“Pakistan’s Economic Frontier — A realistic look”

The recent developments around the world on the economic recovery indicate a clear need for speed. Last few years have not been forthcoming as most economic realities came true to life – Unemployment, Inflation, Recession, Credit crunch, Liquidity shortfalls, trade deficits, natural calamities and war. Although most countries today are economically dependent on others, though functionally independent, a vast majority economies face a certain dilemma they term called “ Bad governance “. For example in Pakistan, the main focus unfortunately is replacing old people with new faces, as opposed to replacing bad processes with good ones.
2013 is extremely challenging : to readjust the fiscal cliff that exists in Pakistan. For starters, our debt to GDP ratio is at a steep 108 %, with a whooping 12 billion rupees in deficit, forcing us to re-think our economic realities. Similarly, in the last 3 years , the government domestic borrowing has crossed the maximum at 133 % from 3.2 billion to 7.6 billion. External borrowing touched highest levels from 2.7 billion to 4.3 billion in four years, a growth of over 65 %. “Out of Rs2,000 billion Rs1,300 billion are used in paying back loans and the rest is spent on the military, leaving no other way but to take more loans to spend on other sectors of the country.” Even though the world bank has recently announced USD 1.5 billion in assistance on energy , issues like the debt management, circular debt reduction, budget deficit and import bills are devastating economic blunders that we have not been able to remove from our economic footprint.
Industrial growth need a jack-up as government pace is extremely slow and uneasy. By enhancing capacity to yield high earnings with a devalued rupee, we can create the appetite for export earnings, making local products less expensive abroad and by targeting stable markets overseas. Higher energy and transportation costs make it tougher to compete, as some manufacturing companies have shifted business overseas to gauge better tax refunds. Lot of work needs to be done in this sector by basically reducing the import bill, fuelling our debt, as we are far from our anticipated “desired target match”. Where creation of independent wealth is ignored, we pay heavily on imports at the cost of not working towards sufficient exports. This is a flawed strategy from day one by all governments so far.
Pakistan also faces another epidemic that impedes economic growth with only 22% of the population actually paying taxes. Due to high government borrowing from the IMF in the past and rescheduling debt, the average Pakistani born today carries a debt of 72000 rupees per head, leading to a huge carry forward debt into the economic flux of the country, while corruption continues to flourish with daily loss of 6-8 billion rupees to due weak anti – corruption measures and poor accountability, according to NAB. These numbers are shocking and are also reflection of our constantly dubious repute around the world, in terms of accountability. Taxation has to be made public and transparent.
This systemic injustice can only be overcome by a renewed commitment to telling the truth – and holding those in power accountable when they lie. Case in point is that we are unable to decide as a nation, who would be the best man to look into the issue of corruption by heading the NAB. An immature outlook of the country,giving outsiders a big fat chance to create chaos within our system may be devastating at this stage. In a country, where the system protects the guilty and corrupt, not a lot of investors will venture in , stating either security or economic reasons.
The past fiscal policy revelations and the SBP s annual report published does not clearly indicate the rising budget deficit at 8.5 % of the GDP and the growing domestic debt growing by 27% since the last fiscal year. The central bank though indicated in their report “ It is important to realize that over- dependence on consumption makes growth unsustainable ,especially while the investment rate in the country has been falling. “ Here the government policy fails to indicate to why the actual investment rate is down and why are we missing our targeted growth rate of 4% against achieved growth at 3.7%.
As we speak, the government has unveiled the new investment policy for 2013 , clarifying that “ all restrictions on minimum investments have been removed”. There is more to be done to cut down redundant processes and approval procedures that are cumbersome and counter-productive for an investor friendly Pakistan. Similarly, the national security policy has yet to be unveiled, a key driver in peace and eventual economic revival. Pakistan needs to ensure that they cut down the rising import bill and create faster pathways towards self reliance through exploring their internal natural resources like Reko dik and Thar Coal projects, which will create a way of the debt trap. The recent case in point that comes to light is Pakistan State Oil, the energy giant which controls 78% of the country s crude oil market.
Current times have seen massive corruption scandals surround the company, estimated to be in trillions of rupees. As a government controlled body, the country s economics is highly dependent on the efficient management and greater socio- economic role of PSO in the country, as it controls oil prices alongside OGRA. According to EX-Chairman NAB , approximate 30 trillion rupees ( 3000 billion rupees ) of funds may have been misappropriated within PSO , and accountability measures if taken effectively could benefit the nation s economy and reduce our dependency on external borrowing to pay for our budgetary deficits. Furthermore, NAB succeeded in blocking the scandalous agreement of $5 billion between PSO and Bakri Trading Company over import of furnace ,leading to speculation that much more needs to be uncovered to improve anti-corruption activity towards economic recovery.
The successful case of the OGRA scandal and its eventual exposure is a good sign. Similarly, transparency International Pakistan (TIP) has unearthed a money laundering case of US $ 46 million in the sale deal of HSBC Pakistan operations by JS Group, and approached the top management of HSBC for verification – This deal was not approved by the Central Bank and is against Section 17 laws of the SECP . Plus, the amount of 46 million USD is not reflected on the official financial statements. More investigation continues as the probe deepens. Along with this , estimated recovery of 82 billion rupees if done correctly , can ease us out of the debt trap faster than borrowing continuously from IMF. Better to pay back than to enhance debt burden. Another major review must also be conducted in the operations of Pakistan Steel Mills , where 20 corruption cases have been highlighted on last 4 years , giving credit to the democratic government today. However , no investigation has been completed on the case of sale of steel products below their market price estimating a loss 7.15 billion to the national exchequer. In fiscal year 2008-09 alone, the material losses to PSM were around 158.8 million rupees.
When do we actually ensure this money is safely deposited back to the governments sectors where they are needed the most today. It is very simple if one looks at it . The world is watching every move we make in terms of eradicating corruption, our elections, our armed forces, our borders, our crime rate, our education calamity and our water emergency. Manipulating the regional peace and stability is easier for people from within Pakistan today. And we need that to change. Despite the above, our country s reputation as a rising economic power is clearly seen. We are surrounded by a list of powerful economies and are vital to their survival as well hence liable to also get majority of their economic support, inclusive of manufacturing and construction expertise, security intelligence, fiscal support , trade incentives etc. The geographic map of our country makes it a key route into Asian markets. To reduce barriers to entry, law and order improvement has to be prioritized right now, its control and implementation as well as mitigating the affects of a regional war on Pakistan. As China takes over the strategic management of Gwadar Port operations, the pak- china relationship touches new solid ground. State-run Chinese Overseas Port Holdings takes over management of the port which is about 600 kms away from Karachi. Another feature of this port being closer to the Strait of Hormuz , is the maximum trade advantage and export advantage through sea routes, opening up the trade and energy corridor for Pakistan as china quotes; ” China will actively support any program that benefits china-pak relations and the prosperity of Pakistan ” .
This will enable us to further attain a strong geographic position with the South East Asia, reducing US influence in the province by further cut down any hopes for a western dominance, as Pakistan clearly chooses the best possible options collaborating with their border countries on a much viable economic pathway into prosperity. This also indicates high-radar focus on Karachi and Gwadar as future hub cities and seaports for Pakistan. The recent economic strategy by the Baluchistan government to open up border markets to curb smuggling is a very good one which will reduce illegal trade and smuggling, encouraging employment and tax generation transparency, leaving a good example for other provinces to follow.
Realistically, we stand on delicate ground today. Yet with a solid footing aiming to move in the right direction, we shall attain a successful economic frontier.

Zeeshan Shah – is an expert on policy and international relations.