Tougher challenge lies ahead

Maleeha Lodhi

The writer is a former ambassador to the US, UK and UN

ALL eyes are on the general elections, now just a month away. But
what will happen after the election will be far more consequential
to the country’s future. Formidable challenges await the next
government.

The governing ability of the election winner will be constrained

by the complex dynamics of a volatile domestic environment.
This is characterised by persisting polarisation, the most serious
economic crisis in the country’s history, surge in security threats,
declining capacity of state institutions, a fraught regional
situation and a polity in which power has shifted more
substantively to the military establishment.

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 A slew of domestic and external challenges will test the
government. These challenges will require the elected leadership
to distinguish between the urgent and important while crafting a
strategy to deal with both. Most consequential for the country’s
future will be the government’s ability to deal with an economy in
the critical ward.

Pakistan’s economic crises have all been rooted in governance

deficits, with reform-averse ruling elites resorting to pain-free
ways to deal with deep-seated problems. This band-aid approach
that relied on borrowing at home and external financing or
bailouts from abroad has run its course and is no longer tenable.

Unless structural issues are tackled, the country will not be able
escape from the trap of anaemic growth, high deficits, heavy
borrowing, growing indebtedness and soaring inflation. The
structural sources of persisting financial imbalances lie in a
narrow and inequitable tax regime, limited export base, the
energy sector’s circular debt, bankrupt public-sector enterprises,
heavy regulatory burden and low savings and investment.

What is needed is a comprehensive plan to address these

structural issues and chart a path to sustainable growth that can
end the vicious cycle of high budget/ balance-of-payments
deficits and chronic foreign exchange crises, which have
necessitated repeated IMF bailouts.

This in turn requires a bold and courageous leadership that leads

a competent team, sees the significance of deep structural
reforms and has the commitment to take measures, painful in the
near term, but which yield enduring dividends in the long run.

None is more important than tax reform to make the regime

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 equitable and simple. For decades the tax-to-GDP ratio has
remained stuck at 10 per cent. Resource mobilisation, by
widening the tax base, bringing untaxed sectors into the net,
ensuring compliance, reforming GST and ending exemptions, is
the single most important endeavour to address the chronic
budget deficit and set the economy toward sustainability. A
liberal and consistent business regulatory framework is also
necessary to build and sustain investor confidence.

Both the urgent and important have to be

tackled to extricate Pakistan from crisis.

While dealing with the urgent — the immediate financial crisis —

the important too has to be addressed, issues just as
consequential to the country’s economic progress and future.
This means investment in human capital. Failure to do so has
already left the country with rising poverty, sharply deteriorating
social indicators and at the bottom of global human development
rankings — a situation the World Bank calls a “silent, deep
human capital crisis.”

Underinvestment has meant around 40pc of Pakistanis are still

illiterate, over 20 million school-age children are out of school,
poverty has risen to almost 40pc and health indicators including
malnutrition levels remain grim. Economic progress can only be
predicated on a solid educational base.

This requires a long-term plan to widen the coverage and improve

the quality of education. But it can no longer be postponed
especially because of Pakistan’s demographic structure and youth
bulge. Unless the scale and quality of education is expanded

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 young people with no education or skills will face a jobless and
hopeless future and a life of poverty.

Population planning has rarely figured in any government’s

priorities for many decades. Pakistan’s population of 242m makes
it the world’s fifth most populous nation with the annual growth
rate of 2.5pc among the highest in the region. This has far-
reaching economic and social consequences.

With youth constituting 64pc of the population under 30, it

means almost 4m young people join the working-age population
every year. This in turn requires over a million new jobs to be
created annually. The confluence of demographics, economic
stagnation and persisting education and gender gaps acts as a
significant obstacle to economic development and confronts
Pakistan with the spectre of social instability.

Reform of the institutional machinery of state should also be

among important issues on the next government’s agenda. The
eroding capacity of the institutions of governance imposes
obvious constraints on the exercise of power and ability to
execute policies. Politicisation of the civil service has over the
decades undermined merit and professionalism, corroded service
morale, eroded its authority and sapped its capacity to efficiently
deliver public services.

Postponed reforms have further contributed to the decline in the

quality of the civil service and weakened state capacity. As a
result, the state’s basic functions to tax, maintain law and order
and to educate have all been adversely affected.

It is also responsible for the long-term decline in public

confidence in government institutions, as reflected in successive

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 opinion surveys. Institutional strengthening and civil service
reform must therefore be an integral part of the government’s
agenda of turning the economy around, ensuring effective policy
implementation and improving overall governance.

Focusing on these pivotal issues will require the government to

avoid getting entangled in confrontational politics against its
opponents.

That means a conscious effort to break from an unedifying past

which has seen endless government-opposition confrontations
and distracted from the job of governance.

In fact, to establish a stable and predictable environment the

government should aim to work democracy in a consensual way
by the display of tolerance and accommodation of views other
than its own. The federal nature of the polity makes this
imperative especially as the electoral outcome may leave some
provinces in the hands of political parties different from the one
controlling the centre.

In any case democracy cannot be limited to the ballot box. It

should determine how the country is governed between elections.

The writer is a former ambassador to the US, UK and UN.

Published in Dawn, January 8th, 2024

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