Pakistan is facing various challenges where some are because of international factors but most of Pakistan’s current problems are self-created, which could have been avoided or at least would have been better managed. Whether it’s the large population to feed, or low per capita income, or persistent trade deficit, or low exports; all are manageable by the economic team of any country. Country’s economy is dominated by agriculture and over the period economy is increasingly moving towards the market-based trading economy as a result of receiving assistance under structural adjustment programs of the World Bank, and IMF. Despite these foreign assistance, poor governance remains a big challenge for Pakistan. It is observed that despite internal and external factors such as politics, public pressure and donor country’s conditions on reforms, Pakistan so far couldn’t move towards good governance and to a sustainable development program.
The shift towards good governance should pick up speed in the coming months and years. Since independence, Pakistan has moved from positive to not so positive side in almost every aspect; be it governance or growth or business ethics or social values. There was a time when Pakistan was a role model for many countries and interestingly most of the present day’s advanced countries were following Pakistan’s polices of 50’s and 60’s. But unfortunately, Pakistan at the age of 25, de-tracked, priorities changed and focus was on everything except on the issues that matters the most. Consequently, we are where we are today, what we are today and yet we don’t have a realization and concrete plans to bring back the country on the right path. Governance is one aspect which can change Pakistan to a large extend. The core challenge lies in developing a governance model that fits the current economic and political condition of the country. The other major bottlenecks are its slow, non-transparent, bureaucratic structure, corruption in public offices which has put Pakistan in Transparency International’s top corrupt list of nations and consequently cost of living in the country is very high. Cost of living doesn’t only mean at what price one gets the food but also includes the quality of life and infrastructure facilities available in the country.
Considering Pakistan’s strategic geographical location, its skilled labor force, and its earlier success in implementing progressive economic reforms, there is no doubt that the country’s historical growth performance has been significantly below its potential. After the return of peace, the government should gear its policies to reignite the country’s growth. However, the task has proven challenging in the current global economic uncertainties. With the country’s narrow export base, an indifferent export performance has resulted in external imbalances and slower growth. The gradual erosion of the tax base, coupled with increased nondiscretionary spending, has also resulted in continuing fiscal imbalances.
The reforms will be more effective if they are accompanied by greater investments in the infrastructure, enhancing logistics and the services sector and sustainably facilitating new urban growth centers. In addition, the agriculture sector continues to be the largest employer of labor with over 30 percent of the workforce, and measures to improve agriculture’s productivity will facilitate equity objectives. Finally, while continued investment in human resources is imperative to maintain the country’s historic strengths, macroeconomic reform is needed, based on more prudent fiscal management as well as monetary policy that contains inflation and ensures that exchange rate settings support international competitiveness. But the risks and challenges are just as large. If broad-based growth is not maintained, destructive tensions of the past could resurface. Public finances have yet to be reestablished on a sound footing. Public debt, which has risen rapidly, poses serious macroeconomic challenges. Whereas global outlook continues to be clouded by a toxic combination of slow economic growth, financial volatility and uncertainty, deep conflicts in the Middle East, unsettled relations between some of the great powers and the impact of most recent pandemic, coronavirus.
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Interest rates in Pakistan are one of the highest in the world; SBP has marginally reduced the interest rate last week, which is not sufficient to help the business community especially at this time of global crisis. By the time, coronavirus is over, most of small and medium business in Pakistan will either be bankrupt, or will be struggling to survive, there would be high loan defaults;economy will have serious issues that will erode not only next year’s growth target but will have a negative impact on coming years’ growth rate. It is being said that unemployment and inflation would be at all-time high by the end of this year in the country due to shut down and pandemic. Inflation in Pakistan is mainly a product of governance and mismanagement than any linkage with the interest rates or with the monetary policies, therefore, chances of improvement in inflation in coming months is remote.
US and Europe buyers have started cancelling textile orders because there are no buyers in the market for their product, in this situation, Pakistan’s exports will drop. In a recent statement, APTMA has stated that textile units will start shutting down textile units in coming weeks. Almost all the labor employed in the textile sector are on a daily wages, if textile units are shut down, just imagine the level of unemployment in the country. Not to forget, unemployment beyond a level can trigger crime in the society. In another move, government has decided to give a relief package to industry and business community due to coronavirus. Government must be thinking to provide a great relief to the industry but realistically speaking, government has some limitations and it cannot go beyond to a certain point, even if it tries to provide relief to a large segment. Therefore, the upcoming relief package would be either insufficient or there would be some mismatches, therefore, it is better if government just announce what is practically possible so that the relief package could be a success. Practically, it is not possible to provide relief to every sector or everyone, therefore, government should just pick few areas where relief would give best results and subsequently provide relief to other areas.
US and UK have reduced their interest rates by 50 basis points in one day, which was a huge concession for those markets. In comparison, Pakistan has reduced 75 basis points but that will not impact anything because of the current level of interest rate and overall economic situation of the country. It is being said that the economic team of the present Government came to Pakistan after a long time therefore, they are not fully aware of the ground realities. Some of the decision makers made some wrong decisions and created an environment of fear in business community and among the masses. People started keeping the cash at homes instead of in the banks, and unnecessary focus on producing CNIC on purchase of above a certain amount. Things could have been done differently with a much better results. It is also important to note that global recession is fast approaching therefore, Pakistan should immediately focus on emergency measures to address the upcoming issues.
In short, good governance is perhaps the single most important factor in eradicating poverty, promoting development and managing the consequences of the coronavirus. The present condition of governance in Pakistan is not satisfactory. To ensure sound local development, action should be taken to work towards achieving good governance. Considering Pakistan’s history of politics, the country is still struggling to improve in terms of political stability and governance. Economic growth depends on many factors, key among those factors is adherence to the rule of law so that markets and investors can work effectively and efficiently. It is equally important that laws must be clear, fair, enforced, and equally applicable to all the citizens of Pakistan.
Significant macroeconomic reform is needed, based on more prudent fiscal management and monetary policy. There is a strong case for renewing the emphasis on trade and commercial policy liberalization. Pakistan’s economic history clearly demonstrates that well-designed international economic integration has resulted in dividends for the country. Pakistan can achieve macroeconomic and trade reform without compromising education and health. Greater public and private investments in education and health are required at all levels. The public investments also need to be carefully targeted to ensure that all socioeconomic groups benefit from them. Reforms will be more effective if they are accompanied by greater investments in infrastructure, combined with a regulatory environment that encourages public and private investment and ensures that the increased investment addresses both efficiency and equity objectives.