Ours is a mismanaged country but one with potential to amply fulfill the needs of its citizenry. In so far as our economy goes, there is nothing that is wrong with it structurally.
Prima facie Pakistan’s current economic difficulties emerge out of high import bill and corresponding lack of investment. The huge rise in the oil price internationally over the last few years along with an international crisis of agriculture production has affected this country just like it has affected all countries around the world.  For us, it also has to do with the unique geo-political role that we are forced to play without an effective negotiator on the top.
The recession in the West has given us breathing space. The oil price is now back down into the US$60 to a barrel range on the international market. This is – as with all capitalist systems- an automatic correction of what was an unusually high increase in the costs of fueling the global economic system.
As it stands right now, Pakistan’s policy makers shall find a greater cushion than they expected. If some of the price decline is passed on to the consumers in Pakistan, it will slow down the inflation rate considerably. The 30% to 50% food inflation rate over the last few weeks will go down to 12% to 16% in the coming months. Even if it isn’t passed on, the correction vis a vis import bill is going to be substantial. The policy makers thus have a menu of options available.
An important factor would be increase the tax base to include agricultural income. Similarly, selective weekend taxes for petroleum products, as much as several hundred percent, will help bring both the burgeoning fuel demand and reduce pollution. Similarly for power, instead of load shedding during the work week, it would be better to increase the tariff by significant amount on Sundays. At the very least our policy makers should heavily tax imported products and luxury items for which there are local alternatives.
Pakistan’s economic growth will slow down from between 6 to 7 percent to between 4 to 5 percent. To achieve a growth rate between 4 to 5 percent in times of a global recession is no mean achievement and it reaffirms the point made earlier. Similarly, the State Bank’s decision to increase money supply by cutting in interest rates and cash reserve requirement indicates that the policy makers tend to agree that Pakistan’s current crisis is not demand pull (since the economy is slowing down) but is cost push due to external factors. The immediate and possibly temporary reaction to State Bank’s decision was the appreciation of the Pakistani rupee which has generally been seen as welcome. Pakistani rupee will stabilize as the situation globally favors the developing world.
Ultimately the real solution for our economic woes, to use the hackneyed phrase, lies in increased foreign direct investment.  Since 2001, Pakistan had received only up to US$ 64 billion inflows, which is – no matter what people say- a pittance compared to our potential. As an English-speaking nation of 165 million industrious and talented people, Pakistan presents an excellent opportunity for any foreign investor but for three major drawbacks.
One, we assume and project the same assumption on to foreign investors that that investments in Pakistan and India are mutually exclusive and since we view everything in comparison to our giant neighbor, we tend to underestimate ourselves increasingly so in the last decade and a half. Second, and more conclusively it is terrorism that has dulled Pakistan’s foreign investment in every sector including sport and tourism. In 2004-2005, Pakistan was an exciting tourist destination with Basant festivals, Polo matches and Cricket. Today foreign sports teams are very rightfully apprehensive of visiting the country and almost every Western embassy has a travel advisory out. The Marriot bombing has all but completely brought not just international but domestic commercial activity to a halt. And finally, it is the infrastructure. For all of the last government’s purported achievements in the economic sphere, their inability to create power solutions for an annual demand for electricity growing at 7-10 percent.
How does one do it though is a tricky one. The first two are political issues. India’s existence as a bigger nation in our neighborhood need not be a threat to us. Indeed if Pakistan were to play its unique role as a neighbor of one emerging global economy like India, while courting Asia’s foremost power house China and manage to keep its ties with the US as its Major Non-Nato Ally at the same time, it is highly probable that under a democratic regime, Pakistan can manage to create a trillion dollar economy in two decades or less.
But this means a solutions or management of all existing disputes but most importantly the water crisis. The most crucial issue however will be what role Pakistan plays in the Iran-US. Instead of waiting for the time where US gives Pakistan an option similar to the one it was given in 2001, Pakistan should play a pro-active role in bringing Iran and the US together by playing exactly the kind of role it played in the 1972 between China and the US. It would not be out of place to attempt once again to revive the long dead Regional Cooperation Development organization or the RCD between Turkey, Iran and Pakistan which would guarantee greater regional stability and economic options for Pakistan. Winning the war on terror is going to be essential but the war itself ought to be fought on several fronts one of which has to be economic.
The fall out of the war on terror has been economic and our allies should compensate us for our losses. But perhaps the most important thing any of our allies can help us with is in the power sector. Ideally the US should have boosted us by providing us the same kind of civil nuclear deal that it has offered India but much of that is impossible at present because of the history of nuclear proliferation and now that Dr. A Q Khan has rescinded on his earlier confession. We still might get a nuclear deal from China. This is not all though.
Pakistan must make dams and make them quick. If Kalabagh is out of the question, then alternatives must be looked at and a quick decision taken on. Similarly the Iran-Pakistan pipeline is also essential and if India joins in, this pipeline might just be a pipeline of peace and prosperity in the region. All in all, if this democratic government was to play its cards right, it could raise up to another US$ 30-40 Billion in direct investment over the next 3 to 5 years and that would be more than enough to sustain and develop it.
The late US President Richard Nixon, one of the 20th century’s greatest statesmen, wrote in 1991 that Pakistan as a democracy, an important “modernist” Muslim state and a US ally was one of the most important countries in Asia, close relations with which were imperative for US’ own interests in Asia and the greater Islamic world. Unfortunately the policy makers in the US in the 1990s did not listen to him. Now more than ever it is clear that our allies need us more than we need them – it is this essential premise on which we should deal with the world with our head held high.
Indeed if nations were judged by how hard they were hit and still managed to move on, Pakistan has given a good account of itself going from one crisis to another in quick succession. But nation states, as with individuals, are judged not by how many crises it takes to bring them down but how far they travel on the road to progress and towards their stated aims and objectives. Without getting into ideological pretensions, the consensus that all major players in Pakistan’s politics have is that Pakistan ought to be: an economically viable state run by constitutional democratic means which was the original aspiration of the people of this country.
Our rulers have bungled up opportunities and have let the people down far too many times in the past. It is time for the current democratically elected government to take a long hard look at the situation and refrain from mock tough rhetoric that does no one any good.
Pakistan must seize the moment and take this as an opportunity to catch up.
Dear YLH ,
Good to know you are part of the Lawyer’s Movement;but, frankly that’s a movement whose benefits are of limited use;when the real issue is poor civilian politicians.
I suggest you guys look to Lok Satta in India and try a more broadminded approach.
The Virginia comment was addressed to the person living in Virginia. He knows who he is. Not everything is about you.
Secondly you are not “disagreeing” with me, you are putting words in my mouth which I never uttered. Who defended the status quo or Zardari etc? My issue with your comment is that it doesn’t even attempt to address the article.
If I choose to respond to your post, how does it show my intolerance for it btw… have I come and physically stopped you from responding? But I do have the right to point out where I feel you are absolutely wrong and your misinterpretation is malicious in nature.
This was a very well-balanced article, and it presents good arguments for Pakistan’s vitality as a nation. And that is precisely why we are being rounded up by many big powers under the garb of alliances. It is not schizophrenic to assume that our allies want us in category with Afghanistan and Iran, as they have explicityly stated many times, and it has been our leadership, corrupt as it is, that has at least had the shrewdness and diplomacy to avert dire consequences.
And so we survive. We must understand who our enemies are. As a nation we are stuck in quicksand. People amongst our own are stupid enough in trying to destroy a country that is already wanted dead by the hounds.
We need education like a race towards the finish line to, at the very least, knock some sense into our own countrymen. I once proposed a village-education programme at an international conferece on education, which I believe should be carried out by highschool students of city schools, as part of a compulsory community service requirement. This service should count towards their final matriculation or intermediate level grade.
Will it work? Is there anyone to make fresh proposals to the government for implementation of such a programme? Do we have the will?
What is the structure of Pakistan’s economy?
@Hossp: Many of us have gone over this many times on this blog and others with respect to a complete overhaul. For those of us NOT living on Fantasy Island know the limitations and what may be realistically feasible and what may not. I agree with you that the ingredients or the timing for a revolutionary change are not there. What some of us have been saying is that it is time for a new breed of leaders and politicians in Pakistan. It is time to join forces with or at least support those groups and individuals who are working towards providing the right kind of ideas and change from the business-as-usual (status quo/don-in – don-out musical chairs drama, etc) for the development and welfare of all citizens of the country. CJP-Chaudhry while had played both sides of the fence and Imran Khan may not be the ideal candidate – but both have been catalyst for change from the feudal bunch, crooks and criminals that are currently littering our political arena. I am not saying that these two individuals or their movement have all the answers to our predicament. But they may be the catalyst needed to start a mass-mobilization for a newer breed of educated and dedicated folks. The ones who are committed to dismantling the existing corrupt structures of economic mismanagement – and discharge their role as alternative, they must demonstrate their commitment to justice and moral values not merely in words but in practice. The ones who are ready, able and willing to uphold the independent of the judiciary and the media, etc. Let’s not discount many unsung heroes and capable individuals within our existing political parties. Such forces for change are unleashed all over the world – including in our near region. Yes, it is a tall order, but we must at least begin to contemplate and work towards such a goal.
@YLH: Whoa you – my friend! As many have noted repeatedly – maybe this is some ego issues – you always seem to jump your guns whenever someone disagree with you and have a habit of calling all sorts of names and labels. Your unwarranted insinuation of pipedreams of islamic resurgence or that you will soon hear a stock answer or someone with a different understanding or point of view is railroading or derail (rather debunking your assertion).
You can digress from the subject-matter and than expect everybody to just answer your questions when you don’t seem to answer any of the relevant questions put to you on the subject-in-question by others and myself. I gave some examples of economical structural flaws and other reasons for believing that our economical problems are not just cyclical but rooted in structural flaws as well. Others that have questioned your assumptions or claims were told that they don’t understand economics or the difference between cyclical and structural. To you everybody that disagrees with your assertion is a raving lunatic, pathetic or illogical. BTW it is not Virginia – but you have come a long way baby! (Virginia Slim slogan). No hard feelings!
I think there is no need for anyone to defend AZ and Co. What needs defending is the supremacy of the civilian set up in Pakistan. Right now, AZ & co may be at the helm but sooner or later some one else would take over. We hope that to be a democratic transfer and not through the boots or to the boots.
Asking for a complete overhaul but not telling how that is going to be accomplished is childish. There are no chances of a socialist or Islamic revolution via Taliban in Pakistan. Whatever changes are needed will have to come from the existing system and the first priority should be to overhaul economic management. Since most of the Pakistani managers are unable to stand up to political and the army pressures, outside manager probably are a better bet. They don’t have to be physically present in Pakistan but they sure can establish priorities in budgeting and other areas of fiscal management.
Without foreign investments chances of turning the Pakistani economy around are zilch. To make country investment friendly, the immediate political problems and insurgencies such as in FATA have to be taken care of. You can’t let bunch of crazies running around with bombs and suicide jackets in their possession.
Whoa seriously people…
Unlike the armchair activists and idealists here sitting cosy in Virginia or wherever else, I am part and parcel of the Lawyers’ movement … so lets not get ahead of ourselves and derail this discussion. No one is defending Zardari, corruption, generals etc. The very fact that you chaps have to either resort to personal attacks or change the topic to Zardari shows that you didn’t have an argument to begin with. What private griefs you have I know not, but the issue being discussed here is purely an economic one and you guys have failed pathetically to point out what “structural” issues you see with the economy. Indeed- my comment of mismanagement is a far greater indictment of Zardari and Co (and our ruling elite) than your claim that Pakistan’s economy faces structural problems. But this would require logical thinking, which seems to be in short supply in Virginia these days.
Ibrahim,
You’ll be surprised no doubt to know that I believe that Islamic principles of economic social justice and equality are the missing ingredients in the western capitalist system. I don’t see as contrary to secularism… but I do find your narrowmindedness at times to be completely contradictory to the spirit of Islam even.
But the solutions you’ve given, with which I agree wholeheartedly in principle, are not solutions for the problem at hand. Your hur fun maula comment was a dead give away of the fact that you really didn’t have an opinion on the article above but chose to attack it only because of your own personal disagreement and hatred for me. But for clarity, my major in college i.e. Economics doesnt make me an economist. I wrote this article as a Pakistani trying to clear the cobwebs of ideology that certified non-economists have created and look to the real problems. These issues require rational solutions… so let us check ideology and personal faith at the door.
As for the 3 comments… I was posting through a blackberry and not every comment was immediately visible on it. So I apologize for the multiple posting.
-YLH
Allow me to digress a little to reply to YLH & Co – who wishes to continue with the status quo and want us to “learn to live with corruption and incompetence,” and give AZ & goons a chance!
Such mantra from the groupies of Zardari & Co is NOT for the welfare of Pakistan but for their own selfish and vested interests. All this while, the radicalism by the groupies of Zardari-Bhutto, et al to go against the Establishment was just a show. The moment the sucker (Mush) who had reached the point of diminishing return with uncle sam was kicked out – these folks are back to their old devices. As long as, the lobotomized and corrupt leader belongs to their “camp”, s/he becomes kosher. Wow!
So long as the status quo continues – we will continue to see “dons in and dons out” – and the “new dawn” will remain the stuff of poetry only! In the meanwhile – the vultures and carpetbaggers are increasingly seen to be enjoying unlimited access to blogosphere and media - since the hardcore crooks and criminals “reinforced” in our ruling elite
Let us all discuss how we can contribute towards a change of status quo – rather than be the defenders of the status quo with Zardari or any of our current crops of corrupt and incompetent politicians and generals. Let’s move beyond our “own group” and work together. Patchwork treatment will only aggravate the disease. It’s time for a complete overhaul now – before it’s too late.