of floods in Pakistan are two: first, melting glaciers in the north overwhelming the River Indus, Jhelum and Chenab; and second, more rainfall in the summer Monsoon season (June to September). Nonetheless, a change in global climate is a daunting reality. The ongoing Russia-Ukraine war is bound to spell climate disaster in terms of increasing regional heat prompting melting of ice and increasing sea levels, which would invite more rains.
This is bad news for countries which are ill-prepared to brave climate disasters. Pakistan is no exception. Further, the global shift in temperature has been witnessed, making it a probability that in the year 2024 Pakistan would experience extra rains, besides swarming rivers, head for water logging land in the south. Interestingly, the WB is saying that (assuming climate change unavoidable) it is neither the floods nor the rains but unpreparedness (or lacking funds to be prepared) to cope with the emerging climate challenge is failing Pakistan.
The ADB is also giving funds for enhancing agricultural productivity to improve food security. Mere funding is a sharp reminder that Pakistan is an agriculture country. In its quest to be industrial, Pakistan has lost the sense of agriculture and agro-productivity. Housing schemes, mostly developed on either parked illicit money or remittances from expatriates, are eating away agriculture lands. Similarly, Pakistan’s once agro-based economy is struggling for finding relevance. The balance of GDP is skewed in favour of the services sector, which is exceeding 60% of GDP, instead lingering on at 30% to permit the other two sectors to grow. At the cost of agriculture and industrial sectors, the rise of the services sector has made the economy topsy-turvy.
Recently, Pakistan overly relied on indirect taxes (such as the sales tax) to run the economy – just because political governments were fearful of economic reforms. The governments wanted to woo voters. It remained economically expedient to import (semi-finished or finished) products and sell them in the local market – which heavily relied on the money (loans) supplied by international financial institutions.
Zhukov also said that “this multifaceted approach is part of the ADB’s strategic engagement in Pakistan … to improve its economic situation and enhance the quality of life for its people.” Again, this is reverberation of the words spelled out by the IMF and WB: the major crisis in Pakistan is the crisis of human capital. Low investment in human capital in areas of education and health is bound to produce a compromised – mentally and physically – work force which would be unable to initiate and sustain economic activities.
Embodying economic triangulation, all the three financial institutions – IMF, WB and ADB – are asking Pakistan to do tax reforms, reduce government expenditure (non-developmental), and change institutional structures to ensure resource mobilisation (even from private investment and savings) and utilisation to stimulate the economy. Otherwise, Pakistan cannot break the chain of economic stagnation hobbling the country’s progress.