As Pakistan battles a variety of external and internal challenges, long-term stability fundamentally depends on turning around a potentially anaemic economy.
Pakistan has indeed returned from the brink of default just two years ago, when the country was considered next in line to follow Sri Lanka’s default on its external payments.
But becoming solvent, following two back-to-back IMF loans from 2023 onwards, has left gaps in reviving Pakistan’s outlook to become a viable destination for large scale investments.
In part, the discord internally, from controversy surrounding the outcome of the February 2024 elections to a recurrently troublesome security situation along the Afghan border, has failed to create the necessary comfort level for the future. But in large part, the gap surrounding Pakistan’s future has been driven by policy failures that must be addressed.
Just days ago, the federal government’s announcement of a fixed price of wheat purchased from farmers, may help lift badly sagging farm incomes – but just partially. The announcement in itself has failed to overcome the losses suffered by farmers since early 2024.
Those losses followed an ill-advised choice by the provincial government of the Punjab led by Chief Minister Maryam Nawaz, to abruptly cancel a promised price of Rs3900 for each maund of wheat (40 kilograms) purchased from farmers. Literally overnight, the returns to wheat farmers dropped by more than a third, with domestic wheat selling subsequently at prices ranging from Rs2200 to Rs2500 per maund.
This single failure provides a glaring insight in to the gaps surrounding the economy and specifically the agriculture sector. The outcome has brought Pakistan perilously close to a deepening of its food insecurity – now in urgent need of a reversal.
The plight of Pakistan’s wheat farmers has acutely added to the multiple woes of farmers, badly hit by climate change. This year’s devastating rainfall and floods in large parts of Pakistan, are tragically set to recur next year, following projections shared by the national disaster management authority (NDMA). The future outlook for Pakistan is far from comforting.
Elsewhere, large-scale businesses and Pakistan’s industrial sector continue to suffer from a continuing slow down. A root cause at the heart of Pakistan’s economic troubles flows from a repeated failure to create a broad based structure for tax collection. For years gone, the onus of direct tax collections has fallen upon no more than 2-3 per cent of the population which is clearly unsustainable.
A new push needs to forcefully target large communities of tax evaders, notably the trading class across Pakistan. They have repeatedly paid far below their dues, highlighting a recurring economic scandal in the history of Pakistan. Meanwhile, the future of a decision this year to tax previously exempted farm incomes is surrounded by uncertainty as the agriculture sector has been badly battered from floods and harsh rainfall. Irrespective of the tax collections from this sector in the current financial year, it is important to lay down a functioning structure for future collections in years ahead.
At the same time, elements from the financial sector notably banks and joint venture (JVs) companies, need to be lifted as valuable national assets and key investment partners.
Pakistan can well celebrate the turnaround of its banks from their near collapse in the 1990s. Many banks that are now successful players were once saddled with bad debts that endangered their future. Their restructuring and subsequent privatisation successfully rid Pakistan’s public sector of large financial stress in years to come. But now, it is vital to protect Pakistan’s banks from ever getting exposed to official populist schemes – no matter how modest.
Finally, Pakistan’s return to become a more successful investment destination, requires the creation of a stable environment free from any pressure. Investors who independently step forward to expand their exposure to Pakistan, are far more likely to stay the course for the long haul.
In tandem with the search for new investments, it is vital for Pakistan to tap in to existing sources. For example, the seven joint ventures created between Pakistan and other Islamic countries provide the basis to perk up the economic environment. Yet, the full advantage of such an endeavour will flow from their entry to commercially successful business ventures.
Steering banks or JVs or other commercial entities to support financial objectives of the ruling structure, will also force them towards populist initiatives. The fallout from doing so will deprive Pakistan of valuable opportunities to back commercial initiatives.
In the recent past, the trend of foreign companies leaving Pakistan has triggered growing anxieties among businessmen, as they consider this as evidence of instability. This trend must be reversed. Reviving confidence among existing and prospective investors must be an essential foundation on the road ahead. With the right mix of choices, investing in Pakistan can still become a powerful reality.
The writer is an Islamabad-based
journalist who writes on political and economic affairs. He can be reached at: farhanbokhari@gmail.com
