Major economic challenges facing the incoming government

Climate change is an economic challenge

The foremost challenge facing the incoming government would be to deal with the existential threat of climate change for both the economy, and society at large. The fact that this challenge is not only fast-unfolding, but needs meaningful attention to keep average global temperature rise at below 1.5°C, given a ‘Nature’ published article ‘The world has warmed 1.5°C, according to 300-year-old sponges’ recently, pointed out the urgency needed to tackle this issue by indicating that perhaps the desired global warming level of 1.5°C could have already been broken.

The article indicated ‘The planet has already passed 1.5°C of warming, according to a new measuring technique that goes back further in time than current methods. At the 2015 Paris Climate Accords, nations agreed not to exceed 1.5°C, a guardrail of climate change. …The Intergovernmental Panel on Climate Change (IPCC) uses a baseline for pre-industrial global mean temperatures that references the earliest global instrumental temperature records. This period is around 1850–1900, when the first ship-based records of sea surface temperatures became available. However, McCulloch says that long-lived marine sponges can provide indications of temperature as far back as the eighteenth century.’

Although this global challenge requires a global response, which needs a lot of impetus in terms of mitigation, adaptation, and finance, and if possible, even reversal of the current levels of global warming temperatures, and for which the incoming government should play its part both bilaterally and multilaterally, whereby it should make as much effort as possible at its own end, given the country is among the top ten most climate change vulnerable countries.

Closely related to the climate change crisis is the strong causation it has in terms of the ‘Pandemicene’ phenomenon. Hence, it is important that the country makes much-needed spending for making the public health sector a lot more resilient, including enhancing capacity to produce vaccines, given the experience of vaccine apartheid during the Covid pandemic.

While for making needed spending requires greater climate compensation by countries with deep carbon footprint, for which the incoming government should play a strong advocacy role, for instance, towards greater inflows reaching the country under the ‘loss and damage’ fund, the policy of overboard monetary- and fiscal austerity needs to be reined-in, while pro-cyclical policy needs to be reversed to counter-cyclical policy.

In this regard, that as the current standby arrangement (SBA) programme with the International Monetary Fund (IMF) is scheduled to come to an end in March, the incoming government should negotiate a non-austerity, counter-cyclical programme with the IMF. For this, the government will have to bring to table the IMF reform plans to increase tax base, and improve expenditure efficiency.

Fiscal space remains a challenge, which not only requires enhancing domestic resource mobilization effort, and bringing greater allocative and produce efficiency of expenditure, the incoming government will also have to actively push bilateral and multilateral development partners for greater climate compensation, including climate change related yearly provision of special drawing rights (SDRs) by IMF for a number of years. 

Such a revisit of economic policies away from the current austerity, and pro-cyclical policies, will also put the country in the right direction to meaningfully take the country out of its currently big economic challenge, and which is the stagflationary – low economic growth, and high inflation – situation that the country is going through. Here, the non-austerity policies will allow, for instance, reining in the policy rate so that overboard aggregate demand squeeze policies will be meaningfully reduced to decrease the level of cost-push channel of inflation, in addition to diminishing the cost of doing business at the back of both lower cost of capital, and debt repayment burden, which would likely positively impact aggregate supply. This in turn, will have an enhancing impact on domestic production, and exports, not to mention greater supply contributing to lowering inflation.

The economy is facing huge fiscal pressures from inefficiencies of state-owned enterprises (SOEs) overall, which calls for meaningful implementation of the recent legislation towards better management of SOEs, including going for privatization where it is a must, given that SOEs generally are of strategic value, and also provide the opportunity to appropriately serve the welfare of the masses in general, something which is not always the top-most priority of private interests due to the primacy of profit motivation in general for them.

Energy sector reform continues to remain among the top most challenges for the country, given a lacklustre attitude in this direction over the years. Major goals here are not only reducing line losses, improving infrastructure, enhancing performance with regard to collection of bills, but also to transition energy production to renewable sources in an urgent manner, given the fast-unfolding nature of the climate change crisis.

Fiscal space remains a challenge, which not only requires enhancing domestic resource mobilization effort, and bringing greater allocative and produce efficiency of expenditure, the incoming government will also have to actively push bilateral and multilateral development partners for greater climate compensation, including climate change related yearly provision of special drawing rights (SDRs) by IMF for a number of years.

Dr Omer Javed
Dr Omer Javed
The writer holds PhD in Economics degree from the University of Barcelona, and previously worked at International Monetary Fund.Prior to this, he did MSc. in Economics from the University of York (United Kingdom), and worked at the Ministry of Economic Affairs & Statistics (Pakistan), among other places. He is author of Springer published book (2016) ‘The economic impact of International Monetary Fund programmes: institutional quality, macroeconomic stabilization and economic growth’.He tweets @omerjaved7

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