Dr. Asad Zaman
Why does “Sovereign Default” become a hot topic with annoying regularity in Pakistan?The fundamental problem is the huge imbalance between our exports and imports. In 2021, our exports wereUSD 30 Billion, while our imports were around USD 62 Billion.
In general, since 1960 onwards,our imports have averaged about 18%, while exports have been around 12% of the GNP.
After reaching a high of 16.9% in 1996, the export ratio has been declining steadily, varying between 8% to 10% over the past five years.
The dollar difference between the imports and exports is the ever-increasing amounts that we must borrow.
This trade-gap serves as a brake on any growth spurt. As soon as the economy grows, the trade gap grows even faster, and we are forced to borrow money to finance this gap.
IMF terms on loans are designed to slow down growth and create unemployment,breaking the back of the economy, so that the demand for imports is reduced to manageable levels.
So, what is the solution to the debt trap? Faithfully following the prescriptions of the same economic theories which plunged the world into global recession in 2007-8, economists and policy makers alike have been focusing on how to increase exports.
The data shows the complete failure of this strategy – despite our best efforts, exports have been shrinking, instead of increasing.
Despite this failure, you will not hear any mention, either from the policy makers or from the economists, of the obvious alternative: reduce imports.Why not? To understand the answer, we must take a deeper look into the nature of economic theory itself.
Economic theory claims to be a “science” which is value-free, and describes how the world works. Closer examination reveals it to be an ideology designed to support and strengthen the existing structures of power.
Economists see nothing wrong with a world where less than 10 people have more than half the planetary wealth, and more than a billion people are living below the poverty line.
Even though the planet grows more than enough food to provide for all, economic theoriesdo not mention hunger, and policies which could eliminate it.
These theories do mention that providing basic necessities for all would reduce the motivation to work, and thereby lower output.
Economic theories blindsided us to the Global Financial Crisis.The Queen of England went to the London School of Economics, to ask “Why did no one see it coming?” Very few realize that it is a function of economic theory to prevent us from finding the path to independence, thereby keeping us in the clutches of the global financiers.
Economists dismiss the possibility of reduction of imports, claiming that “import substitution” has been tried, and has failed everywhere around the globe – even though this is the only way out of the Debt Trap for Pakistan.
Import substitution involves learning to produce for ourselves the items that we import from outside. The two largest portions our import bill consist of energy and agricultural imports.
To break out of the debt-trap, we must focus our efforts on domestic energy production and agriculture. Our agricultural yields are among the lowest in our region, and efforts to improve them will quickly bear fruit.
Similarly, we have vast untapped local resources in terms of wind, hydro, shale, and solar alternatives. Unfortunately, instead of thinking out of the box, our policy makers keep trying the same export promotion strategies which have been proven failures, in the hopes that they will miraculously succeed.
As just one example, the road from Karachi to Gwadar has opened up a vast coastline which could easily provide us with modern palm oil and fishing industries.
Very few are aware that the English developed the theory of free trade after they had acquired a fifty-year lead over Europe via the Industrial Revolution.
German Economist Friedrich List countered by developing the theory of Infant Industries, which protected Germany, allowing her to develop industries without competition.
Today, we must learn to counter weaponized economic theories by learning self-reliance, not just in economics, but in manufacturing our own theories.