The new government in the New Year must have a strategy to protect people from the side effects of stabilisation measures
Most of the year-enders on the economy are loaded with statistics. It might seem that the economy is all about numbers about deficit, growth and revenues. People, their lives and living hardly find a mention in the year-end assessments. Let us put them first.
In terms of people’s welfare, the ultimate criterion of economic performance, nothing got better in 2023. It actually worsened. The people of Pakistan suffered higher inflation, loss of income and purchasing power in 2023. The year brought tough choices. Pay for electricity bills or buy medicine and food for children. The poor have had to trade everyday between paying the bills and buying the daily meals.
The IMF, like in 2022, remained the decisive factor for the economy. The PDM government brought the IMF back and a Standby Agreement, the famous SBA, helped from the brink of default. This was good news for the economy. Less so for the people. The cherished stability in the later half, particularly in the last quarter of 2023, came at the cost of high inflation and higher energy prices, pushing millions of people below the poverty line. Unemployment continued to rise.
The rupee lost more than 23 percent of its value against the UD dollar over the year, (Rs 226.5 to a dollar on January 1 and Rs 280 on December 26). The worrying part was the volatility. The rupee remained highly volatile in the first half. It only recovered some stability in the last quarter, tanks to continued crackdowns.
The rupee continued to fall and rise and fall again. Speculative pressures remained at their peak in the first three quarters. Sharp spikes became a routine. The rupee traded at 307 to a dollar in September in the open market. It traded at more than 330 to a dollar in the black market that flourished in an unprecedented way. Economic uncertainty heightened.
The promise of easing prices remained a distant dream in 2023. The economy continued to operate at high inflation levels. Prices continued to rise. Headline inflation, 29.23 percent in November, year-on-year, hit an all-time high of 37.97 percent in May of 2023. According to IMF’s World Economic Outlook, average inflation in 2023 is expected to be 29.2 percent. Compare this with 5.5 percent in India. This has hurt people, particularly lower-income groups.
Unemployment hit the roof in 2023. Negative growth rate in FY 2023 that includes the first six months of the calendar year 2023, left many unemployed. Unemployment rate increased to 8.5 percent in 2023 from 6.2 percent in 2022, according to the IMF economic outlook of October 2023.
On purely economic fronts, 2023 was both good and bad. The country avoided default. It got the IMF back after the failure of the 9th review of another IMF programme that was not completed. The country’s ability to finance imports was reduced to weeks, instead of months.
Foreign exchange reserves dropped down to $3 billion. This was a period when markets were in panic, trust in the economy was dwindling and capital was flying away. Political uncertainty reached its peak before the announcement that the elections will be held on February 8.
On the bad side, economic policy remained largely regressive. Import controls were used to protect the rupee. Slow growth in the economy, leading to lower current account deficit helped; but came at the cost of increased unemployment. The revenue targets were met through higher inflation and indirect taxes. The promise of tax reforms remained unfulfilled. The GST was increased to 18 percent from 17 percent to secure the IMF agreement. Structural challenges to the economy, such as a narrow tax base and low exports remained largely unaddressed.
The economic outlook in 2024 is mixed. Fair elections and a stable government are essential to improve things. Political stability can help improve economic activity by attracting local and foreign investments. Unfortunately though, for most people, particularly the poor, life is likely to remain difficult.
The country needs, and is likely to get a new IMF programme to steer it through 2024. This is critical to sail through the annual debt repayments of more than $30 billion over the next three years.
Measures to stabilise the economy will fuel low growth and high inflation for yet another year. Stabilisation at the cost of people will continue in 2024. Poverty and unemployment are likely to rise. The new government in the New Year must have a strategy to protect people from the side effects of the stabilization measures. They must not suffer for what they are not responsible for.
The writer is deputy executive director at the Sustainable Development Policy Institute. The opinions expressed in the article are personal and do not reflect SDPI’s position