Pakistan’s Economic Nightmare

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Abdul Samad Khan

Setting priorities turns into tangible outcomes. Since its inception, Pakistan has embarked on prioritizing areas like traditional security at the expense of economic growth and prosperity. Such a legacy further blurred the foreseen hope for the economic revival of Pakistan. A historic archive of the past 75 years of Pakistan unequivocally shows it. Pakistan has come across long-standing structural issues in its economy. Apart from deleterious macroeconomic problems like fiscal and trade deficits, there are also problems of foreign and circular debts and foreign exchange depletion and currency devaluation. The key reasons behind these downtrodden economic conditions are largely driven by, inter alia, problematic governmental policies regarding restoring economic growth; increasing the growth of exports; balancing the fiscal policy and stabilizing the currency. Moreover, the absence of a strong, sincere and serious political will to put the economic wheel on the right trajectory has badly hampered the growth of Pakistan’s economy. Therefore, Pakistan must find out the lacuna in its economic regime.
Pakistan has never taken up the sector seriously. The ignorance of economic improvisation has largely affected growth. The economic history of Pakistan repeatedly talks of dependency on foreign aid and debts. The dilemma turned into an opportunity for Islamabad. But as soon as Pakistan lost its influence, it was abandoned. Such an artificial dependency on the costly inflow of dollars to boast its foreign exchange reserves was a transitory phenomenon. The very next moment brought havoc to the country’s economic regime. The traditional security saga, which continues today, compelled the policymakers to prioritize it. Thus, economic and other non-traditional security areas were thrown into the back seat. The very first decade after its establishment, the newly-born country faced deleterious political and Constitutional instability. Thus, it failed to deliver on various fields properly. The Ayub era, though largely celebrated to be one in which some real steps towards economic growth were taken (green revolution and liberal economic sector), did not ensure a long-standing economic boom. The 1965 war, the fall of Dhaka and the overall disturbed national politics all contributed to the economic recession. Putting it more precisely, the whole economic history of Pakistan has never seen tangible measures to reform its structurally flawed nature.
Pakistan has relied on foreign aid, debts and bailouts, which have, in turn, not been directed in a way towards economic growth and prosperity. Pakistan is not alone on the list of IMF and other lone-provider regimes. Other countries have utilized the programs properly; dragging their economies back on track to progress. Only structural reforms at the macroeconomic and microeconomic levels can keep Pakistan out of the economic quagmire.
While unveiling today’s economic conditions of Pakistan, one can easily deduce that it is struggling in many ways. It is portraying a pathetic posture in foreign exchange reserves. It is still struggling with an imbalanced trade regime. It is heavily suffocated by the mounting foreign debts. The currency devaluation, following IMF’s structural Adjustment Program, circular debts, fiscal imbalance, flawed taxation system and corruption among others are contributing to the economic downtrodden of Pakistan.
Starting with the macroeconomic challenges, the economic regime of Pakistan has been struggling with long-standing issues of trade and fiscal deficits. The imbalance in trade might be explained in a way that imports outpace exports of the country, which triggers another dilemma, foreign exchange depletion or scarcity of dollar. Facing a trade deficit is not just a problem of today, rather has been sailing across the history of Pakistan. It has occurred as a result of the decreasing production of exports throughout history. Pakistan has never seriously tried to diversify its export production. Even Bangladesh, which is twenty-five years younger than Pakistan, has phenomenally increased its exports. India has diversified its choices of production in its export sector. It is now leading in the pharmaceutical and Information Technology sectors thereby boosting its exports growth.
Contrary to this, Pakistan has experienced a consistent downslide in its export growth. It has only focused on the traditional way of producing goods. Even the traditional and one-sided export regime revolving around and even relying on the textile industry has too largely been ignored. The agriculture sector has largely been affected both by natural and artificial reasons. For instance, climate change has affected it badly. Similarly, the government’s negligence has brought the agricultural sector to an almost diminishing position. The textile industry is rushing towards its forever end where it would close down by the severe energy crisis, massive managerial issues, lack of proper research, and absence of government incentives and support among others. Likewise, Pakistan has never thought about substituting its demanding imports but rather always kept its growth unquestioned. It imports even the trivial things and many unnecessary objects thereby increasing the burden on its import bill which in turn exacerbates the forex depletion.
Similarly, Pakistan has been facing a chronic imbalance in its fiscal arena. When a country lives out of its means, it comes across a huge imbalance in its earning and expenditure. Though it is one of the IMF’s conditions to reduce its expenditure and raise its revenue to balance its fiscal imbalance, Pakistan has yet to squeeze this gap. This fissure has been crevassed by the flawed taxation system, corruption, mounting unnecessary expenditure and lack of serious political will.
Likewise, the effort to address the above-mentioned structural problems triggers another issue, i.e., foreign debts and IMF packages among others. Foreign debts consist of a huge part of the country’s GDP. It shares a major chunk of an IMF– programmed country. As per an estimate, more than 70% of Pakistan’s budget is located on paying off debts. This is very much paradoxical and quite astonishing that the loans which are taken for addressing the structural imbalances are channelized to pay off the same debts back. Other than this, Pakistan cannot do anything special, for instance, with the availed loans to increase its own productivity and economic growth thereby reducing its dependency on foreign debts. This has badly hit the economic growth of Pakistan.
While driving deep into the economic crisis of Pakistan, one can easily dig out the problematic taxation system as one other reason for minimum revenue generation which in turn drags down a wide fiscal imbalance. Pakistan has usually gone with an indirect taxation regime.
The direct tax-to-GDP ratio is barely minimum. The imbalanced taxation system is not contributing to revenue generation instead putting a huge burden on the masses. According to OECD, the tax-to-GDP ratio stands at nearly 10% in 2020, which is not a fair share.
Pakistan has also yet to address malaise, corruption which is eroding its economy. Having a dream of progress in a country where corruption is a matter of routine, seems like making a castle in the air. As it is said that corruption is the mother of all evils, it hampers economic growth. Corruption causes a trust deficit among foreign investors. There is much hue and cry daily about dragging one or the other to face the charges in various cases of corruption which distorts the country’s image abroad. According to Corruption Perception Index by Transparency International in its recent report 2021, Pakistan has shown a 16-slot downslide and now stands at 140 out of 180 countries. Pakistan cannot revive its economy without uprooting this very menace.
Similarly, a comparative analysis of developed and developing economies unmasks another factor that economic growth also requires a stabilized political order. Pakistan has been dreaming of durable political stability for a long time. However, it has yet to ensure it. Political instability hampers economic growth in the way that the frequently changing government results in frequent changes in policies which distorts the confidence of foreign investors.
Pakistan has been going through a politically worst phase. It is struggling with massive protests and public rallies, blame games, criticism for the sake of criticism, lack of political tolerance, absence of political consultation and even institutional clashes, a problematic electoral regime and revenge politics. The post-vote of the no-confidence era has seen the epitome of political instability. The episode of the worst political crisis is still going on because politics is treated here as power politics which is why it is persistently continuing. Thus, it impedes economic growth and activities as a result of the decreasing trust among the investors both internally and externally.
Pakistan has reportedly failed in providing a suitable ease of doing business environment. The investors have experienced a long and exhausting way of documentation. They have to go through a long paper or file work. It reportedly takes weeks to install a business in Pakistan. Therefore, both foreign and internal investors come across an exhaustive procedure of documentation which in turn draws down their interests to unleash a business activity.
Above all, Pakistan has had at its roots the problem of lack of political will. This is just under this scarcity of seriousness that Pakistan has never made proper and suitable prioritize to uplift its economy. It has always tried to drive the economy in the short term. This is the reason why it has embarked on bailouts and foreign aid and debts. These too have not been channelized properly thereby turning into a huge burden for the country’s economy.
Thus, Pakistan faces all, inter alia, the above challenges and problems in its economic arena which must be addressed thereby unleashing its economic growth.