Tough economic decisions ahead
THERE is no way to sugar-coat the harsh reality of Pakistan’s socio-economic conditions as we approach the end of the financial year.
The recovery of economy was encouraging and an outlier among developed nations after the enormous impact of the Covid-19 pandemic.
Mr.Naji, the Country Director for Pakistan in the World Bank, openly accepted that Pakistan’s economy showed remarkable resilience during the covid-19 pandemic which shows the high potential of its people.
However, the year 2022 brought challenges both old and new. The surging political and economic shocks have given rise to the perfect storm but its certainly not the dire end of the matter, Pakistan only needs to set its priorities, make a unified approach and aggressively initiate all sectors of the society towards economic revival.
It is now a struggle for survival, and not that of politics and point-scoring. The most deep-rooted economic challenge of the country lies in its massive trade deficit that has been made part of the commerce system since the 1950s.
Pakistan, from day one, has focused on meeting local demand of goods through allowing import of cheap goods from abroad.
And over many decades, allowing import of these items has dealt damage to the national economy in two specific areas.
First, it has eliminated the incentive to install local set-ups of industry and manufacturing facilities for hundreds of products that are now being imported, and secondly, it has reduced the prospect of “technology transfer” and converting unskilled labour into semi-skilled or highly skilled workforce.
The commercial imports have been a continuous burden on the national economy and the import of luxury goods have been a death blow to the foreign reserves of the country.
It is true that the top items of the country’s import bill is made up of oil and gas, raw material, agricultural items, edible oil and machinery, but the expenditure on these sectors could have been reduced considerably, with the right principle in mind, that is to become financially viable and only allowing imports where no other option exists.
The result is the 40 billion Dollar trade deficit today and the Government has to resort to extreme measures to bridge this dangerous gap.
On the other hand, the foreign reserves required to meet payments stand at an alarming 10 Billion Dollars that can only meet the country’s requirements for two months.
Thus, the need to approach the IMF for the 23rd time. Politics is not always deeply connected to economics of the nation but the economics is always a determinant of the socio-political landscape of a country, and Pakistan is no different.
After the ouster of Imran Khan from Government, the subsides given on fuel prices are proving to be an economic bomb for the country.
For four months, Imran Khan’s Government did not raise fuel prices, knowing that the incoming Government will have to raise them eventually to save the country from a disastrous default.
This was done, not knowing that there is a multiplier effect in economics. Dwindling foreign reserves due to the subsidy, have sent shockwaves in the stock market and the Dollar rate has crossed Two Hundred Rupee benchmark.
And as of now, the IMF regulations are to be implemented. Pakistan has already approached the IMF and the talks with the IMF team for a bail out of 6 Billion Dollars is based on implementation and acceptance of painful economic measures.
First and foremost, it is the removal of fuel price subsidies and raising tax revenue by 1 Trillion Rupees in the next Financial Year.
All this was set by the previous Government, as it would hurt their political standing among the masses, not knowing, it could snowball into an economic crisis not yet seen in Pakistan.
Now, the Government has agreed to implement IMF conditions. There are not many options on the table.
China and Saudi Arabia have also taken the stance to grant loans to the defaulting economy subject to agreement with IMF for a bail-out.
The national debt has risen over fifty percent during the PTI Government rule since 2018. But this debt crises, combined with budget deficit and the spiraling trade deficit are challenges that come from decades old thoughtless policies, which must now be reconfigured anew if the country is to survive.
When the majority of researchers, analysts and economists are hammering the impending disaster and default of the national economy, it would be most appropriate to look at the strengths as well.
Because, it is only through focusing on the strengths and durability of the people, that an opening can be created.
Pakistan, even with its economic and political shocks and uncertainty, has been able to maintain a GDP of five per cent which is the highest in South Asia.
The macro-economic profile suggests that Pakistan possesses one of the highest young populations in the world.
Further, the education and intelligence index of the Pakistani youth indicates that is one of the best in the world.
UNICEF GenU project suggests that Pakistan young population can be source immense growth not only for Pakistan but the region and its major trading partners.
Every year, Pakistan receives billions of Dollars in the form of remittances from overseas Pakistanis, workers and labourers from across the globe.
And all this is achieved through little or no intervention from the Government of Pakistan. It is now time that Pakistan adopts an aggressive stance and utilizes this young workforce and introduces the world especially the major economics to open doors for the young Pakistanis of today.
We have not been able to reduce our population growth rates for many decades now, perhaps for a good reason.
Pakistan’s strategic geographic location remains untapped of its true potential. Collaboration with China in the form of CPEC and OBOR has yielded much needed benefits for Pakistan and there are numerous avenues to explore.
Pakistan’s connectivity with the Middle East and with Central Asia remains undervalued. Pakistan has not traded with Iran due to sanctions from the West, but this is the time to take a stand and acquire cheap fuel resources from Iran via land border instead of buying through expensive sea routes.
Iran can be a source of other major items that are currently being imported from China or Europe.
Finally, the Government has taken the long due step of banning import of completely built cars, appliances, electronics, shampoos, cosmetics, edibles and luxury items.
This will reduce the import bill but it must be considered that these make up a small portion of the imports.
On the other hand, the top item on the list is fuel and gas. The SS Government must devise a policy to reduce the consumption of fossil fuels and power produced from fossil fuels through installation of renewable energy projects, dams and solar installations and this should be complemented by a national fuel consumption policy wherein transportation must be reduced through smart work from home methods thereby reducing the demand for petrol and diesel.
The savoir from all these import cuts is the export sector which must be prioritized above all else.
Pakistan should implement an emergency Export Growth Programme, as Export is the real revenue and not import taxes nor any other indirect taxes.
All these untouched areas must be fully incorporated into the National Agenda for Economic Revival and before long, the dark clouds will surely begin to fade, for every passing day is a chance to turn it all around.
—The writer is Chairman, Jinnah Rafi Foundation, based in Lahore.
