We, as a nation, produce much less than we consume. In the predominantly consumption-led economic growth, the domestic demand is met by imports that ballooned to $80 billion last fiscal year. And imports are not a component part of the Gross Domestic Product.

Workers’ remittances finance domestic consumption and are not channelled into productive activities. The brain drain deprives us of the skills and professionals needed to produce a value-added and diversified range of goods in demand in a transforming and fragmented international market.

And our export earnings and foreign remittances sent by overseas compatriots are not enough to foot the import bill. Debt-financed imports have become unsustainable.

We spend more than we earn. We are heavily in debt because our domestic savings and investment rates are very low. We suffer from perpetual unmanageable fiscal deficits and an adverse balance of payments. The government’s current expenditures perpetually exceed its revenues, continuously slashing development spending.

According to analysts, Pakistan’s economy is trapped in a vicious loop. First is the extremely high share of consumption in GDP. The second is the high reliance on imports to support that consumption, and the third is the major portion of direct and indirect taxes collected at the import stage.

Export earnings and remittances are not enough to foot the consumption-led import bill, making economic growth unsustainable

The foreign debt-funded imports with a perpetual balance of payments crisis and falling foreign exchange reserves in many countries are leading to regulatory cuts in imports and resorting to increasing protectionism worldwide. Even in the most developed countries, there is now some rethinking about the perceived benefits of the current pattern of the interdependence of nations.

Viewing developments from a historical perspective, Nobel Prize winner Paul Krugman says, “suddenly, interdependence doesn’t look quite as benign as we thought.” With a futurist outlook, an eminent economist and author say, ‘the rise of local, regional, and homegrown business is now at hand’.

Yet another key factor contributing to the current economic crisis is the misplaced overwhelming reliance on monetary and credit policy for setting the economy on a correction course.

“Economic theory has demonstrated in an irrefutable way that a prosperity created by an expansionist monetary and credit policy is illusory and must end in a slump, an economic crisis,” reminds economist Muneeb Sikander.

He adds: “it has happened again and again in the past, and it will happen in the future as well. For paper money and bank deposits are not a proper substitute for non-existing capital goods. This is precisely what has happened in the case of Pakistan.” As widely recognised, there is no alternative but to improve the economy’s fundamentals through structural reforms.

Referring to the faulty mode of reforms, economist Shahrukh Wani rightly points out: “in practice, reforms are a (democratic) political process, rather than a purely technical one. Technical appointees often lack the necessary knowledge of the coalition building needed to navigate a reform process.” All far-reaching decisions, such as the unanimously approved 1973 constitution and the 18th amendment were taken through consensus in parliaments under civilian rule.

An expansionary monetary policy tends to spur growth for a while, but sooner than later, the economy heats up with more money chasing fewer goods, fueling inflation. To fight inflation, a tight monetary policy comes into play that depresses domestic demand and slows down economic growth.

Import of textile machinery plummeted by 41.16 per cent in November, and textile and clothing exports fell by 16.15pc as compared to the same month of last year. To quote an analyst, it is a sign that expansion or modernisation projects were not a priority.

Large-scale manufacturing posted a negative growth of 2.89pc during July-October on a year-on-year basis this year compared to the corresponding period of last year. And during July-November, exports were down by 5.5pc at $11.93 as against $12.36 in five months of last year.

Empirical studies show that workers are increasingly feeling a disconnect from their employers. This is evident from the low level of productivity in Pakistan.

Foreign direct investment has also plunged by more than half to $430m from $884m in the first five months of this fiscal year compared to the same period last year.

The largest number of companies registered by the Securities and Exchange Commission is in the real estate and construction sector, followed by IT firms and then trading firms. In the past, we have been talking of the post-industrial era that resulted in pre-mature de-industrialisation.

In Pakistan’s prevailing economic model, it is easier to undertake trading than overcome a number of hassles involved in manufacturing and farming, including the rising cost of doing business. Thus stakes of a wide range of beneficiaries are deeply entrenched in the import business.

Banks prefer to finance foreign trade rather than take risks in funding industrial and agricultural production subjected to frequent boom and bust cycles. The devastation caused by floods also hit agriculture. The worse affected are the small business and small farms.

As manufacturers are also importers, they find importing their inputs more fruitful than replacing them with indigenous production. Fully installed capacity is not utilised and production and supplies are adjusted to the local market demand. Production is not geared to meet the needs of the people.

That tends to bring down the tax revenues. Despite the 25pc rate of inflation and higher prices of goods in a consumer-driven economy, the sales tax collection is increasing very nominally at 2pc.

We need to aggressively mobilise local resources and manpower to move, step by step, towards self-reliant economic development. For that to happen, it is equally important that we seek international cooperation for production-led growth that reduces debt-financed import bills and creates more trade surplus for exports.

Published in Dawn, The Business and Finance Weekly, December 26th, 2022