- Pakistan is still caught in a vicious cycle of poor savings, little domestic investment, massive borrowing, rising foreign debt, low productivity and high inflation
On August 14th, 2023, Pakistan celebrates its 76th Independence Day. For the common nationals, the past few decades have been a mixed bag who are still waiting for Pakistan to pay off its pledge. Under both democratic and military administrations, Pakistan’s rentier economy has done rather well. However, it has become a habit to live off of the money of others while creating insufficient trade products and services. Pakistan is a frequent borrower with a low domestic savings rate of only about 11% and makes no serious attempt to stand on its own two feet. Comparatively, over the same time period, Bangladesh and India had savings rates of 25.3% and 29.3%, respectively.
The Pakistani leadership of the present and past governments is largely seen as corrupt and solely focused on maintaining its dynastic power. Several claims that the foreign possessions of several leaders were bought with laundered money, although they have provided no convincing evidence of how these properties were obtained. Governments that are only partially democratic, frequently a patchwork of interest groups vying for one another’s favor, frequently give in to pressure from their constituents. Pakistan is still caught in a vicious cycle of poor savings, little domestic investment, massive borrowing, rising foreign debt, low productivity, and high inflation.
Since gaining its independence in 1947, Pakistan has only sometimes had peace and hasn’t done anything to improve. Many governments have failed to have the guts to implement fundamental changes to alter the direction of the economy. It appears difficult to reach a national economic agreement when the primary political players aren’t even speaking to one another. When an overhaul is required but no one appears to have the motivation or ability to do it, setting priorities can be challenging. Pakistan’s internal cohesion is in jeopardy due to widespread poverty and hardship. A Pakistan that is at peace with itself is crucial for China’s strategic interests. As, there is still no genuine desire to find longer-term solutions, a loan from the International Monetary Fund, which is anticipated to be delivered soon will only offer short assistance under current conditions. Systemic change is necessary for effective transformation, but the wealthy elite are loath to give up their benefits and privileges.
Inflationary Jumps in Pakistan
Political rivals work independently, leaving decisions to institutions even after challenging the integrity and impartiality of the institutions as the decisions do not go in their favor which will weaken institutions that any civilized society has. It is difficult to conclusively argue whether Pakistan’s internal dynamics or external posture has led to the current state of desperation. After the rule of military dictatorship in 1977-88, Pakistan’s subsequent governments have only played with short-term, quick-fix solutions that align with their own interests rather than that of the nation.
Economic outlook
Preliminary estimates indicate that the economy almost stalled in FY 2023 (July 2022-June 2023). Floods, government austerity, and a balance-of-payments crisis all had a significant negative impact on economic activity. Looking ahead to FY 2024, the economy seems to be changing for the better. On June 30, the IMF provisionally approved a US$3 billion rescue with the government, subject to final board approval, preventing an impending default. The deal will support global reserves and free up more cash from other creditors, including the US$2 billion from Saudi Arabia announced on July 11th. To obtain the IMF accord, the government was compelled to make budget revisions that resulted in expenditure cuts and tax increases. This is probably going to reduce domestic demand and increase social tensions.
From a record high of 38.0% in May, inflation decreased to 29.4% in June. On a more challenging basis of comparison, inflation should start to decline from its present levels later this year. Even yet, the recent elimination of fuel subsidies and currency controls will maintain it far above its 10-year average of 8.0%. El Nino weather patterns, weak currencies, and erratic commodity prices are major hazards.
Economic Growth (GDP, annual variation in %) for Pakistan from 2014 to 2023
Anticipation
For the common citizen, there is no state of Pakistan. A national agreement on the fundamental goal of a state that was established to safeguard the Muslims of India is urgently needed in such a dysfunctional political system. Ordinary Pakistanis have been denied access to fair justice and economic opportunity, and as a result, their resentment and intolerance are growing. Pakistan does not have the luxury of waiting another 75 years to change its direction because of its severe social divisions. Pakistan needs a new generation of citizens who were raised with civic and ethical principles consistent with the country’s identity. Pakistan’s DNA does not support democracy in the Western sense. Pakistan should adopt the East Asian growth model in order to turn around.
For at least two or three generations, the nation requires a tight technocratic leadership that will assiduously pursue the state’s economic interests, enhance social services, expand industry, renewable energy, hydroelectric power, and more before allowing for full democratic involvement. The country has already paid a sufficient price for pursuing the Western democratic dream, which is an inadequate cure for Pakistan’s ailments. There is a good risk that Pakistan would return to the crisis sooner rather than later if decisive action is not done right away so, prompt policy transformations are required as the citizens are now not at all ready to carry the burden of the pledge taken by others on their backs.
The author is MD IRP/ Faculty Department of H&SS; Bahria University Karachi