Pakistan’s overall external debt and liabilities stood around $126.35 billion at the end of December 2022 against our annual exports of goods and services worth $40bn in FY23 that ended in June this year. Since the external debt and liabilities are more than three times our total exports, we are, by textbook definition, a heavily indebted nation.

Large external debts and liabilities cannot be reduced unless the economy begins to grow at a constant rate of six per cent plus and foreign exchange earnings of exports and remittances exceed total imports — and Pakistan begins to attract foreign investment of no less than $5-$6bn per year. That is not possible anytime before FY26 starting in July 2025. So what can be done between now and June 2025 — in a little over two years?

In the next two fiscal years, the country’s external sector will remain under pressure due to heavy external debt financing and economic growth is expected to remain in the range of 3-4pc (recovering from an estimated 0.4-0.6pc this year).

Under these circumstances, making major structural changes in the economic structure may be too difficult due to fiscal constraints. But laying the foundations of a new, futuristic economic model will make sense.

Increasing digitalisation, IT and AI-driven investments and empowering women will enable the country to build a stronger foundation

Structural economic changes take time to yield results. So, if our economy is gradually redesigned in the next two years, the desired results can be expected to start coming in afterwards. But what should be the main pillars of the new, futuristic economic model?

Well, the new economic model must aim at (1) making all economic sectors and businesses IT and AI-driven, (2) further digitalising the financial system and making the financing system more inclusive and, above all, (3) reforming the education sector and empowering women at all levels and truly enabling them to contribute more towards economic development.

The digitalisation of financial transactions keeps growing rapidly, contributing to higher tax generation and documentation of economic activity. But the country has a long way to go. According to the Digital Economies Index of the Financial Times and technology research firm Omdia the Asian countries that top the 2023 list of fastest-growing digital economies include India, Vietnam, Israel, Indonesia, China, UAE and Phillippine.

Pakistan is not on the list currently because the index covered only 51 countries, and many were excluded from it. But we all know that in the above-mentioned Asian countries, not only the financial systems but the entire economies are far more digitalised than in Pakistan.

The use of IT and IT-enabled services in our agriculture, industry and services sector has taken root and e-commerce has also been growing fast. But now the time has come to make all these sectors of the economy as well as individual businesses, not only IT-driven but also AI-propelled.

Pakistan has 600,000 IT professionals and 17,000 software houses. Why not use them to take the IT revolution in Pakistan to the next level and make generative AI popular across the economy? The services sector can benefit from generative AI even in the short term and help young people do more online jobs, launch more online businesses and boost services exports as well.

No futuristic economic model of Pakistan can rest on its present educational system and low level of women empowerment. The education system needs to be overhauled to make it unified and qualitatively better.

The fragmented education system continues to produce a variety of educated youth — with many of them, particularly those educated in Madressah and so-called Urdu-medium schools, unaware/confused about national economic needs.

The quality of education they receive also varies a lot and is a reason for the low quality of education in general. The education system reforms must also include a mass literacy plan to ensure that the children that are out of school can learn to read and write, get re-enrolled in schools or learn some skills. According to United Nations International Children’s Emergency Fund, an estimated 22.8 million Pakistani children aged between 5-16 years are out of school.

A futuristic economic model must also aim at ameliorating the economic conditions through not only greater participation of women in economic activities but greater economic empowerment at all levels.

According to the Global Gender Gap Index Report 2022, Pakistan ranks 145th out of 156 countries when it comes to women’s participation in the economy and the opportunities available to them. The country also ranks too low — 135th out of 156 in educational attainment for women and 95th out of 156 in women’s political empowerment. With such low levels of women empowerment, no country can even dream of sustainable and socially just economic progress and development.

If policymakers today make women’s education and empowerment priority areas of action while developing a futuristic economic model, desired results will surely start coming in after a few years. If these two causes are served honestly, Pakistan will also find it easier to gradually eradicate from society the twin menace of extremism and terrorism that continues to mar Pakistan’s economic development.

A new, futuristic economic model that Pakistan needs to build urgently will be useless if it is designed, owned and implemented by the government of the day alone. The government and the private sector can make such a policy. Of course, the prime responsibility of implementing it will also rest on the government of the day.

If a long-term new national economic model is not “owned” by the state, it cannot survive in Pakistan. And what can be a better way of making it “state-owned” except that the government and the opposition sign a Charter of Economy and the Parliament provides it constitutional cover?

Published in Dawn, The Business and Finance Weekly, May 1st, 2023