FOR the last many decades, we learn, Pakistan has continued to face the same issues — current account deficit, barely sufficient foreign reserves, falling value of the currency, and so forth.

Persons in the finance/banking and economics sectors are sought, preferably with long experience at the IMF or World Bank, to find a way out. A short-term relief package is agreed on with donors, one which requires expenditures to be related to revenue. But the same problems continue. Time and again, the process is repeated — there is something radically amiss!

For context, here’s a quick recap of some pertinent economic particulars of the country:

(a) Imports are double the exports (both in international currency);

(b) The foreign assistance received each year by Pakistan is equal to only one per cent to 2pc of its annual economic production — but, crucially, foreign assistance is in international currency;

(c) Tax collection is merely around 10pc of all economic production in the country, mainly through indirect taxation, which puts a disproportionate burden on the poor;

(d) Agricultural revenue has dropped to around 20pc of the total annual domestic production — the largest segment of the population is related to agricultural income and the country’s meagre exports are primarily agriculture-based.

It is essential for policymakers to understand the citizens’ living conditions, their needs and aspirations.

For immediate relief, financial manipulations are usually resorted to: the gap between imports and exports may be partly addressed by requesting friendly countries to defer payment for imports; the lack of reserves is addressed by beseeching friendly countries to temporarily deposit a few billion into State Bank coffers; the low tax collection is handled by reducing services (healthcare, government schools), imposing indirect taxes, entreating the roll-over of payment for past loans, taking new loans and offering amnesty on the disclosure of unexplained wealth. To raise exports, the value of the rupee may be lowered, rates tweaked and further subsidy conceded to exporters — but there are limited competitive goods to sell and export targets are still not achieved.

The citizens are asked to accept such steps as unavoidable emergency band-aid measures. But these short-term financial manipulations have been repeated for decades!

In fact, such preferred manipulations are not the only option. The selected economic managers come from the finance/banking and economics sectors and tend to focus on financial measures. Many have little connection with this country and almost none with ordinary citizens. It is essential for policymakers to understand the citizens’ living conditions, their needs and aspirations, and to empathise with them. They should also be thoroughly familiar with the country’s economic background and potential. National development cannot be entrusted to the arriving ultra-rich technical specialists. Former staffers of multilaterals are trained to follow their institutional policies and procedures and to ensure the recovery of loans disbursed; they are not held responsible for the effects of loan conditions on the people of the recipient countries. While some of them may have a broader perspective, they are not necessarily qualified to guide Pakistan’s national development.

While short-term financial measures may be necessary to address emergencies, the ‘real’ economy must be focused on to take the country out of the continuing economic disarray and towards prosperity.

Editorial: Economic challenges

For instance, agricultural output can be raised many times over by reducing inefficiencies — with the same land and with less water — by properly applying improved methods. Nearly 50pc of agricultural water is lost in conveyance. In some cases, there is 30pc to 40pc crop output spoilage, while livestock milk production is a quarter of the potential output.

To substantially raise the export of IT services, first the standard of education has to improve. To produce more varied export goods and reverse-engineer products, excellent engineering skills are needed, together with enhanced capacity for applied research and a skilled middle tier that has been given quality vocational training. A level playing field should be provided to entrepreneurs who can compete on the basis of merit in the international market, without depending on government concessions. The budgetary burden of losses by state-owned enterprises needs to be resolved. Thus, the path ahead should focus on the ‘real’ economy.

It may be helpful to clarify the terminology incessantly used by economic analysts, which can make issues seem unnecessarily complex.

‘Budget deficit’ refers to the difference between revenues received by the government and what it spe­­nds. ‘Current account deficit’ just means that a country’s receipts from other countries are less than its total payments to other countries. CAD and ‘balance of payments’ are often used interchangeably. The State Bank’s ‘reserves’ refers (in general) to how much international currency it has. ‘Monetary policy’ includes tools such as interest rates set by the State Bank. ‘Fiscal policy’ refers to taxation and government expenditures. Finally, ‘GDP’ is the total mo­netary value of all domestic production during a time period and the ‘growth rate’ is its increase.

Quite straightforward when put in everyday words; most people are capable of understanding these concepts when not muddied in the ‘experts’’ terminology.

Read: The urgent and important

Lastly, any government faces formidable constraints. Civilian governments have always been kept unstable and have lacked complete autonomy. There are entrenched interest groups with strong lobbies. Group interests are ruthlessly pursued to: maintain state subsidies for big businesses; pass the burden of utility distribution inefficiencies to the public; continue the losses by state-run enterprises propped up by unaffordable subsidies; retain discriminatory regulations favouring the powerful, etc. Furthermore, efforts to reform state educational institutions, the healthcare network and the bureaucracy are hindered by angry, organised resistance that unstable governments cannot withstand.

A stage has been reached where no existing single political party, or the military — and no unstable government lacking legitimate mandate and lacking full constitutional autonomy, even if absolutely sincere — can take on the entrenched interest groups.

The writer is the author of Pakistan: Principles of Public Policy Redefined.
zua2@cornell.edu

Published in Dawn, June 25th, 2022