In recent times, the country’s social and economic disparity has grown to unprecedented levels. On one hand, there is dangerously high food inflation and on the other hand, there is rising unemployment. The term ‘middle class’ is fast eroding due to the rise in poverty levels and fall in real incomes, while lower segments of society are trying badly to make ends meet.
The irony is that consumption of luxury items by the elite class is on the rise which is creating a civil war-like situation and the most worrying fact is that there seems to be no end to it in the near future. In short, Pakistan’s economic growth has been stunted because of its inability to allocate all its talent and resources to the most productive uses. This also explains why countries like China and India have not been overburdened by the population bubble.
While it may be argued under which government Pakistan suffered the most during the last 75 years, one thing is for sure: none of the governments undertook tough structural reforms as each one of them did not want to hurt their political base. Whether it is the policy of using SOEs as employment agencies, wreaking havoc with the exchange rate, or extending unfunded subsidies to the elite, all these factors have contributed to where Pakistan is standing today. The successive administrations knew all that was wrong all along but did not do anything about it. The policymakers have either been blind or did not care to enhance the overall productivity as it does not suit their purpose.
There are powerful insiders that influence the decision-making process to maximize their own benefits. For example, in agriculture, it is the large landowners that benefit from subsidies. Similarly, the policy rate of 20 percent announced by SBP to counter inflation is again going to favor the elite as they are the ones who are going to mint the profits by depositing excess cash lying with them.
Major task ahead
The primary challenges facing Pakistan are many including political instability, corruption, uncompetitive trade regime, poor infrastructure, bureaucratic red-tapism, slow pace of privatization of SOEs, tax and tariff policies, lack of uniform rules across the board and inconsistent policies etc. It is clear that misplaced priorities and directionless policies are the real cause of the economic crises that Pakistan is embroiled in.
The economy is at a critical stage and painful structural reforms will have to be enacted starting with the power sector where circular debt has soared to Rs2.5 trillion. There is also a dire need to expand the selective tax base instead of vertically increasing by including agriculture and other mega-revenue producing segments like the retail industry. Moreover, with the privatization of SOEs, Pakistan can look at a quick recovery and long-term benefits in a short period of time. This will give us the capacity to generate revenues internally and we will not need any loans from friendly countries.
Support of the local industry and Foreign Direct Investment are the two great avenues that can save us in the short term and build us in the long term.
Best efforts
Looking at Pakistan’s debt servicing and precarious balance of payments position, there is a need to boost industrial production and for that mobilization of foreign resources is urgent. More borrowing will further aggravate the situation. It is, therefore, essential to prioritize a clear path of policy structure that will streamline investments for at least the next decade irrespective of any political change.
Pakistan’s main problem is the inability of policymakers to put words into action. All political parties add these points to their manifestos during election campaigns but forget them when they are in office.
The present government, despite being aware of the critical economic situation, miserably failed to take correct decisions and curative actions on time. There is a consensus that now is the time to undertake much-delayed, long-overdue fundamental structural reforms or else be ready to face the music!