Every Pakistani is rooting for the current government to succeed. However, the last year has seen the stock market go down over 30 percent in Pakistan and business confidence has never been this dismal in the 72 years of the country’s existence.
In the coming years, it is projected that our economic growth rate will go down to two percent by many international institutions. With the population growth rate at 2.4, this is a recipe for disaster. To give some historical perspective, the growth rate for Pakistan has hovered between six percent and seven percent during the 1960s and 1970s. Over the last one year our external debt has gone up to 30 percent of our GDP. This is historically unsustainable. Even if we climb this ladder, it obviously is leaning against the wrong wall.
This article is not aimed at placing blame politically but at assuming responsibility as a nation and providing short-term and long-term solutions from an economic point of view. It is important to point at not what we do wrong, but at what we do right. That is what my father Brigadier M.H. Atif did when he won 47 international medals in hockey for Pakistan as a player and official, including three Olympic gold medals and two world cups.
We will focus on some key instruments of change with specific actions in this article.
Influence of NAB
Economists can measure economic sentiment. The National Accountability Bureau (NAB) maybe doing great work, but when they recklessly approach institutions in Pakistan like Engro, Nishat Group and Lucky Group to hold them accountable for actions that were not only legal but were made for the service of the country, they create an environment of uncertainty which leads to economic and bureaucratic paralysis. If the government does not limit NAB’s sphere of accountability and the manner in which their work is exhibited, communicated and publicised, no amount of loans from any foreign institution can help Pakistan become self-sufficient.
Privatisation
The last time effective privatization efforts were undertaken in Pakistan was during the time of General Musharraf. Government-led enterprises can never be as nimble as private enterprises. The government needs to be an impartial referee who works hard not to make the game about himself.
Diversification of exports
We must understand the world’s needs better. Presently, textile is 60 percent of our total exports. To give an idea about which area to diversify into in the next 10 years, there are going to be two kinds of industrialized countries in the world; those which are proficient in artificial intelligence, and those which are not. The difference in their level of development is going to be unimaginable. Fortunately, Pakistani youth is very open to the complexity of technology. We have to develop the education system to prepare them and unleash them in this sector.
Currency devaluation
The main strategy to stimulate growth in exports is devaluation of the currency, which only works as a stimulus to exports in economies where import input costs for industry are below 20 percent. In Pakistan, they are on average 60 percent. Devaluing the dollar will not help Pakistan increase exports. Despite IMF’s pressure, Pakistan must manage the value of its currency to achieve the country’s economic goals. Institutions like IMF have a fixation with free market economics, but we must follow the example of China and manage the value of our currency.
Cost of money
The reason interest rate was raised to about 13.5 percent in Pakistan is because after devaluation, inflation was expected. Yet the economists failed to factor in the difference between total inflation and core inflation. The inflation prevailing presently is not demand-pull inflation, but is cost-push inflation. The ridiculously high interest rates make any prospect of borrowing to start a business unfeasible. It also offers no incentive for a person of means to invest in a job-creating business. They can just leave the funds in the bank and earn interest. Interest rate needs to be brought down to between seven percent and nine percent within the next three months. This alone will take the economic growth rate to four percent from two percent which is predicted presently for next year.
Foreign exchange crisis
Pakistan is the second location in the world after India where foreign companies outsource computer and technology work. These companies face infrastructure challenges specific to Pakistan in serving their foreign clients. For example, Paypal has six billion dollars of money paid by foreign clients that is stuck with Paypal that has not been paid to Pakistanis for the work that has already been completed. Every Pakistani embassy in the world should have a wing that exclusively seeks work outsourced to Pakistan in technology. This alone can be as effective as the remittances Pakistan receives and an ordinary organization working in the west outsourcing to Pakistan can save 40 percent of its technology costs. There are commendable efforts being made by the PTI to block informal channels like ‘hundi.’ However, like many similar well-intentioned efforts of the present administration, their messaging has created an environment of fear and paralysis even amongst overseas Pakistanis sending money back home. Hence the remittances are lower than a year ago.
‘Retire in Pakistan’
The one desire of most overseas Pakistanis is to retire back in their homeland, but they find the doors shut when they return after being abroad for so long. A plan must be introduced to get overseas Pakistanis to invest in a ‘Retire in Pakistan’ project, where they can plan for their retirement.
Energy sector
Our distribution losses are 30 percent, which means 30 percent of our energy either gets stolen or faces billing problems. That number has to be brought down if we ever plan to afford energy costs without putting up unaffordable government subsidies.
In recent years, unproductive agreements were signed with 50 independent power producers. Most of these agreements provide obsolete solutions with no incentive to make Pakistan energy independent, or include renewable energy sources like wind and power in the mix. They mandate the government to pay the IPPs in precious US dollars and those companies can in turn invest in the Pakistan in rupees. While these contracts are iron-clad, if some corruption can be discovered in these agreements, then these contracts can be deemed null and void or renegotiated. These IPPs have not paid one rupee of tax since their inception and cost Pakistanis about 300 million dollars every year.
Pakistan’s economy is truly at the brink. The present government could not be more ill-prepared. However, we can still salvage the country by focusing on agriculture and industry. We must develop economic policy initiatives that are not short-term in nature or are designed to coincide with election cycles, but are 10 to 20 years ahead in their vision. We need to modernise and diversify our vision in industry and produce things that the world actually demands such as artificial intelligence. If accountability sounds like a witch-hunt and becomes the biggest economic challenge to the business environment, we must tone it down. Agreements with the IPPs must be renegotiated. Taxation has to be pared up with increasing employment growth and not public victimisation. We must have some folks with a basic knowledge of economics discussing economic solutions with the IMF.
The writer teaches economics at York University, Canada
In the coming years, it is projected that our economic growth rate will go down to two percent by many international institutions. With the population growth rate at 2.4, this is a recipe for disaster. To give some historical perspective, the growth rate for Pakistan has hovered between six percent and seven percent during the 1960s and 1970s. Over the last one year our external debt has gone up to 30 percent of our GDP. This is historically unsustainable. Even if we climb this ladder, it obviously is leaning against the wrong wall.
This article is not aimed at placing blame politically but at assuming responsibility as a nation and providing short-term and long-term solutions from an economic point of view. It is important to point at not what we do wrong, but at what we do right. That is what my father Brigadier M.H. Atif did when he won 47 international medals in hockey for Pakistan as a player and official, including three Olympic gold medals and two world cups.
We will focus on some key instruments of change with specific actions in this article.
If the government does not limit NAB’s sphere of accountability…no amount of loans from any foreign institution can help Pakistan become self-sufficient
Influence of NAB
Economists can measure economic sentiment. The National Accountability Bureau (NAB) maybe doing great work, but when they recklessly approach institutions in Pakistan like Engro, Nishat Group and Lucky Group to hold them accountable for actions that were not only legal but were made for the service of the country, they create an environment of uncertainty which leads to economic and bureaucratic paralysis. If the government does not limit NAB’s sphere of accountability and the manner in which their work is exhibited, communicated and publicised, no amount of loans from any foreign institution can help Pakistan become self-sufficient.
Privatisation
The last time effective privatization efforts were undertaken in Pakistan was during the time of General Musharraf. Government-led enterprises can never be as nimble as private enterprises. The government needs to be an impartial referee who works hard not to make the game about himself.
Diversification of exports
We must understand the world’s needs better. Presently, textile is 60 percent of our total exports. To give an idea about which area to diversify into in the next 10 years, there are going to be two kinds of industrialized countries in the world; those which are proficient in artificial intelligence, and those which are not. The difference in their level of development is going to be unimaginable. Fortunately, Pakistani youth is very open to the complexity of technology. We have to develop the education system to prepare them and unleash them in this sector.
Currency devaluation
The main strategy to stimulate growth in exports is devaluation of the currency, which only works as a stimulus to exports in economies where import input costs for industry are below 20 percent. In Pakistan, they are on average 60 percent. Devaluing the dollar will not help Pakistan increase exports. Despite IMF’s pressure, Pakistan must manage the value of its currency to achieve the country’s economic goals. Institutions like IMF have a fixation with free market economics, but we must follow the example of China and manage the value of our currency.
Cost of money
The reason interest rate was raised to about 13.5 percent in Pakistan is because after devaluation, inflation was expected. Yet the economists failed to factor in the difference between total inflation and core inflation. The inflation prevailing presently is not demand-pull inflation, but is cost-push inflation. The ridiculously high interest rates make any prospect of borrowing to start a business unfeasible. It also offers no incentive for a person of means to invest in a job-creating business. They can just leave the funds in the bank and earn interest. Interest rate needs to be brought down to between seven percent and nine percent within the next three months. This alone will take the economic growth rate to four percent from two percent which is predicted presently for next year.
Foreign exchange crisis
Pakistan is the second location in the world after India where foreign companies outsource computer and technology work. These companies face infrastructure challenges specific to Pakistan in serving their foreign clients. For example, Paypal has six billion dollars of money paid by foreign clients that is stuck with Paypal that has not been paid to Pakistanis for the work that has already been completed. Every Pakistani embassy in the world should have a wing that exclusively seeks work outsourced to Pakistan in technology. This alone can be as effective as the remittances Pakistan receives and an ordinary organization working in the west outsourcing to Pakistan can save 40 percent of its technology costs. There are commendable efforts being made by the PTI to block informal channels like ‘hundi.’ However, like many similar well-intentioned efforts of the present administration, their messaging has created an environment of fear and paralysis even amongst overseas Pakistanis sending money back home. Hence the remittances are lower than a year ago.
‘Retire in Pakistan’
The one desire of most overseas Pakistanis is to retire back in their homeland, but they find the doors shut when they return after being abroad for so long. A plan must be introduced to get overseas Pakistanis to invest in a ‘Retire in Pakistan’ project, where they can plan for their retirement.
Energy sector
Our distribution losses are 30 percent, which means 30 percent of our energy either gets stolen or faces billing problems. That number has to be brought down if we ever plan to afford energy costs without putting up unaffordable government subsidies.
In recent years, unproductive agreements were signed with 50 independent power producers. Most of these agreements provide obsolete solutions with no incentive to make Pakistan energy independent, or include renewable energy sources like wind and power in the mix. They mandate the government to pay the IPPs in precious US dollars and those companies can in turn invest in the Pakistan in rupees. While these contracts are iron-clad, if some corruption can be discovered in these agreements, then these contracts can be deemed null and void or renegotiated. These IPPs have not paid one rupee of tax since their inception and cost Pakistanis about 300 million dollars every year.
Pakistan’s economy is truly at the brink. The present government could not be more ill-prepared. However, we can still salvage the country by focusing on agriculture and industry. We must develop economic policy initiatives that are not short-term in nature or are designed to coincide with election cycles, but are 10 to 20 years ahead in their vision. We need to modernise and diversify our vision in industry and produce things that the world actually demands such as artificial intelligence. If accountability sounds like a witch-hunt and becomes the biggest economic challenge to the business environment, we must tone it down. Agreements with the IPPs must be renegotiated. Taxation has to be pared up with increasing employment growth and not public victimisation. We must have some folks with a basic knowledge of economics discussing economic solutions with the IMF.
The writer teaches economics at York University, Canada