A few essentials for economic security

SBP bill will force country to control expenses, look for other funding sources

KARACHI:

The government on December 28, 2021 approved the National Security Policy along with simultaneous approval of International Monetary Fund (IMF)-driven State Bank of Pakistan (SBP) bill, later ratified by parliament as well.

Many consider the bill as a compromise on economic sovereignty. This article is an attempt to prove that how the bill can instead help in achieving that.

Till we secured the ongoing IMF arrangement in 2019, we were accustomed to using the SBP at will as a funding institution and making it print banknotes without much care for the resultant inflation, instead of arranging genuine sources of funding state’s expenses.

The new bill would force us to control expenses and look for such sources. There is more than one option for that instead of more indirect taxes – a major theme of this article.

Indiscriminately securing loans has already shrunk our margins for development. Similarly, increasing indirect taxes also has its limitations.

Thus, instead of merely tinkering with the financial parameters, large-scale reforms and restructuring, especially on the issues highlighted below, have become imperative now for truly achieving economic security.

The United Nations Development Programme’s (UNDP) Pakistan National Human Development Report 2020 says that the benefits and privileges enjoyed by different vested interests amounted to around $24 billion in 2017-18 alone.

The data provides sufficient room to consider a rational diversion of funds from this source for accelerated social uplift, development, industrialisation, education, research and development, etc.

Energy, food security

Economic sovereignty and the energy supply chain go hand-in-hand for a nation. We annually spend around 40% of budget on energy imports. However, the chain still remains perennially taut.

The common theme running through all the above challenges is the lack of required capacity in the relevant decision-making forums to think through complex techno-commercial issues and implement effective solutions.

What we lack are the institutions essential for the required due diligence.

For instance, in the US, the Energy Advisory Board is one such entity and National Petroleum Council another; both comprising senior professionals and industry leaders. This critical step seems missing in our decision-making tree.

Similarly, our ranking at 75, with an overall score of 54.7, by the Global Food Security Index suffices to give us a reality check with Ireland topping the list with a score of 84.

It is primarily because more than 60% of households in the rural part of Pakistan are completely landless. Thus, the much-delayed land reforms need to be executed as soon as possible.

As to the public sector, it has proven to be a drain on the economy since long with its mounting losses.

In June 2020, they were reported to have crossed our defence budget. We have around 204 PSEs (public sector enterprises) governed by around 1,400 directors.

Thus, to transform them into engines of progress, what we actually need is to deploy the best possible professionals on the above 1,400 director positions through a transparent competence-based nomination process.

Human capital

Our 20 million children (approximately) are out of school, only 35% finish primary enrollment in middle school and the literacy rate is barely 58%.

Resultantly, the Global Human Capital Report of 2017 ranks Pakistan’s human capital at 125 out of 130.

As to our pertaining priorities, the education budget since 2015 till 2018-19 remained only a bit above 2% of gross domestic product (GDP), while in 2019-20 the ratio dropped to 1.5% and for 2020-21 (with revised GDP), it comes out to be only 1.7%.

So, no wonder that our illiterate/ semi-literate youth due to alienation, joblessness and lack of awareness become easy prey to the extremist agendas, especially in the absence of any strong movements with progressive socio-economic aspirations.

Communication, exports

No sustainable economic development can take place without a robust system of logistics and masses’ mobility. However, the Logistics Performance Index of 2018 of the World Bank ranks Pakistan at 122 with Germany at the top.

As a side-effect, this failure has resulted in inundation of roads with two and three-wheelers, causing additional energy imports.

We took around 30 years in increasing exports from around $6 billion to the current level, touching $30 billion only once in 2013.

Exports of India stood at around $23 billion in 1990 but touched $538 billion in 2018, while those of Singapore grew around 10 times from $64 billion in 1990.

For accelerated development, Pakistan needs a high value-added exports-based industrial revolution. The same is not possible with its current meagre spending of hardly 0.3% of GDP on research and development.

Answer to the challenge lies in the emulation of Singapore, which spends around 2% of GDP for the purpose.

Neighbourhood

Wise are the nations who learn to live in conflicts and still develop synergies with their neighbours while giving due primacy to their economic interests.

A few examples are China and Taiwan, Russia and Turkey, etc. Thus, we may explore similar options of economic ties with India.

Mending of fences between the two can transform the entire Saarc region carrying 25% of global population in addition to expanding Pakistan’s regional and global manoeuvrability and helping put into balance its current over-reliance on China.

What is to be done?

I sincerely believe that our future depends on how well we integrate the above ideas into our national security aspirations along with the introduction of an effective implementation strategy.

I also hope that political parties would consider incorporating them explicitly into their manifestos for the upcoming national elections.

The writer is a petroleum engineer and an oil and gas management professional

 

Published in The Express Tribune, February 14^th, 2022.

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