Time to tread tough on the economic front
PAKISTAN’S economy is caught in the web of low growth, inflation and unemployment. Current poor economic conditions have led to the deprivation of essential services required to operate the country in a befitting manner.
The economic indicators are becoming weak with each passing day. According to sources, the economy is expected to grow by only two percent in the current fiscal year.
Pakistan has been facing economic problems for a long time. Despite 20 bailout packages given to Pakistan by the IMF, the stakeholders have failed to treat the economic meltdown.
The multifaceted socio-economic and political causes have led to poor economic conditions. Thus, Pakistan’s financial situation is the progeny of certain factors that brought economic ills.
What went wrong with Pakistan’s economy needs a deep analysis. The structural flaws in Pakistan’s economy have resulted in future economic challenges ahead.
Loan payment is one of the major stumbling blocks to the revival of the economy. On the external front, debt rose to $34bn in 2022, most of which is owed to China, Saudi Arabia and the IMF.
It is expected to grow further in 2023. Internally, circular and public debt is a wake-up call for Pakistan’s economy.
Pakistan will have to repay on account of amortization and mark-up amount owed by the public sector alone to the tune of $49.23 billion over the next five years period from 2022-23 to 2026-27.
Loan repayment requires incremental growth in trade and reducing unnecessary expenditures.
Additionally, CPEC is a game changer project in the history of Pakistan, which, however, needs huge investment to operate the remaining projects. But, with a vulnerable economy, it would be difficult for the stakeholders to carry.
The increasing loans from CPEC projects and delayed projects have led to more burden and economic strain.
Multiple projects have been stalled due to delays in payment disbursement from Chinese companies.
The poor financial infrastructure in Pakistan has also played a role in economic instability. Market sentiments are not in a position to attract investors.
Thus, a significant amount of investment is coming from Chinese companies. There is the stronghold of the elite class on markets.
They own major industries and influence markets through political influence due to their vested interests.
On the foreign policy front, there seems to be great help from allies like China and Saudi Arabia.
Both countries have provided enormous funds, sufficient to revive the economy. The amounts provided by the partners have rendered no positive effect on the economy due to catastrophic climate events.
Therefore, Pakistan has to face further economic hurdles that need proper analysis to make effective policies.
Political instability is one of the critical factors in this regard. In Pakistan, political instability has been remaining part of the country since its independence.
Political instability has eroded the very concept of consistent economic policies. Inconsistent economic policies do not bring fruitful results.
When power shifts from one party to another, previous policies are not followed despite their relevance and need due to polarized politics and vested political interests.
The recent decision of Imran Khan to boycott the National Assembly may further weaken our democracy which, in turn, may create hurdles for the economy.
Growing religious extremism is also a significant obstacle to bringing fruitful economic changes.
The recent surge in militancy and terrorist activities has resulted in poor law and order situation.
The Bannu incident and the attack on a Chinese teacher in Karachi are some of the latest to count on.
Law and order issues create impediments to foreign direct investment. The confidence of foreign investors has decreased due to terrorist activities.
Many foreign investors avoid investing in the country, and some want to leave Pakistan due to the poor law and order situation generated by rising extremist tendencies.
History is replete with the fact that the war on terror effects debilitated Pakistan’s economy. Therefore, Pakistan needs pragmatic measures to adopt for sustainable economic growth.
There is a strong need to overhaul the economy through structural reforms. To achieve sustainable economic growth, Pakistan needs reforms in the export industry.
The ADB says in its report titled ‘Pakistan’s Economy and Trade in the Age of Global Value Chain’, Pakistan exhibits one of the lowest exports to GDP ratio in the world.
A significant chunk of the export industry is based on agriculture, which is prone to climate disasters.
The agriculture sector should be prioritized because a major chunk of exports in Pakistan depends on agricultural products.
The government must focus on tax reforms that bring tax evaders to the tax net to generate sufficient revenue.
Furthermore, to sail through the current economic mess, Pakistan should explore new partners for financial help by diplomatic use of the Foreign Office.
This requires strong and amiable relations based on cooperation in the era of bloc politics. Whether it is Chinese, American or Russian clout, it is necessary to play safe and get rid of their dominance and a path of self-interest.
Lastly, Pakistan must resolve issues with neighbours, especially India and Afghanistan, to initiate a smooth transit trade.
Friendly relations with India can usher in an era of low economic burdens. It will reduce defence expenditures and open the trade route with India as World Bank said in a report in 2018 that $38 bn of trade potential is present between the two arch-rivals.
—The writer is teacher at School Education and Literacy Department, Sindh.