Durdana Najam
Pakistan’s economic woes are broad and varied. Its economic policy has always been inconsistent. The economic engine churns on with varying results, but nothing seems to signal a stable and long term-approach to the chronic economic problems the country faces.
The large scale manufacturing sector, for most of the time, has shown negative growth. The agriculture sector – the so-called backbone of Pakistan’s economy – has more or less been on a decline. This leads to the issue of deteriorating exports and current account deficit. No wonder that Pakistan’s government’s entire machinery is running on borrowed money. As of September 2019, Pakistan’s total debt and liability had soared to PKR 41.5 trillion.
The problem with our economic doctors is that they stress upon growth, without getting rid of inefficiencies embedded in the system, with no regard for establishing a culture of research and development.
Unfair business practices, tax evasion and preferential access to power are some of the major inefficiencies blighting the economic system, which has been deliberately created by the moneyed elite, to keep a big chunk of Pakistan’s population out of the prosperity loop. Add to this the climate of dwindling investment because of religious extremism breeding intolerance and violence. This makes the economic system jump-started every four years from the IMF released funds or from monies secured from friendly countries. In corollary, therefore, the country is trapped in low production and skewed investment climate.
Over the years, different guidelines have been handed out to rescue Pakistan’s economy from its shambolic state. But in the absence of strategic and methodical thinking for the identification of the economic mix that best fits Pakistan’s situation, all the guidelines have proved mere fancy talks. The structural changes being carried out in the taxation and the overall financial system may reduce redundancy and slippages, but it cannot put Pakistan’s economy on the road to productivity unless correct actions are taken. Among all the correct actions, three, the experts believe can be a catalyst for change. One, to spur entrepreneurship. Two, to liberalize trade. Three, to equip citizens with skills they need to compete in the global market.
As for the first catalyst, the Small and Medium Enterprise (SME) Sector has proved to be the most suitable vehicle. Countries aiming at accelerated growth, job creation, and low inflation allocate a significant part of their credit to the SMEs. Unfortunately, in Pakistan, this sector has remained at the lowest rung of the government’s priority ladder. Inconsistent and largely absent supply of credit from the government has brought the total private sector credit from 17 per cent in 2006 to 7.5 per cent in 2020. As compared to this, Bangladesh spends 20 per cent while Turkey 29 per cent of their credit on SMEs. According to the World Bank report “South Asia Economic Focus, fall 2019: Making (De)centralization work, the manufacturing sector in Pakistan contracted by over three per cent in March 2019.
This lack of wisdom in spending on SME also resulted in poor planning for infrastructure development. In contrast, making inexpensive the cost of doing business and creating an enabling environment where a taxation regime facilitates rather than obstructs exports should be one of the top priorities at the present.
Having almost assumed the status of a Messiah, all our bets are now on the China Pakistan Economic Corridor (CPEC), to bring us the long-cherished economic boost. But the economics’ experts believe that because of the inability of the government’s financial gurus to yield best deals, the benefit of the corridor may tilt in favour of China.
The second catalyst – trade liberalization – is essential for global/regional integration and to attract foreign direct investment (FDI) for the export sector. According to the National Tariff Policy, 2019, Pakistan’s global market share has decreased by 19 per cent, since 2003, causing a loss of $ 2.1 billion in the value of export. The defence of this increased tariff has been the usual refrain of protecting the infant domestic industry, which has remained so even after several decades, though. This protectionist trade policy, with no domestic cushion, has eroded Pakistan’s share in the international market.
Pakistan has been losing markets on factors such as the high cost of production and exporting low-value-added products. A virtual absence to the adherence of quality has deprived Pakistan of its long-held grip on the Basmati Rice market, now ruled by India. Similarly, we lost market for Mangoes and lately leather as well, owing to the unprofessional practice of treating and storing animal skins.
Pakistan has two options for now. One to build a strong local manufacturing system on the back of SMEs and second to open up its market for products in which it has a comparative disadvantage.
This brings us to the third action required to correct the course of Pakistan’s economy – equip citizens with skills they need to compete on the global market. According to UNICEF’s report “Developing Skills in Youth to Succeed in an Evolving South Asian Economy: A case of Pakistan,” Pakistan’s labour market is bested with a number of challenges that have caught it into a skill trap. Employers are forced to settle for the low-skilled workforce because of a strong disconnect between the demand for a specific skill and its supply. This disconnect is the result of disengagement between industries and academia. Complaints have been launched on out-dated and irrelevant curricula being taught in vocational institutes and even in universities.
The solution to this enigma lies in improving the education system. According to a research paper published in the International Journal of Educational Development Volume 66, April 2019, “Perspectives of dropped-out children on their dropping out from public secondary schools in rural Pakistan,” by Abdul Waheed Mughal, “In Pakistan, in total, 73 per cent of children aged 5-16 (classes 1 to 10) drop out before reaching the final grade of secondary school”. This is just a glimpse of the low budgeted education system, of which a large part is thrown at the mercy of a profit-seeking private industry.
For the economy to respond it is essential to remove these institutional inefficiencies along with establishing a culture of research and development. The policy makers need to think outside the box for the long accrued economic troubles. The significant step in this regard would be to improve governance and lessen regulations – which does not require any money – allowing merit and accountability to move the economy forward in a sustainable manner.
