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June 10, 2021

Pakistan’s economy ‘surviving on a ventilator’, says Bengali

June 10, 2021

Senior economist Dr Kaiser Bengali said on Wednesday Pakistan’s economy was surviving on “a ventilator” as it had reached the verge of a technical default, surviving entirely on domestic and foreign loans.

He suggested curtailing non-development expenditures in the forthcoming budget. Speaking at an online pre-budget seminar organised by the Pakistan Institute of Labour Education and Research (PILER), Bengali said a low growth rate and volatility in the growth rate were the main causes of the economic problems of the country. The majority of the budget expenditures went to the debt- servicing and then to the defence budget.

“Pakistan’s economy is consumption-based, not production-focused,” said Bengali, adding that if we looked at electricity consumption, it had increased in the domestic sector but declined in the industrial sector.

“Our imports are more than double the exports and most of the imports are fuel and food items,” he said. “Even Pakistani traders are importing pet foods. There is a need to increase industries to process local agriculture products.”

Bengali said that for economic growth, the large-scale manufacturing sector should grow so that new employment opportunities could be created. Merely providing loans for home-based businesses would not bring any growth in the economy, he remarked.

“We have to increase the PIDC model of industrialisation in which private sector’s role was minimum.” In the 1960s, the Pakistan Industrial Development Corporation (PIDC) used to put new industries and then transfer the management to the private sector, he recalled.

Unfortunately, he said, the manufacturing assets were decreasing in Pakistan these days, which had affected the economic growth in the country. He said the government’s figures of 4 per cent GDP growth were doubtful. The data could be verified when the government would release the Economic Survey before the budget, he added.

Bengali said revenues could not be increased with cosmetic measures. He recommended reducing the non-development expenditure of the government, including the non-combatant defence budget.

The imports of non-essential consumer items should be banned and reliance on imported fuels for power generation reduced, he said, adding that we should increase our dependence on local fuel, including coal, or switching to alternative energy like solar and wind.

Dr Aqdas Afzal, a public policy expert at the Habib University said the Washington Consensus or neo-liberalism was promoting capitalism in the world, especially after the disintegration of the Soviet Union in 1989. After the Covid-19 pandemic, there was a public health crisis and the biggest economic crisis in 100 years of history of the world.

Under the Washington Consensus, the role of the state had been negated for economic policymaking, and only technocrats, the central bank and the market were given powers to run the economy of a country, Dr Afzal said, adding that the promoters of neo-liberalism were trying to make the central bank independent and they tried this in Pakistan as well.

In Latin American countries, the governments had started defying the IMF policies. Only yesterday a trade union leader, Comrade Pedro Castillo, has become president of South American country Peru, he added. “Washington Consensus is dead now.”

Poverty was bad for the quality of democracy, and, unfortunately, poverty was spreading in Pakistan like a tsunami, he said, adding that the World Bank had already declared that 40 per cent of the people were living in poverty in Pakistan.

Poverty can be reduced by increasing employment. “We have to generate two million jobs to absorb our youth,” he remarked, saying that the GDP growth rate should be seven per cent, and for this purpose, the government had to increase spending on social protection schemes.

The government should increase the budget of the Benazir Income Support Programme or Ehsaas Programme to Rs500 billion, as the current spending of Rs200 billion on the BISP was just 0.4 per cent of the GDP, and if this amount was increased to Rs500 it would be only one per cent of the economy, Dr Afzal said.

Iffat Ara said it was incorrect to say that only one per cent of people paid taxes, as more than 85 per cent of people paid indirect taxes. She said personal income had reduced due to the imposition of indirect taxes on common-use items, and poor people felt the burden of indirect taxation more than rich people.

Even there was no tax on final products of some essential agriculture and food items, but in fact, there had been input taxes on most of these items. For example, she explained, growers paid taxes on the inputs like fertilizers and pesticides.

Karamat Ali, executive director of PILER, said that the governments in Pakistan were mostly relying on IMF and World Bank loans, and for getting loans, they had to follow strict conditions imposed by those lenders.