Tariff hikes, an exponential rise in inflation, continuous devaluation of the Pakistani rupee, alongside additional conditions imposed by the IMF, have all worsened Pakistan’s already depreciating fiscal position.
The average Pakistani is acutely aware of the wavering state of the country’s economy and fears its inevitable collapse should it continue on the current path. One wonders then: is the Pakistani economy a poorly managed firm?
The debate of an all-out economic collapse echoes in the chambers of our parliament as well as within the walls of the average Pakistani household. Repeatedly, over the years, different political parties have formed their governments with the promise of healing our fractured economy. Unfortunately, thus far all of them have fallen short of their subsequent pledges.
The steep upward trajectory of Pakistan’s external debt, currently at a crushing amount of $130.19 billion, coupled with a constantly depreciating exchange rate, has exacerbated the political instability as well. Following Imran Khan’s ouster as prime minister, the IMF’s recent financial loans have failed to derail the economy from mirroring that of Sri Lanka in the near future. The fact that Pakistan heavily depends on external institutions, like the IMF, is testament to the urgent need for an effective fiscal policy that can remedy the damage already sustained. The almost complete dependence on external financial assistance has led to our economy being permanently crippled – thus we expect other countries to bail us out of our never-ending crises and refuse to progress towards financial independence.
We have tragically become a typical rent-extracting state, extracting geopolitical rent from the rest of the world because of our strategic importance based on our economic geography, and can bear nuclear armed fangs if need be. From a micro lens, we can be viewed as a manager who has been appointed on the basis of nepotism, enacting ad-hoc policies without regard to pragmatism or the failures of the past, hence dooming the firm because of our sheer inconsistency.
The executives and financial decision makers of the country continue to pour resources into unproductive sectors such as real estate, and as a result, we are forced to import energy, cotton, and even agricultural crops such as wheat. This refusal to sacrifice for our economy and choice to continuously import ‘luxuries’ such as tea, has alone accounted for $598 million in our import bill for 2021. This poor decision making by people running the country then compels them to implement economic ‘band-aids’ whenever required, but this short termism adversely impacts Pakistan in the long run. Instead we need systematic changes within the country implemented through an effective economic policy.
On the other end of the spectrum, the ray of hope still remains. As the ‘dust’ from the political instability of Pakistan begins to settle, foreign investments and loans give the average Pakistani much needed fuel, energy, and courage to carry on. With the IMF bailing us out of imminent default, China providing us a $2 billion loan, and the UAE pouring in investments, it is high time we take advantage of this opportunity to become self-sustainable, and make this the last of the 23 times the IMF has bailed us out.
The question that begs to be answered, then, is: ‘How do we do that?’; and the answer is simple: efficiency. We need to stop subsidizing inefficient and ‘sunset’ sectors of our economy by stopping government intervention for individuals’ self-interests. We need to let the free market do what it does best, and allow ‘sunrise’ sectors such as IT use those valuable resources to expand and grow. From a firm’s perspective, perhaps, we need to let go of employees that cannot further positively impact our growth, and hire new personnel who can help with the technological advancement of our firm to the next level.
The results speak for themselves. IT exports increased from $1.44 billion in FY19/20 to $2.1 in FY20/21, boasting an impressive increase of 47 per cent, and that too in a period of economic recession around the world. We need to abandon ad-hoc policies such as the import ban targeting a very small number within the population, and instead improve the quality of our exports to counter the enormous increase in our current account deficit from $2.8 billion in FY21 to $17.4 billion in FY22 - a massive hike of approximately 520 per cent. Privatization of inefficient and costly state-owned enterprises alongside the closing down of inefficient and unnecessary sectors of both the federal and provincial governments, and better management of necessary sectors to stop the already numerous leakages are the needs of the hour.
It is crucial that we unite as a nation. It is crucial that we stop short-termism and political brinkmanship which has already caused heavy losses for our nation – the fuel subsidy promised by the PTI government being the most recent example. It is crucial that we do not let the political crisis affect us any more than it already has, and it is crucial that the PDM continue the efforts and projects that were initiated by the PTI government without question or complaint.
Pakistan’s trade potential with its bordering nations is immense. However, not even one per cent of the $3 trillion worth of imports by the economic giants has been secured by Pakistan. There is economic potential within the residential sector in Pakistan, as proven by research conducted by PIDE, which highlights that merely redesigning the government residential block in Sector G-6/I can bring in Rs52 billion in revenue if we auction the freed-up land. Similarly, the institute’s PIDE RAPID Growth Strategy publication estimates that redesigning GOR-I in Lahore would bring in billions in investment besides generating 190,000 jobs.
All in all, it is the failure to understand the comparative advantage that the economy possesses that hinders economic optimism amongst the executives and general inhabitants of the country; this particular failure has manifested itself in every nook and cranny, ranging from the failure to utilize the solar potential, alluvial plains, to every other natural resource available at the country’s disposal.
To conclude, if rather than extracting geopolitical rent, we redirect our focus on managing that potential, Pakistan can break free from the talons of economic destabilization and eventually become one of the foremost economic powerhouses of the 21st century.
The writer is a freelance contributor. He can be reached at: abdulraafaiasimgmail.com