Every few years, Pakistan’s economy finds itself at the Nazuk Mor. The cycle that begins with platitudes like ‘growth momentum’, ‘ready for takeoff’ ends in a whimper, with almost every economic indicator nosediving and economic managers scampering for ‘relief’ in Beijing, Washington, Dubai or Riyadh. But contemplation of why we end up at this sensitive juncture every few years and are an economic basket case is usually missing (or misses many major issues). My own reading of Pakistan’s economic management suggests that there are a few common denominators of our malaise that have persistently undermined the economic potential of this country. What follows is a brief profile of those issues (readers, though, should note that by no means is this a complete list).
The first one is the never-ending shortage of dollars (till the mid-1950s it was pound sterling, but that changed as we agreed to be Uncle Sam’s poodle starting with CEATO and SENTO). Traditionally, there are three methods for earning dollars – Foreign Direct Investment (FDI), exports and remittances. FDI has been the weakest chain in the link, with foreign investors usually shying away from the country for various reasons (weak governance, geopolitical situation, low trust upon governments, etc.). Exports reflect another dismal story. Pakistan’s exports have usually tended to be low-quality products and raw material (like cotton) which are easily substitutable, and they have increasingly become dependent upon favours like GSP Plus. Additionally, the export sector has had to face significant challenges at home as the situation within the country has become less favourable to industrial production over time. The third source, remittances, only started to matter in the mid-70s and later. By now, they are the main lifeline of Pakistan’s dollar earnings, although they mainly sustain consumption rather than adding anything to long-term aggregate productivity.
However, all three have fallen short of addressing Pakistan’s demand for greenbacks, which has sent governments over time scurrying for alternatives. The favourite one, especially during military dictatorships, has been ‘geographical rents’, or renting out our land (military bases, specifically) plus fighting Uncle Sam’s endless wars. But the dollar tap only opens up for a few years, giving us the ‘feel good’ factor, creating an expectations bubble (‘irrational exuberance’) and our policymakers think that good times will never end, until Uncle Sam and others pull the rug and we find ourselves back at square one. These temporary flows were, and never will be, enough for us because they only fuel a consumption bubble rather than productivity or savings, which in turn need even more dollars to sustain the bubble. But as the tap is turned off and the inflows dry up, the bubble bursts and we are back to Nazuk Mor.
Pakistan is probably the only country in the world where there is an expansive government-led ‘Welfare’ system running for both the rich and the poor at the same time
The second common factor is the belief in Jugaar (short-cuts) rather than the long, hard slog. This belief is prevalent at both the government as well as public level. Economic growth, especially in the long-run, critically requires aggregate productivity growth (especially human capital) aside from other factors like policy consistency, institutions, property rights, efficient justice system, etc. Pakistan only has these required attributes in name without the requisite quality and output, and productivity of its labour force is mediocre. There are more than 400 ‘training’ institutes for ‘skill upgradation’ yet we can’t even match regional countries in productivity. What we are good at, though, are Jugaars. One of the main short-cuts, renting out for dollars, has already been mentioned above. Then there are others like CPEC, and the recent ‘Mineral Wealth’ and ‘Bitcoin mining’ (aside from the other ‘game changers’). This get-rich-quick fallacy, unfortunately, refuses to go away. We find a similar approach at the population level. It is not uncommon, for example, that an unsuspecting customer is ripped off by a seller as the urge to make a quick buck or two trumps moral persuasion or hard work. Similarly, although the returns to plots and land are nothing spectacular, we would find people in every nook and corner of the country putting their money in real estate in the hope of a quick, outsized return.
Third, Pakistan’s economic management has traditionally been run by folks who have little grounding in economics. These include civil service babus (especially PAS, formerly DMG), bankers, faujis and accountants. Finance ministers are chosen on the basis of party loyalty, subject to green signal by the military establishment who have the final say in this matter. Economists are usually employed to get their signatures on already prepared documents or to get funding from donors like IMF. Once that is done, there is no utility in keeping them employed (Hafeez Sheikh serves as a good example). Babus and faujis act as the know-all in this system courtesy of a single course from Walton and Kakul and refuse to let go, mainly because of the filthy riches they mint through this system (especially the military establishment). Conmen like Ahsan Iqbal and Ishaq Dar ensure provision of necessary capital for their masters and parties (and to accumulate personal wealth), whether it’s greasy fat contracts or placing their own men in important positions. The space for professional economists in Pakistan’s policy making circles as well as leading political parties is limited. The icing on the cake comes in the form of poor quality of economists that our universities produce, who peddle the same old, trite ideas and barely move beyond traditional topics (taxation, fiscal policy, monetary policy and budgets).
Majority of the social gatherings are all about petty jealousies, politics or religion, but rarely a serious discourse upon our economic plight
Fourth, Pakistan is probably the only country in the world where there is an expansive government-led ‘Welfare’ system running for both the rich and the poor at the same time, with the results being zilch for one segment (the poor) and incredibly outsized returns for the rich/powerful groups. Since independence, we have been running ‘anti-poverty’ programmes, with BISP being the latest incarnation under which Rs.2 trillion plus of taxpayer money has already been spent with zero results. But babus, consultants and others have minted gazillions off this ‘poverty industry’ (the first head of BISP was Farzana Raja, who was fired from her job in Printing Corporation in the 1990s after getting caught stealing money, is now an absconder in Rs. 60 billion NAB Reference. She fled to the US the day PPP government ended in 2013).
Regarding rich, powerful groups, the ‘welfare’ initiatives come in many shapes – Board Memberships to secretaries where they get paid in dollars (like OGDCL), free and subsidised stays, interest-free loans to those in public service, provision of subsidised agricultural land to military at throwaway prices and subsidised land to both civil and military walas (that become housing societies like DHA), high tariffs for protecting Pakistani seths from competition which ends up costing Pakistani consumers a ridiculous fortune (car makers in Pakistan serve as a good example), indemnity and protection for Govt. owned entities from competition in large-scale contracts (NESPAK, FWO, NLC, etc). Another prominent example is the Public Sector Development Programme (PSDP), through which MNAs, MPAs and other interest groups mint unimaginable amounts of money in the name of ‘national development’. Any way you look at it, this systemic manipulation serves as a giant Ponzi scheme deliberately directed towards favouring the chosen ones.
Fifth, confronted with a problem, the only solution Pakistan’s economic managers turn to is to throw more money at it. That’s about the only thing they know, mainly because they know little of short and long run analysis, and partly because it creates more opportunities for them (running a ‘project’, for example, creates opportunities for retired folks to keep themselves employed). With over 400 ministries, divisions, autonomous/semi-autonomous entities and regulatory agencies, there is enough opportunity to keep continuing post-retirement and enjoy ‘welfare’ on taxpayers’ hard-earned money.
Sixth, development and growth policies are the outcome of thinking long abandoned. Our unending obsession with Brick & Mortar (‘hardware’ of growth) as the way to riches serves as an apt example, despite the fact that there is already too much infrastructure lying around unutilised, wasting gazillions of rupees. In this regard, Pakistan’s policymakers seem to be strict adherents of J.B. Say’s Law of Markets (a theory discredited long ago), which posits that supply will create its own demand. This adherence is also explained by the significant moolah it brings with it. Just look at how Islamabad is being turned upside down by none other than the Interior Minister through construction of poor-quality underpasses, signal-free corridors and other hard infrastructure which have little logic to it (these expensive monstrosities could not withstand even a single burst of rain) and will destroy whatever is left of Islamabad’s environment. There is literally nothing in terms of sound policies built on historical analysis, on-ground realities and data. It’s all about SROs and day-to-day firefighting amongst which scammers and fraudsters find enough to enjoy a comfortable existence.
Seventh, the existence of a huge informal sector, anywhere between 30–40% of the formal economy. But this is not because informal participants of informal sector are thieves and don’t want to pay their dues (that is a small percentage, and exists in every country), but mainly because of the extractive nature of the state. Put another way, the trust between the state and the citizens does not exist. Just pick up your electricity bill and see how many taxes and duties we end up paying when there shouldn’t be any (in FY 2023–24, Government extracted Rs. 900 billion through taxes in electricity bills. For just concluded FY 2024–25, the number is close to Rs. 500 billion). And what do citizens get in return? Amidst the continually falling standards of living, you can’t seriously expect people to trust their state with their earnings with the expectation that the state will improve their livelihoods when it has failed to do so in the last 78 years (there are exceptions, though. But they pale in comparison to degradation of life quality through state’s incompetence).
Last, but not the least, I have yet to come across people as non-interested in their economic plight as Pakistanis. They would spend, for example, hours watching useless stuff or monkey shows, but would have a hard time spending 5 minutes watching a serious debate or listening to how economic policies affect their lives. Although it might sound crass, a substantial majority of voters within the country can be easily bought for the promise of a free meal, getting a member of the family placed in a government department, or just for cementing their street. No hard questions asked, no debate or no contemplation of why we fare so poorly as an economy.
There is no pushback, for example, against the contentious decision to forcefully ‘Islamise’ the economy, an experiment that the society and the economy went through under Zia-ul-Haq’s regime with disastrous consequences in the end. This illogical decision of the Shariat Court (another invention of Zia) is already proving to be a heavy burden upon savers, whereby commercial banks (one of the biggest rackets in Pakistan) are robbing them off of their due savings in the name of Islamisation. Yet, resistance at individual and cumulative level is rare. Similarly, majority of the social gatherings are all about petty jealousies, politics or religion, but rarely a serious discourse upon our economic plight. So our economic predicament is a cultural issue too.
Well, folks, this was just a quick run-through of the common issues that have plagued our economy since day one. There are several others, like donor influence. But the above should provide an introductory insight into what ails our economy.