Lessons from Greece

Pakistan needs short-, medium- and long-term plans for economic revival and development

Lessons from Greece


s the world prepares to embrace yet another global recession with even the advanced economies, such as US, failing to control the scourge of sticky inflation and problems associated with it, the story of Greece can provide hope, strategy and inspiration. Pakistan should learn from the beautiful island country that only about a decade ago was the ‘sick man of Europe.’

After the financial crisis of 2008, many countries found it hard to return to normalcy in financial terms. Greece was one of those. The matters came to a head in 2010 when the government announced that they might default on sovereign debt. What followed was the largest bailout for any bankrupt country in the history. European authorities lent Greece 320 billion euros even though its credit rating was close to the lowest available: “selective default.”

However, Greece has pulled off one of the best “turnarounds.” The Standard and Poor recently changed the country’s outlook from stable to positive and the GDP growth has recovered from Covid-19 pandemic lows to 8.4 percent and 6 percent in 2021 and 2022, respectively. Primary budget surplus was 0.1 percent in 2022 and non-performing bank loans fell from 50 percent in 2016 to 7 percent. Greek debt to GDP ratio is 171 percent, down from 206 percent during Covid. This debt reduction has been one of the fastest in the world with a 25 percent increase in nominal GDP. Greece might be on its way to a rating of “investment grade”, a status that only 70 countries enjoy currently.

What did Greece do? A 50 percent increase in foreign direct investment that hit a 20-year high in 2022 played a pivotal role. The country also implemented wide structural reforms that put it on a path to growth.

By improving the business environment they were able to raise consumer confidence. More than 250,000 jobs have been created since the pandemic. One of the most important areas of reforms was exports. While Euro-area exports registered a 42 percent rise between 2010 to 2021, Greece was able to raise its exports by 90 percent.

The country also worked diligently on increasing its tax collection. It now stands at 39 percent vs 33 percent in 2000. This was combined with fiscal discipline and the largest debt restructuring in history yielded unprecedented results.

Pakistan is currently on the brink of a default. Further delay in the completion of IMF’s 9th review, pending since November 2022, alone can trigger it. According to Moody’s, the country can default by June if required funds are not arranged. Inflation is currently highest since 1964. The recent tariff adjustments have increased the cost of electricity to unviable levels.

Rising food prices, partly as a result of recent floods and partly because of mismanagement have contributed to a cost of living crisis that an average household in Pakistan is facing. The country is in the midst of a poly-crisis (a term popularised by Adam Tooze through his book, Shutdown - How Covid Shook The World’s Economy.)

Lessons from Greece

How many preferential trade agreements has Pakistan signed? Are we utilising the full potential of the SCO, the OIC, the D-8 and the SAARC? These are questions that our policy makers need to ask and work on.

One is not proposing a replication of the reforms implemented in Greece. The purpose of sharing this story of a great economic turnaround is to take inspiration and draw lessons that even a country that still has twice the level of debt to GDP ratio as compared to Pakistan has superior credit rating with very bright prospects of improving it further whereas the future of the latter doesn’t look re-assuring.

Greece 2.0 plan is full of structural reforms. From digital transformation in 5G networks and public sector transformation to more than half a million students getting vouchers to facilitate the purchase of equipment to aid this digitalisation, the country is looking forward. More credit is being ensured meanwhile by keeping pace with global debate on climate change. Considerable work has been done for what is being called a Green Transition.

For Pakistan, the solution lies in listing the problems on a timeline and presenting solutions on a short-, medium- and long-term basis. The solutions being discussed are structural and big-picture in nature. The first and foremost thing is to impose fiscal discipline and plug the leaks.

One of the most important aspects of this is to reduce the spread between the money exchange using hawala/ hundi and government mandated and legal ways. For every dollar of export we have about $0.45 cents of imported items. Moreover, the losses from state owned enterprises (SOEs) need to be curtailed. The SOEs lost about Rs 187 billion in FY 2016-17; Rs 286 billion in 2017-18 and Rs 143 billion in 2018-19. The SOEs debt stood at Rs 1.74 trillion in May 2022.

There is a dire need to work on import substitution. The import-led growth model will add more debt to our portfolio as we try to cross a certain GDP growth percentage. Consider the import of edible oil which the country was self-sufficient in before 1980s. We now import 95 percent of our edible oil needs.

The area under cultivation is falling and there is no incentive for many farmers to increase the production. Meanwhile, there has been an almost 100 percent increase in our import bill for edible oil owing to the rising commodities prices. The import bill for edible oil stood at $4 billion in 2021. Pakistan has huge swathes of fertile land and the prospects for producing cooking oil are promising.

We also need to resolve our energy crisis. The shameful power outages – the latest one occurring on January 24 – are becoming a bane not only for the industry.

Pakistan has been described an “energy insecure country” by the ADB. In April, the power generation in Pakistan fell by an unprecedented 16 percent on MoM basis. From the past 10 consecutive months there is a negative YoY growth in terms of power generation.

Textile sector that accounts for about 60 percent of our export earnings and serves as the mainstay of our economic growth depends significantly on energy supply. So do the small and medium enterprises.

Economic integration entails a formal process. We need to institutionalise our friendships and bilateral relations. Where are the countries with whom Pakistan shares visa-free access or visa facilitation? Do we have knowledge sharing and capacity building agreements with our major trading partners?

Is there a smooth and easy flow of people from one country to another? Are we being helped in terms of technology building? How many preferential trade agreements has Pakistan signed? Are we utilising the full potential of the SCO, the OIC, the D-8 and the SAARC? These are the questions that our policy makers need to ask and work on.

There are more tools, such as tax reforms and energy reforms. The point is that there is no lack of solutions to our problems but a criminal lack of interest, focus, will and priority from the people at the helm of affairs.

The writer is an energy market and economic analyst

Lessons from Greece