Notwithstanding Pakistan’s global posture and its potential, Pakistan’s governance system raises grave apprehensions to the stability of country. Political stability, rule of law and public participation in policymaking and implementation, are the essence of good governance nevertheless in Pakistan’s case it always remain below power leading to overall instability of economy. In retrospect, Pakistan’s economy enjoyed a strong recovery and grew 5.6 percent in FY21 following measures taken by the Government to mitigate the adverse socio-economic impacts of the COVID-19 pandemic. According to the World Bank’s Pakistan Development Update, released today, while economic activity maintained its momentum during July-December 2021, high demand pressures and rising global commodity prices led to double-digit inflation and a sharp rise in the import bill during this period. These developments have had an adverse impact on the rupee. Moreover, long-standing structural weaknesses of the economy including low investment, low exports, and low productivity growth pose risks to a sustained recovery. The report highlights that with economic recovery and improved labor market conditions, poverty—measured at the lower middle-income class poverty line of $3.20 Purchasing Power Parity 2011 per day—declined from 37 percent in FY20 to 34 percent in FY21. However, rising food and energy prices are expected to decrease the real purchasing power of households, disproportionally affecting poor and vulnerable households that spend a larger share of their budget on these items. On the back of high base affects and recent monetary tightening, real GDP growth is expected to moderate to 4.3 and 4.0 percent in FY22 and FY23, respectively. Thereafter, economic growth is projected to slightly recover to 4.2 percent in FY24, provided that structural reforms to support fiscal sustainability and macroeconomic stability are implemented rapidly, and that global inflationary pressures dissipate. However, the macroeconomic risks remain very high. These include tighter global financing conditions, potential further increases in world energy prices, and the possible risk of a return of stringent COVID-19-related mobility restrictions. Domestically, political uncertainty and policy reform slippages can also lead to protracted macroeconomic imbalances. These impediments include extensive government borrowing from the financial sector those crowds out supply of credit to the private sector and deepens the sovereign-bank nexus. Intermediation is further limited by low domestic savings, and underdeveloped capital markets. Overall financial inclusion remains low, but good progress has been made to enhance it through ongoing digital innovations. Resolving these constraints in the medium to long term requires concerted efforts by the government, regulators, and other stakeholders.
What needs to be done is clear: to achieve rapid institutional transformation, for instance, Pakistan would have to surmount a few hurdles. Policymakers would have to deal with the large government workforce including many unskilled staff in lower cadres. Pakistan needs significant effort to improve revenue collection, especially through stronger enforcement of tax policy, to be able to expand the state’s ability to finance its program. Empowering local level institutions —through stronger devolution— to undertake essential administrative and service delivery functions closest to citizens would help reassert the place of the citizen in the body politic. Devolution would also require facilitating smooth networking across provinces and among the districts, thereby strengthening the transfer of resources to these levels.
For devolution to be successful lingering shortcomings including capacity gaps, performance management voids, unequal opportunities, and political empowerment of local level institutions, must be addressed in the short to medium term. Because provinces vary in economic and capacity endowments, progress towards decentralization of service delivery in some provinces is uneven. Existing institutional arrangements for result-oriented coordination on policy formulation and implementation at federal as well as at provincial level are insufficient and under-utilized. Energizing the Council of Common Interests and fully activating the Inter-Provincial Coordination platform between the center and the provinces is required to realize the benefits of devolution and help forge a national consensus for accelerated development. The quality of institutional performance must improve to support the government’s aspirations and improve efficiency. This would require merit-based recruitment of skilled professionals and commensurate remuneration to attract and retain high caliber candidates into the civil service. The focus should be placed on the performance measurement aspects of civil services. New skills on efficient implementation, performance measurement, and citizen interface must be injected into the civil service to modernize the public sector to take advantage of innovative technologies for solving public policy challenges. For example, civil servants need new attitudes of citizen-focused service delivery and management techniques to create more service-oriented bureaucratic practices. Strengthening the technical competencies of the public administration through modernization and technology diffusion is necessary for improving the quality of service delivery and to turn the public sector into a growth driver. Pakistan must deal with capture of state by patronage interests. Inefficient subsidies provided to industrial players and the lack of enforcement in tax collection as well as the inability of the state to shepherd difficult but necessary reforms is a product of state capture. Elites influence public policy choices with significant consequences. Elite capture of various segments of the economy undermines the country’s ability to sustain welfare enhancing policy decisions, tackle the problem of tax evasion, rein in loss-making state-owned enterprises and improve public sector performance. Fixing these problems will no doubt be a difficult task. All these challenges require balancing the desire for political stability while increasing accountability. Pakistan would need to be both an accountable democracy – where democratic leaders are held to account for their performance, for delivery and for corruption— and a strong one, where democratic leaders can do their job without constantly being on the defensive. This is a tricky line, as the history of institutional reforms is replete with reversals. This is, however, possible given the experience of other countries that have been able to marshal the support of their political class, policy makers and citizens to generate the commitment for reform and long-term development policy.