- A rich country that is being mismanaged
By Maham Fatima
Since its independence in 1947. Pakistsn hass been facing a financial crisis. The country’s political crisis at different times has been one of the main causes of the financial crisis. Pakistani economy can be called a mixed economy as most of the large public sector organizations are playing a vital role in the annual GDP of the country. Pakistani governments have failed to collect taxes. This has been a continual cause of failure of the Pakistani economy and not a single government could do the needful to collect taxes from the masses. So, the indirect taxes as another option to run the system of the state was introduced but that caused a price hike and poverty rise as well. Such a system of tax collection has been a direct cause of the failure of governments in the past as well.
The tax collection is slow and the government has to import goods as well. This is because a falling of foreign reserves in Pakistan and also a trade deficit and current account deficit as well. Currently, the Pakistani government is facing the same issue of a trade deficit. Wrong financial policies of the past governments have caused this crucial issue. Many of the public organizations are not working in profit. So, the government has to back these organizations. This is again a dilemma for the national economy. Pakistan will not sustain itself as a robust economy if it does not escape such issues. Certain experiments are also a cause of the crisis. For example, before 1970s Pakistan’s private sector was booming and companies were making profits, hence creating jobs. But, during the Bhutto regime, Pakistani companies were nationalized and they came under the direct control of the government of Pakistan. Therefore many of the companies and businessmen shifted to other lands in the search of a level playing field.
Pakistan must avoid any war and must finish as soon as possible the quasi-wars that are being fought by her against terrorism. This will surely attract the attention of international investors to invest in Pakistan
This caused fleeing of capital from the market and share prices fell on the stock exchange. Consequently, Pakistan faced a serious threat of unemployment and poverty. No proper scheme of poverty alleviation was introduced in that era. Then, in the regime of General Ziaul Haq, in an attempt to restructure the economy, a new form of financial system was introduced. A semi-Islamic financial system was introduced. The system could not deliver because the world financial powers did not accept him as President of Pakistan as he dismissed Bhutto as elected Prime Minister of Pakistan. Then, governments of Nawaz Sharif and Benazir Bhutto started a race of borrowing money from international institutions like the IMF and the World Bank. This situation increased the overall debt of Pakistan. Then, after the nuclear explosions in 1998, Pakistan had to face economic sanctions from the USA. This drastically affected Pakistani exports and the cycle of the economy. This was the advent of a new crisis. Gen Pervez Musharraf then dismissed Nawaz Sharif and started ruling the country. This was a new bad situation on top of other bad situations.
So, he again had to borrow from the IMF. The current government of Imran Khan is also facing a decade’s long problem of trade deficit and imbalance of payments. So, he again borrowed from IMF but this time the conditions of IMF are quite strict and it is not easy for the government and public to digest. Pakistan has to set free the currency rate and it would not be controlled by State Bank of Pakistan. Similarly new indirect taxes will be levied on goods and all the subsidies will be eliminated. All this would be a hard task for the government but they will have to do all to get the first installment from the IMF to run the financial system of the country. At present Pakistan is 23rd largest in the world in terms of purchasing power parity (PPP), and 40th largest in terms of nominal gross domestic product. Pakistan has a population of over 207 million (the world’s sixth-largest), giving it a nominal GDP per capita of $1,641 in 2019, which ranks 147th in the world, and giving it a PPP GDP per capita of $5,709 in 2018, which ranks 130th in the world. According to Jim O’Neill’s research paper, Pakistan is listed as the next 11 emerging economies in the 21st century. This is because of the country’s potential to grow in different sectors of the economy if it takes appropriate measures.
Historically the GDP growth rate of Pakistan has never been appreciable for a long period but in the first five decades of its independence, Pakistan’s GDP growth rate was higher than the world GDP growth rate. If we start analyzing the economy of Pakistan from sector to sector, then some really fantastic figures and estimates could be seen. The industrial sector of the country contributes 20 percent of the GDP. In 2018 it recorded a growth of 5.8 percent as compared to the growth of 5.43 percent last year. Manufacturing is the most vibrant subsector of the industrial sector having a 64.8 percent contribution in the industrial sector and in GDP it accounts for 13.6 percent. Major sectors in industries include cement, fertilizer, edible oil, sugar, steel, tobacco, chemicals, machinery, food processing, and medical instruments, primarily surgical. Pakistan is the largest producer and exporter of surgical instruments in the world. In Pakistan, SMEs have a significant contribution to the total GDP. Small and medium enterprises contribute to the 90 percent of all the enterprises in Pakistan and employ almost 80 percent of the total non-agriculture labour, which is huge. So, the industrial sector is truly progressing despite the country’s economy being under pressure.
The Information technology and communication sector is also growing and IT exports are increasing every year. The total number of IT companies increased to 1306 and the total estimated size of IT industry is $2.8 billion. According to Pakistan startups report, almost one million Pakistanis work as freelancers over the famous freelancing websites like Elance, Freelancer, Guru, and Fiver. This makes the Pakistani nation one of the five largest nations working as freelancers. These freelancers generate income and helps the country by exporting the IT products to the international market and earn foreign exchange for the country. The Pakistani textiles industry accounts for 70 percent of exports of the country. But the industry is not growing in accordance with the international standards and not using or adopting the latest technology. In fact they are using conventional technology which is the greatest drawback of the industry. Due to such low capacity, the country mostly exports raw material, raw cotton, yarn to the world and despite the fact that country has great potential in this area, Pakistan is not earning a handsome amount by exporting textile goods to the world. Such a lack of modern technology has caused textile imports from China which is causing a fleeing of capital.
The Pakistani defence industry was established in 1951 to tackle the challenges at its borders. Now Pakistan is developing latest tanks, jets, and guns which can be exported globally but due to issues of national security Pakistan is not exporting any item on a larger scale. This all has made the defense sector a white elephant but the nation has to praise and preach this elephant due to the danger on its Eastern border. This all makes this sector a burden over budget and Pakistan has to cut off subsidies to stay safe from her enemies in the East. This was the situation of the main sectors of the economy. Pakistan International Airlines, Pakistan Railways, and Pakistan Steel had been in a great depression and in spite of making profits, these organizations have become white elephants on the budget and many times these organizations survived only by bailout packages. Similarly, there are many other public organizations which are not making profits and the government has to support them. The national health system is subsidized by the government of the centre and the provinces. There is not a custom of national health insurance in the country which is causing a bottleneck towards making health systems and hospitals independent of governmental funds to run their systems.
Therefore, by viewing the entire system it can be said that the system is mismanaged. It needs a strong political will and thorough homework to tackle issues of the economy. The country is rich in natural resources, minerals and there is a very high potential in the tourism sector of the country. If the government would take a look into the possibilities of growth of Pakistan economy then the situation can be better. Pakistan has the potential to grow but needs to change its way of governance. The country has to develop strong trade ties with countries in her region and rest of the world to boost exports and get subsidies in imports; it would be equally beneficial for Pakistan’s forex reserves and in tackling the trade deficit. Pakistan must avoid any war and must finish as soon as possible the quasi-wars that are being fought by her against terrorism. This will surely attract the attention of international investors to invest in Pakistan. Pakistan, on the other hand, must also change its system of governance and political culture as well. The country also needs to balance the power in the centre and the role of its military in political issues must be limited if the country wants to look forward and change its luck.
