What will 2025 bring?
IT has been a heady year that we are saying farewell to. A hard-fought stability was brought to the economy in 2024, but at a steep cost. Politics had to be ended, rights rolled back, and decision-making centralised in the hands of the establishment before any of the stability could be procured. It was done, and here we are.
The most ferocious inflationary fire we have ever seen in our history has finally been extinguished, even if it took record-high interest for a prolonged period of time to bring this about. Foreign exchange reserves have begun to accumulate once again and the spectre of default has retreated, for now. An IMF programme is in place and Pakistan’s economy is backstopped by the Fund, for now.
But now comes the hard part. 2025 will see how far the state can go in holding on to its stability, or being able to build upon it. Hopefully by then, it will be abundantly clear to our rulers that the age of friendly bailouts has ended. It was almost exactly a decade ago, in 2014, that Pakistan received its first bailout ‘from a friendly country’.
Till 2024, rulers in Pakistan continued to think that more such bailouts would keep coming and they can rely on the ‘friendly country’ to help underwrite their next growth spurt. Hopefully, as 2024 ends, our rulers have finally disavowed themselves of this notion and realised that safeguarding your citizens’ prosperity is first and foremost your own job.
The incoming new year is when they have to consolidate the gains from stability and find a way to lay down the groundwork for a revival of growth. This is no small agenda. There is no single starting point. The state needs to broaden the base of its revenues urgently. The economy needs to broaden the base of its exports.
The business environment needs to reassure investors that their investment is safe in Pakistan, which will be a tough job given how many of them are spooked by the recent memory of the import restrictions, the held-up dividend payments, the gunpoint renegotiation of power purchase agreements, the memory of stalled Fund programmes and the prospect of a return to the precipice should the will of the rulers falter.
2024 was the year that asked ‘can you handle this?’ from the rulers. 2025 will be the year that will ask ‘now what?’ And going by the line-up of bad ideas already being rolled out it seems they’ll be making it up as they go along.
So far, we’ve heard the familiar arguments rolled out in response to the revenue challenges confronting the state. The secretary finance told us that the NFC award is the reason why they are in such dire fiscal straits. In the summer, the finance ministry talked of bringing retailers into the net. Now they want to tighten the noose around non-filers.
It is not a good idea to go into 2025 with too much optimism. The hard-won stability of 2024 will prove testing in the new year.
Maybe these aren’t ‘bad ideas’. But they are not where the emphasis needs to be. By all means, do it. Tighten the noose around non-filers. But don’t think for a moment that doing so will unlock large revenue streams suddenly. And blaming the NFC award is becoming something of a ritual now.
Since the argument keeps coming up, here is a suggestion. There should be a study done on the decade and a half since the NFC award was agreed upon. It should first calculate the incremental resources that have flowed to the provinces compared to the sixth award of 2006. The amount will be in the trillions of rupees undoubtedly. After adding up the total incremental resource transfer to the provinces over 15 years since 2009, the study should then ask ‘what did the provinces do with these additional funds?’
Of course, first of all, the provincial governments should be given a chance to answer this question themselves, and it’s a little surprising that it has not been asked of them yet. Then the study could look into where the provincial governments invested these funds. How much went into social service delivery? Infrastructure building? Consumption, by giving salary increments to provincial government employees? The authors of the study should also ask the provincial governments which metrics they would use to measure progress for the goals they set themselves when it comes to the question of deciding what to do with these incremental resources.
The study will help move the debate around the NFC award forward. It is getting a bit tiresome to hear the federal government blaming its fiscal woes on the NFC award. It is getting a bit boring to hear reflexive responses from provincial government leaders about how the award is necessary to strengthen the federation and how the provincial governments are entitled to these resources. The question is: has the award helped bring about governance improvement in Pakistan? And if it has, may we please know where these improvements are visible? Which indicators measure this improvement?
It is not a good idea to go into 2025 with too much optimism. The hard-won stability of 2024 will prove testing in the new year, and so far there is little reason to expect that some innovative and productive new path forward will be found in the months to come. But if we can just get a few old matters settled for now, it will actually help advance the conversation.
Has the NFC delivered governance improvements? Do high interest rates really help control inflation? Is the power sector ready for reform of the take-or-pay policy of the independent power producers? Do repeated renegotiations of power purchase agreements actually yield any measurable benefit for power consumers?
Since questions around these issues keep surfacing, forcing us to repeat the same history over and over again, perhaps 2025 can be the year when these are settled, so we can get on with asking the real questions. How can Pakistan’s economy grow without overheating? Happy new year to all my readers.
The writer is a business and economy journalist.
Published in Dawn, December 26th, 2024