ISLAMABAD: Economic indicators are in a poor state in Pakistan. The State Bank of Pakistan’s report is worrisome and has ignited debate on the future of the country’s economy.
Pakistan is not performing well on multiple indicators. Trade deficit has been on the rise since 2008. It was $22 billion in 2008 and recorded some improvement in 2009 when it came down to $14 billion. However, from 2010, it has been on a steep rise. In 2018, it crossed $37 billion, which is very alarming.
Fiscal deficit is also presenting a similar trend. In 2008, the fiscal deficit was calculated at 5% of gross domestic product (GDP) and it showed signs of recovery in 2009 when it came down to 0.4%. However, from 2010, it started rising again. From 2.6% in 2010, it rose to 6% in 2018.
The current account has also exhibited a sharp widening. Now, Pakistan is facing a current account deficit of 5.7% of GDP.
External and domestic debt levels have also gone up since 2008. Pakistan’s borrowing in recent years is unparalleled. In 2018, the debt-to-GDP ratio reached 67% and it continued to swell.
Business indicators are also not very encouraging. The business community in the current decade has received multiple setbacks. Energy crisis and mismanagement of the economy led to the shifting and closure of scores of industrial units.
The national economy has also faced multiple natural disasters during the decade. The worst calamity was the floods of 2010, followed by the deluge in 2011, 2012 and 2014. Repeated flooding has stymied the growth of Pakistan’s economy.
Nevertheless, Pakistan got an exceptional opportunity in the form of China-Pakistan Economic Corridor (CPEC). CPEC helped the country to overcome basic challenges in the fields of infrastructure and energy. Owing to the investment in CPEC, Pakistan was able to manage the energy crisis. According to estimates, it also created 70,000 jobs.
However, Pakistan could not realise the full potential of CPEC due to politics. The ruling party continued to claim that CPEC was the outcome of its efforts and opposition criticised the scheme. Petty political fighting has negatively impacted CPEC. The Pakistan Tehreek-e-Insaf (PTI) government came to power with the vision of reviving the economy and turning the country into a welfare state on the principles of the State of Madina.
However, immediately after taking reins of the country, it had to grapple with the most urgent issues like debt management, fiscal and current account deficits, utility prices, inflation, etc. At present, the government does not seem to be in full control as economic fundamentals are in a bad shape.
Economists, especially political economists, have unanimity of views that it will take time to set right the fundamentals of the economy. They believe the country will require at least three to five years to notch up 7-8% annual economic growth provided the government remains stable and makes rational decisions.
Every sector and institution is important, but for tangible growth, the government will have to draw up a list of priorities. First priority must be given to industrial revival and expansion, second to the transformation of agriculture and third should be better governance.
Industry is the key to correcting the fundamentals of the economy. Past few years were not easy for the industry as they faced debilitating energy shortages and lack of competitiveness.
The industrial sector has had an impact on the national economy in multiple ways; it creates jobs on a large scale, it helps increase exports, it helps expand the tax base and leads to the development of society as a whole.
Industrial activity is also required for fast-paced development of the country as we are still at a primary stage of development.
However, the question remains as to how the government will achieve this? One solution can be building an official partnership between the government and industries and developing a road map for recovery. Partnership should be deeper than mere formation of a business council or task force.
The partnership should be turned into an official body with terms of reference and responsibilities. The business community must be given some tangible targets. Every industry or business should come up with proposals about how it will be able to contribute to expansion of the economy.
The economic revival plan should offer incentives, but it should also involve strict accountability. There should be no culture of SROs or special treatment. Moreover, it must give administrative powers for implementing policies.
The second important task would be to create an environment conducive for industrial and business activities. All institutions including the Ministry of Finance, Ministry of Commerce and Board of Investment are trying to bring required changes.
Though the government claims it has improved the ease of doing business, in reality, there are still areas which require more attention. First is the registration of business during which businessmen have to deal with a number of institutions scattered over provincial and federal domains.
The devolution of powers to provincial boards of investment under the 18th Constitutional Amendment has created an additional layer. For offering a one-window facility, the first task will be to create a chain of command between provincial and federal investment boards.
The third task will be that the government should move from merely framing trade policies and also focus on a state-of-the-art marketing policy to facilitate trade. Diplomatic missions of Pakistan around the world must be given the task of implementing an aggressive marketing strategy to promote Pakistani products and commodities.
Another priority area should be agriculture and livestock. Agriculture is still the backbone of the economy - not in terms of contribution to GDP, but in terms of employment as 42-44% of the workforce is associated with this sector. Yet, it is the most neglected area.
Farmers have been left at the mercy of markets, dealers, middlemen, poor management and now climate change. We always cite the 1960s as a decade of development, but forget that agriculture had played a dominant role then.
To facilitate the sector, the government should introduce an interest-free credit line as a majority of the farmers do not want to engage in an interest-based system. Secondly, the market system should be strengthened and local governments should take the lead in transforming the local agricultural markets. Thirdly, supply chain management and infrastructure should be improved.
Most of the agricultural commodities are perishable and a lack of proper storages and good quality transport systems add to the farmers’ woes.
Lastly, the government must introduce targeted subsidies and land reforms. It should make sure that big landlords do not exploit the subsidy system. In the past, there were blanket subsidies, which made it difficult for small farmers to take benefit of them.
Another important priority area should be the governance system. For any meaningful change in governance, the government will have to invest in two things - capacity and character-building. Character is as important as capacity building. The drive should cover all stakeholders ie bureaucracy, establishment, political class and civil society.
In a nutshell, it does not mean that other sectors or areas are not vital. It is only the priority list which will help the government to revive the national economy.
The writer is the chief operating officer at Zalmi Foundation
Published in The Express Tribune, April 8th, 2019.
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