Pakistan’s economic dilemma

As Pakistan struggles to win back crucial international support led by the IMF, the country’s future outlook is surrounded with unprecedented dark clouds. The host of challenges surrounding Pakistan today broadly range from political fragmentation to economic and societal malaise.

Together, they have created the worst outlook for Pakistan in its history. And yet, beyond just simple disquiet, a much broader sense of crisis seems missing across the power corridors. Coinciding with next month’s 75th anniversary celebrations of Pakistan’s creation, the mood across the country today is far from encouraging.

In other words, caught in the midst of an emergency, Pakistan continues to give the appearance of ‘sub achha’ or ‘all is well’ as its leaders offer little beyond lip service to acknowledge the crisis. While Pakistan’s leaders issue public warnings over a challenging outlook, their deeds carry little by way of reinforcing the sense of crisis surrounding Pakistan. As the poorest of the poor across the country are struck by crisis after crisis unleashed by the galloping inflation, the relatively well-off remain immune from the worst consequences of Pakistan’s hard economic challenges.

In the coming weeks, Pakistan will be forced to undertake further belt tightening as the effect widens from significantly higher tariffs for electricity and gas. The escalating cost of living fueled by mounting petroleum prices has already left large numbers of Pakistanis visibly short-changed.

While the IMF loan programme appears likely to resume in the coming weeks, the buildup to that point has already begun ringing new alarm bells. For instance, dealers of high end luxury cars imported as ‘CBUs’ or Completely Built Ups have quietly begun advising prospective clients to wait for controls of luxury imports to begin relaxing soon. Meanwhile, there is no end in sight to a halt in a continuing devaluation of the rupee, practically on a daily basis.

The lessons from Pakistan’s recent and distant economic history are too valuable to be ignored. As successive governments relaxed controls on imports of luxury goods, the country’s ability to manage its economy has consistently suffered. The crisis today is indeed the biggest of its kind in Pakistan’s history, forcing Prime Minister Shehbaz Sharif’s government to impose fresh controls on what it considered ‘non essential’ imports. And going by past precedent, Pakistan’s outlook is likely to weaken further rather than marking a long overdue reversal for the better, despite an IMF rescue programme getting underway.

The way forward towards a reformist recovery can just not happen unless backed by unprecedented measures to tackle Pakistan’s continuing crises of today. This must be led by a range of measures to keep up Pakistan’s engine of growth while curbing imports as never before. And a raft of such measures cannot even begin to deliver results without a sense of a national crisis beginning to seep in across the most powerful sectors of Pakistan, ranging from the government to the private sector. The road to a sustained recovery will be tough and painful though that is exactly what Pakistan needs badly to begin ending its recurring crises.

Going forward, concerted action in two areas is critical for the sake of securing Pakistan’s future. On the one hand, Pakistanis in very large numbers have conveniently refused to pay their taxes year after year. Despite repeated calls by successive governments, Pakistanis have refused to voluntarily join the tax collection system. Being taken to task including jail sentences hardly seems to be the norm for tax evaders. Unless Pakistan can finally unleash sweeping tax reforms where defaulters in large numbers face harsh punishments, the country will continue to fail in tackling an ever-growing paucity of resources.

On the other hand, it is equally crucial for Pakistan to drastically curb consumption in ways that will witness a sizable reduction in imports, notably luxury ones. For long, Pakistan has witnessed surging imports partly fueled by growing demand for luxury goods from the community of the nouveau riche. And, while exports have witnessed some improvement in recent years, imports in US dollar terms have increased much faster leaving behind an ever growing international trade deficit. Consequently, Pakistan has faced balance of payments crises with increasing frequency that have forced the country to turn to the IMF for assistance on 22 occasions since the country’s creation in 1947.

The scale of reforms that are necessary to lift Pakistan’s performance in both of these areas will require unparalleled political resolve, seldom witnessed before in Pakistan’s history. Unless Pakistan’s ruling class is able to muster the courage to make the necessary changes required to take on powerful groups, the country’s future is set to become worst than its past or present. At stake is not just the matter of tackling tough immediate economic challenges. What lies ahead may well be the matter of saving Pakistan’s way of life and its very future.

The writer is an Islamabad-based journalist who writes on political and economic affairs. He can be reached at: farhanbokhari@gmail.com