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January 18, 2020

Living beyond resources: A recipe to up foreign reliance

Business

January 18, 2020

LAHORE: Pakistan posted robust growth from 1960-1990. The following three decades however proved to be disastrous for the economy that performed erratically with many hiccups, and macroeconomic indicators rarely remained in the comfort zone.

If we look at the current economic scenario, the year 1991-92 looks like a dream year. Wheat was available at Rs124/40 kg against over Rs1,370/40 kg official price, while unofficially it is being traded at over Rs,2000/40 kg.

Mutton rate was Rs55/kg against current rate of Rs1,100/kg. Gram pulse was retailed at Rs11/kg while the rate three decades later is Rs130/kg. Sugar was below Rs8/kg compared with Rs80/kg now. Edible oil or vegetable ghee in 1991-92 was priced Rs19.75/kg (loose) and the minimum price of the same commodity now is Rs230/kg.

The budget deficit in 1991-92 was only Rs59.13 billion that has soared to over Rs1.5 trillion. The dollar was valued at Rs24.75 three decades back and its current rate is Rs155.

Pakistan’s external debt was $16.481 in 1991-92 that has increased to over $106 billion. In 1991-92 a little over 20 percent of the population was living below the poverty line.

The government has not released poverty figures this year but experts believe it is above 35 percent at least. The entire blame for this sorry state of affairs cannot be passed on to the present regime, but it has added its share in increasing the woes of the masses.. On the positive side, the per capita income was $414 in 1991-92 that has increased to $1,360. But if we see the increase in the rates of daily use items and the enhancement in cost of living, it is many times more than the increase in per capita income.

Sustained growth remained elusive in Pakistan due to poor quality of investments. There was and still is continuous reliance on foreign resources due to poor resource mobilisation.

The growth model did not incorporate endogenous elements of innovation, entrepreneurship and learning. This lopsided economic growth can be judged from the fact that in 1991-92, exports totalled $6.9 billion against imports of $9.252 billion; CPI inflation was 10.54 percent, GDP growth was 7.6 percent, development expenditure was 7.6 percent of GDP, while tax revenue was 13.7 percent of GDP.

At that time, dollar was valued at Rs27. Though inflation was in double digits back then, growth was robust and development expenditure the highest, after which there was a gradual cut in development expenses.

Today, our exports are less than half our imports. CPI inflation is 12.3 percent. Development expenditure is hardly three percent of the GDP and even this allocated amount is not fully released. In all this, tax to GDP ratio is currently only 11 percent.

For growth, we have to move beyond sector polices, PSDPs, ADPs, acronyms and metaphors. We need to think beyond ‘brick and mortar.

As far as infrastructure (hardware) is concerned, Pakistan, China and India are almost at the same level according to global competitiveness report. However, it is far behind India, China, Indonesia, Thailand and Malaysia in (software) global innovation index, quality of education and spending on R&D.

We were comfortably growing at the rate of above six percent in 1960-1990 periods; the growth rate of even five percent remained elusive during most of the past 30 years as the economy remained in turmoil. The state remained deprived of resources because of low revenue collection.

It is a pity that the legislatures that impose taxes on the people do not pay their due taxes. This he added is the reason for low tax to GDP ratio.

The current expenditures always over shot the available resources. The growth remained exclusive, benefitting only the rich. The trickledown effect of growth was minimal.

Incompetence of the economic planners of the present regime triggered an economic meltdown. In their endeavour to put blame on the previous government, the economic managers presented a false narrative on the performance of the previous regime.

Now the economy is in dire state. It seems the government lacks the capability to improve the economy. The country is facing stagflation as growth is going down, while prices are increasing. Governance too has deteriorated and the appointments at high posts are not on merit.

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