- Need to address fundamental issues in GDP, inflation and structural reforms in fixing Pakistan’s economic woes
The economic challenges that Pakistan has to contend with are part of simple economic theories. There is nothing quixotic or cryptic to them. The country looks trapped in an eternal economic spin. At least that’s what the figures loudly say.
Additionally, they are interconnected with fundamental management of the economy, which have been badly messed up in Pakistan.
Former prime minister Shahid Khan Abbasi recently spotlighted yawning flaws in our economic approach noting that “approaching the IMF to get a bailout package is in fact admitting that we have failed in managing our affairs, our economy on our own.”
Speaking at the Asma Jahangir Conference in Lahore in April, he also observed that Pakistan approached IMF but failed because it didn’t put money in export -oriented sectors, which is the only way to dismantle our structural deficiencies.
What our former PM talked about is not something abstruse to understand. It’s about comprehending the commons of economics that Pakistan has badly mismanaged.
Let’s begin with low GDP
GDP rates can be bolstered through production basics. In Pakistan, the overall dominance of agriculture against all other avenues of the GDP generation has confounded policy makers. In a world that is diversifying its economic avenues, Pakistan’s over dependence on agriculture alone is simply beyond rationale.
Fine, it supports the livelihoods of around 150 million people according to FAO, but it’s encountering a massive demon of climate change that has fomented uncertainty and in all likelihood, the production change will vary considerably in times to come.
Additionally, youth in Pakistan graduating in sophisticated disciplines can’t be employed in the agriculture sector as successive governments in Pakistan have remained clueless about land distribution policy.
China adopted a comprehensive ‘Land Rental Policy’ to engage the youth in seeking land from old farmers, who are too old for productive purposes. However, in Pakistan, this youth remains disengaged and isolated with unemployment ratios climbing up to a deadly 10.01 per cent in 2023.
Secondly, low GDP always stokes high inflation, as the market constantly shudders at the perennial sense of lows and highs.
Inflation, in Pakistan, has hovered around 4% per annum making lives of the millions of people a living hell. The drop in the purchasing power of the majority always contributes to a general sense of pessimism among the masses, incubating social discontent and political havoc that pushes the country in a tailspin.
Thirdly, high inflation makes the cost of living very costly leading to widening income gap that exerts an enormous impact on the socio-economic fabric of Pakistan.
Pakistan’s Gini coefficient narrates the whole story by showing an income gap of about 29.6%, which is dreadful even by global standards. This pronounced divide catalyses economic instabilty in the shape of hyperinflation and plummeted currency values furthering the erosion of people’s trust in the system.
All this leads to the predictable: a nose diving economy that finds it hard to recover from repeated shocks. Argentina, Venezuela,Greece in early 2000s pegged their currencies to dollar and euro respectively, which ended up sinking them into hyperinflation and a reduced purchasing power parity.
All of them have partially recovered, but their social equipoise had vanished forever leaving them beset by the sentence of the Sisyphus.
What’s even worse is the fact that Pakistan’s debt-to-GDP ratio is constantly climbing from 41.4% in 2007 to 71.6% in 2002 and is estimated to linger on in the same range for the next few years. This implies that debt servicing devours a big chunk of our meagre GDP leaving little to no hope of diversification.
So far Pakistan’s economic wars have been fought on paper only and its readymade panacea has been to opt for more debts to pay its outstanding debts.
Recently, the Prime Minister Shehbaz Sharif announced privatisation of the loss incurring entities, but to what extent will it aid Pakistan?
Corruption is rampant. Electric outages are routine. IMF is always the last option. The continuity of ad-hoc policies is perennial. No structural reforms are in sight.
So does this mean that nothing much will change and nor can we hope to surmount this quagmire?
This unabated suffering can come to an end only when the basics are set right. The government needs to revisit its policies of viewing Pakistan as a stagnant and one-dimensional agro economy.
It must adopt a dynamic approach to tackling problems like fiscal discipline, low tax-to-GDP ratio an financial inclusion of the dispossessed.
On an urgent basis, Pakistan can embark on the following fix ‘faults approach’:
– Pakistan should increase its education budget from 2.5% to 5% of the GDP.
– It can offer vocational programs in target sectors to boost performance in areas where it is not performing well. Offering incentives would engage a large section of our disengaged youth.
– It must encourage foreign investment through political stabilisation. No investor would risk his money in a country that’s politically imbecile.
– Pakistan needs to provide subsidies to farmers to encourage them to go for climate-resilient practices.
– Last, but not the least, investing in trade and regional connectivity would open up many doors for Pakistan in times to come.
Above all, all these are interconnected to one grand objective of the state: to afford an ideal life to its inhabitants.
Until and unless these basics are addressed, our problems will only exacerbate. Our destiny needs a different scribe now.