The sovereignty of a country is not absolute. Its extent is a function of two variables: (1) The degree of economic dependence on its protagonist. (2) The ability to mobilise political support and economic resources both within the country and through alternative international alliances.
The architecture of Pakistan’s economy as it has emerged in the last five decades makes foreign aid a key pillar of the economic edifice. This is because of two structural features of the economy: First, the inability to generate adequate foreign exchange earnings to finance import requirements. Second, a domestic savings rate which at 12 per cent of GDP is insufficient to finance its investment requirements: For a six per cent GDP growth rate investment must be 24 per cent of GDP. This problem is exacerbated by the fact that government revenues are inadequate to finance even the minimum expenditures necessary to govern.
The consequence of slow export growth and a low domestic savings rate is rising public debt, both external and internal. Thus, the total public debt last year stood at about $80 billion. The pressure of this stock of debt on the country’s exchequer can be gauged by the fact that debt servicing now constitutes 43.3 per cent of federal government revenues. This means that if subsidies on key items as well as defence expenditures are maintained, then the entire operational expenses of the government and development outlays have to be financed through foreign aid. So acute is the fiscal pressure that last year the government had to finance 32.8 per cent of the fiscal deficit through the device of borrowing from the State Bank which had to print notes to oblige.
These financial constraints of the government are placing severe stresses on society: (1) High inflation rates that are pushing food and basic necessities beyond the grasp of millions of citizens, leading to increasing numbers of suicides and burgeoning ranks of militant extremists. (2) Due to the government’s financial inability to utilize even the existing capacity for electricity generation, there are continued power outages causing distress to citizens and industrial losses amounting to two per cent of GDP. (3) Declining development expenditures and continuing recession is increasing poverty so that now as many as 40 percent of the population may be below the poverty line. (4) Federal fiscal constraints have resulted in a sharp reduction in the provincial share of federal revenue this year thereby putting pressure on the federal structure.
Winning space for sovereignty requires addressing in the medium term, the structural weaknesses of the economy, which successive governments, both military and civilian, have failed to do so far.
In the meantime Pakistan needs to diversify its sources of both trade and aid. Britain and some of the European countries who have a less inflexible position on Iran can be approached. More important Pakistan needs to focus its economic relations on its region: India, Iran, China, and Russia. However to tap into these alternative sources, a major shift is required in Pakistan’s national security paradigm. The policy of nurturing selected extremist groups as strategic assets, has created security problems in each of these countries: Pakistan based militant groups have spilled across our borders, East, North and West. Consequently, neighbouring countries would be wary of putting up an economic rescue package to compensate for US pressure.
If Pakistan is to diversify the sources of aid and trade to win the space for sovereignty, it will have to give credible assurances to its neighbours, that it has turned a new leaf, and will stop playing what the world accuses it of: the double game.
Achieving the space for sovereignty requires paradigmatic changes in economic, foreign and security policies. Only then can Pakistan link up with the emerging economic powerhouses of Asia to build a future of peace and prosperity.
Published in The Express Tribune, March 5th, 2012.
COMMENTS (9)
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The irony is that everyone has now realized and spotted as to where the shoe pinches. But no one in political landscape is out there to call a spade a spade. Some small steps will lead to giant leap. Open trade with India, leave Afghanistan alone, cut the umbilical attachment with taliban and assure the world that terrorism is the worst enemy of humanity. A new chapter needs to opened - the sooner the better. As always Dr sahib is right on the mark.
Agree with your thesis Dr Sahib but it's not going to happen anytime soon. The economic rot is deep and widespread and has been in the making for 64 years. It has a momentum of it's own and changing its direction -- apart from cosmetic stuff -- has now become impossible.
Excellent advice for those in power. It remains to be seen if it would be taken in all seriousness and acted upon. There are some encouraging signs from the government, but the negative impact of the activities of the likes of Difa-e-Pakistan Council has to be dealt with equal seriousness.
Excellent article ! Are the policy makers who made Pakistan a Security State willing to turn over a new leaf ? Who is going to cut the Gordian knot that ties the Establishment to various extremist groups ? Who will convince the people that a better tomorrow for their children is preferable to uncertain rewards for violence, in after life ?
At least someone took that mentioning of the reaction towards Pakistan dealing with Iran in the right context. You're 1 in 180 million.
The other option is a quantum jump in aid from Saudi Arabia and China. But this is also a dead-end. Saudis will demand more madrasas and Wahhabi indoctrination. The Chinese will demand what essentially is a complete handover of the economy to them.
Well written sir, although the above mentioned changes could and should have been brought about long timed back in Pakistan,one wonders why people of Pakistan dont think of economy prosperity as a better option then fanatical religious domination of the world.
Excellent analysis. We make irrational choices and very strongly believe in emotionalism. Things need to be analyzed before jumping to any conclusion be these about economy, foreign relations, or energy needs. There is a Punjabi expression " Kuj pallay hai" (do we have resources). Emotions and rationality, unfortunately do not mix quite well.
Very well written article. Pretty much sums up our constraints as well as the need for the shift in paradigm. I think we have reached the tipping point. It is about time we change our security based view of things and focus on economic growth solely or the results can be horrendous.