ISLAMABAD, Nov 29 (INP-WealthPK): The government of Pakistan needs to introduce result-oriented structural reforms to steer the economy out of the boom-and-bust cycle and ensure sustainable growth, WealthPK reports.
Historically, the economy of Pakistan has witnessed volatile growth patterns, with recurring boom and bust cycles. The volatile growth patterns of the economy have made it difficult for Pakistan to achieve the goal of sustainable development.
Improvement in governance can lead to the resolution of financial problems. However, improving governance is impossible without the enforcement of drastic reforms. Policymakers need to introduce structural reforms for inclusive and long-term economic growth.
Mehmood Khalid, a noted economist and researcher at the Pakistan Institute of Development Economics (PIDE), told WealthPK that the economy of Pakistan had a volatile growth pattern over the years, with regular boom and bust cycles that posed challenges to the country in achieving long-term and inclusive growth.
“Unsustainable economic growth is caused by unaddressed longstanding structural issues including weak external position due to insufficient export capacity, less foreign direct investment, under-reformed energy sector, low savings and investment,” he said.
Mehmood Khalid said that a rapid dwindling of foreign exchange reserves increased the probability of a balance of payment crisis. “If Pakistan wants to get a room amongst the large economies of the world in the coming 25 years, it will have to break out of this vicious cycle,” he added.
The huge trade deficit of around $48 billion has created a severe balance of payment crisis. Diversification and improvement in the quality of exportable products can resolve Pakistan’s current account deficit problem and put the country on the path of sustainable and inclusive economic development.
“Through market reforms, Pakistan needs to transform its economy into an export-led growth trajectory. In addition to improving the economy’s competitiveness and productivity with a vibrant private sector, it is vital to attract domestic and foreign investments to support this transformation,” said the expert.
Haroon Rashid, Senior Adviser on Financing for Development, UNDP Pakistan, told WealthPK that transition economies like Pakistan faced new challenges in development, sustained economic growth, continuity of policies and financing in the post-coronavirus pandemic scenario.
“Due to persistent macroeconomic imbalances and rather inconsistent policymaking, Pakistan is currently experiencing a serious financial crisis,” he said.
Haroon Rashid said that Pakistan remained trapped in a low-saving and low-investment situation, which constrained its economic potential. He added that economic conditions remained discouraging for both domestic and foreign direct investment.
“The economy is likely to shrink due to double-digit inflation and high-interest rate in the coming year. Similarly, shrinking fiscal space poses a major challenge even to maintain the already low level of public investment in initiatives that contribute to the Sustainable Development Goals (SDGs) set by the United Nations,” he said.
Haroon Rashid said that in Pakistan, the ratio between investment and Gross Domestic Product (GDP) was 14% to 15%, which ranked it 133rd among 151 countries for the year 2021. Even in Bangladesh, the investment-to-GDP ratio is 30.5%.
“Time has come for deep and wide-ranging structural reforms to sharply reduce these deficits within a short timeframe. The government needs to implement structural reforms, particularly in the financial sector, and diversify exports to steer the economy out of the boom-and-bust cycle for sustainable growth through improving efficiency, reducing the cost of doing business, improving the regulatory environment, enhancing productivity and increasing investment,” he told WealthPK.
