Pakistan’s economic dilemma continues
The beautiful country of 225 Million people, 5th largest in the world, has repeatedly run into macroeconomic crises, runaway inflation, current account and trade deficits, depleting foreign exchange reserves, currency devaluations, spiraling poverty, alarming unemployment and widening rich-poor gap..
It is faced with a combination of these problems since independence in 1947-barring few years of prosperity.
Predominantly agricultural country when it gained independence as a result of partition by the departing British, it witnessed robust industrial growth from 60’s to 70’s.
Pakistan’s average economic growth rate in the first five decades (1947–1997) has been higher than the growth rate of the world economy during the same period.
Average annual real GDP growth rates were 6.8% in the 1960s, 4.8% in the 1970s, and 6.5% in the 1980s.
Average annual growth fell to 4.6% in the 1990s with significantly lower growth in the second half of that decade.
Pakistan’s economy in the period 2008-2012 has been characterized as unstable and highly vulnerable to external and internal shocks but proved to be unexpectedly resilient in the face of multiple adverse events- both regional and global, at the beginning of the new century.
The Asian financial crisis in 2001-2002; economic sanctions by USA, the global recession of 2008–2012; a severe drought – the worst in Pakistan’s history, lasting about four years; the post-9/11 military action in neighboring Afghanistan, with a massive influx of refugees from that country and terrorism has severely impacted the Pakistan economy.
However, the single most factor which has largely affected Pakistan is the rampant corruption during the last three decades which has pushed the country in reverse gear.
While the other countries in the region thrived and witnessed a economic boom, Pakistan’s economy has been in free fall, since years.
The political governments and leaders resorted to obtaining loans from IMF and World Bank which, unfortunately,, do not come without strings.
Both have forced Pakistan to accept their standard recipe of imposing higher direct and indirect taxes which resulted in erosion of purchasing power of ordinary citizen and increasing poverty.
The continuous and never ending political turmoil seriously impacted economic and industrial growth and uncontrolled Law and order situation almost halted the FDI into Pakistan.
The cumulative effect of this was massive flight of Capital and shattered the confidence of the business community due to frequent kidnapping of the businessmen and their family members and the “Bhatta” culture.
Excessive taxation, as per IMF and World Bank directions, was another cause which compelled businessmen to close their industries and migrate towards safe countries.
Perhaps on top of all these factors is the wholesale corruption which did the most damage.
All these combined together have brought Pakistan on the brink of economic collapse.
Though Imran Khan succeeded in getting some pledges from Saudi Arabia, Qatar, UAE and China to boost up foreign exchange reserves and stabilize Rupee VS Dollar but that did not help for long, though it delayed the eventuality.
Uncontrolled government expenditure and continuous political unrest kept on denting the economy and result is where we stand now.
Many economists are of the view that country may default sooner than what some predict.
Imran Khan’s PTA government took some commendable initiatives to reform the economy and addressed the issues which were major irritants in the path of development.
The World Bank (WB) and International Finance Corporation’s flagship reported Ease of Doing Business Index in 2020 as Pakistan ranked 108 among 190 countries around the globe, indicating a continuous improvement and taking a jump from 136 in 2019.
The top five countries on the index being Singapore, New Zealand, Hong Kong and Denmark and South Korea.
With improvement in ease of doing business ranking and giving an investment friendly road map by government, many new auto sector giants like France’s Renault, South Korean’s Hyundai and Kia, Chinese JW Forland and German auto giant Volkswagen entered in Pakistan auto market through joint ventures with local manufacturers.
US oil and gas giant, Exxon Mobil, returned to Pakistan after nearly three decades of gap and has acquired 25% shares in offshore drilling in May 2018, with initial survey showing a potential of huge hydrocarbon reserves discovery at offshore.
Pakistan once had the highest GDP per capita when compared with India, Bangladesh, and Vietnam.
Twenty years later, it is at the bottom of the group.Political upheaval, a violent insurgency fed by the war in Afghanistan, and the inability of successive governments to carry out reforms are to blame for this decline.
Today, a polarized political environment and elite intrigue and gulf between state institutions has made sustainable economic growth and reforms much more difficult and un-achievable.
The economic upheaval in those early months of Khan’s government led to declining economic growth, devaluation of the currency, double-digit inflation, and sky-high interest rates.
The government’s initial attempts to fend off an IMF bailout did not help.Less than a year later, the COVID-19 pandemic dealt a severe blow to Pakistan’s economy.
Lockdowns in response to the health crisis turned economic growth negative, (first in decades) The Khan government sought debt relief and secured an additional $1.3 billion from the IMF.
The government rolled out a Rs.1.2 trillion stimulus package.Cash transfer programs were expanded to protect the most vulnerable segments of society.
While a significant portion of the total stimulus included already-budgeted spending, and more than Rs.500 billion remained unutilized, the government’s prompt response eased the pain, particularly for the most vulnerable.
Additionally, the State Bank of Pakistan sharply cut interest rates and provided monetary stimulus to businesses.
The biggest relief, however, was provided by the state’s ability to effectively slow down the spread of the corona virus.
Doomsday scenarios did not materialize and despite the political bickering, effective cooperation and collaboration through the National Command and Operations Centre flattened the curve, slowing the spread of the corona virus.
As a result, business confidence returned and economic activity picked up.These, however, were only early signs of recovery for an economy that grew by 1.9 percent in 2019 and shrank by 0.4 percent in 2020.
While some would like to argue that a V-shaped recovery is taking hold in Pakistan, the reality is that the economy has not stabilized.
It has a long and tortuous path towards achieving sustainable growth in the face of political unrest and economic crisis.
We cannot go on knocking at every door for financial support and resorting to begging.We must put our own house in order even if we have to take some bitter decisions.
We need to do what Indonesia, Vietnam and Bangladesh did to throw the shackles of foreign loans and achieved spectacular economic development.
The road to prosperity is by following austerity, slashing unnecessary government spending and serious belt tightening and avoiding excessive taxation.
— The writer is former DG (Emigration) and consultant ILO, IOM.
