Pakistan

Pakistan and Emerging Markets In The World Economy

By Hamna Aslam

Posted on October 28, 2022

Pakistan and Emerging Markets In The World Economy

Mathew Syed, a prominent writer and an influencer, writes in his book Black Box Thinking, about the importance of institutional failure, so as to learn from it. Syed explains with examples that be it an individual, an organization or a state, in order to grow it is important to acknowledge failure, so failure can be learned from. By the same token global economic powers of the modern world are those which recognized the shortcomings as regards their economic policy making.

Pakistan, in seven decades long history, has not been able to achieve economic stability, and it’s high time that the economists of Pakistan assimilate the Black Box Thinking maxim prescribed by Mathew Syed: recognize mistakes and learn from them, to fix them contrary to what some economists of the country might have to say, Pakistan’s economy clearly, is not on the right track.

This condition of the economy can be imputed to historical structural and political issues that can be fined through applying swift and requisite measures. Pakistan’s economy faces and persistent twin-deficit; lack of sustainable growth; an under pathway clear from dependence on loans, and structural impediments in all sectors, namely agricultural, industrial and services sectors. Some might say that the latest national security policy shows a profound shift towards economic priorities, imports are being largely discouraged, so the economy is treading towards prosperity.

The fact of the matter still is that conducive measures are needed across the board to achieve the correction direction for the economy, because when push comes to shovel, all country’s economy is its real power of. In order to completely understand the economic direction of Pakistan and why it is in need of improvement, it is important to have an overview of Pakistan’s economic conditions at present.

An Overview of Pakistan’s Economic Situation

According the Pakistan Economic Survey 2020-2021 (PES FP 20), Pakistan’s total GDP lies at $299 billion. Furthermore, Pakistan’s agriculture sector, industrial sector and services sector showed a growth of 2.8%, 3-6% and 4.4% respectively in summation, the economy grew by 3.94% This growth is no less to cater to the growing population and spiking employment. Currently the country has a total debt equal to more than eighty percent of the total GDP (approximately 84%) Pakistan has acquired 22 IMF Programs for loans, all coming with their own structural adjustment programs.

Female Labor Force Participation FLFP as per PES FY 2021 has been around 22.6% which is abysmally low. Trade deficit is souring, and tax collection is minimal. Overall, Pakistan economy has great room for improvement as these figures signify a severe lack of direction.

How Pakistan Economy is not on the Right Path?

Dependence on Foreign Loan and Aid:

For starters, the economy is not on the right path because it does not seem to be freeing itself from foreign dependence, in terms of loans and aid any time soon. Pakistan constantly resorts to IMF (International Monetary Fund) For loans; and to mention, it owes a huge sum to friendly countries like China, UAE, and Saudi-Arabia every now and then. Why this direction is dangerous is because loan usually brings preconditions and structural adjustment programs, the same programs which threw around half of Egypt’s population below the poverty line following flight of hot money from the country. Hence, his continual dependence signifies that the country’s economy isn’t on the right track.

Moving on, even after taking huge sums of loan, Pakistan’s economy faces a soaring deficit in trade. Pakistan has a death of foreign reserves and his deficit is depleting the reserves day by day, where imports are sky-rocketed at 41.3 billion dollars in FY 21, export lingered at 21 billion dollars. This gigantic deficit in the Balance of Trade (BOT) of $21.3 billion uses up valuable and scarce resources. This is another a reason why the economy is not on the right track, because this eating – up of foreign reserves is not sustainable, and more loans are followed by naturally. Top economies of the world survive their positions through extensive export, and Pakistan’s direction is the opposite.

Low Tax Collection:

Furthermore, another reason why clearly the economy of Pakistan is not on the right track is that tax-collection is abysmally low. Pakistan’s tax to GDP ratio lies at around one-tenth of the GDP (approximately 102.). If leading countries like China, USA, Germany and Japan collect tax equal to around a 25% of their GDP, Pakistan’s economy can in no way operate smoothly with this poor tax collection. Low tax collection leads to loan and aid and makes the country vulnerable to bankruptcy or at the least under foreign influence. Thus, the country’s direction is considerably questionable given the low tax collection and investment plans to improve it anytime soon.

Poor GDP Growth and Unemployment:

By the same token, another reason why Pakistan’s economy is not on the right path is because its GDP (Gross Domestic Product) growth is inadequate to cater to rising demands of population, as well as the unemployment. Countries which have uplifted their economies and by extension, their population experience a GDP growth rather around eight percent of the GDP. These countries include the Asian tigers, Malaysia and Singapore, among many others of the region. Calculations done by economist like Dr. Ashfaque Hassan, who served the economic sector during early 2000′, says that the country must achieve and consistent GDP growth around 7-8% if it is to cater to the 1.3 million fresh graduates added to the unemployment list every year. Therefore, since the economy’s growth rate is nowhere near that mark, it is not on the right track.

Decline in Agriculture Sector:

In addition to this, if we observe individual sectors of the economy, starting with the agricultural sector, it is not moving towards any betterment. Agriculture as per PES 2101, provides livelihood to about seventy percent of the population. Not to mention, it contributed 19.2% to the GDP in FY 20-21. But at the same time, support prices are given to cash crops such as sugar cane, owned by big politician cum landlords. Consequently, the sector contributes an insignificant 0.4% to the total tax-collection. Considering the vast number of people who depend on agriculture, these wrongful support price policies which only favor the rich elite, show that the economy is headed on the wrong road.

No Mechanism for Capacity Building of Services Sector:

Apart from the agro-sector, the services sector paints a simpler picture of the efficient policy-making by economists. The Labor force is supposed to be the country’s most key factor of production; however, there lies no mechanism in Pakistan for the vocational training, capacity building and soft-skill improvement of the service-sector labor. Consequently, be it within the country or abroad, Pakistani Labor is notoriously inefficient and incapable. What this does in greatly bridle the income this labor can earn to make a living. Along with that, efficiency of the Labor is extremely poor and even though Pakistan in the world’s fifth most populous state labor has to be imported to serve basic needed such as those of waiters and receptionists, that too from counter – like Sri Lanka which themselves are at no apogee of economic progress and moving on to the industrial sector, there too lies a myriad of ill-planned policies by economists.

FDI Aimed at Locally Consumed Products:

Foreign direct investment is the one hope Pakistan has of balancing its Current Account Deficit – the total inflow and outflow of foreign reserves of the country. However, FDI that comes to Pakistan is mostly aimed at the captive market’, meaning FDI based industries produce goods merely for local consumption. Economies which are on the right track, direct FDI towards increasing the country’s export base. However, this is not the case in Pakistan. Until FDI starts by adding to the total exportable surplus of the country, Pakistan’s economy will continue to be on the wrong path. FDI based industries include giants like liver Brothers, P&G etc. but never have they exported products like Dalda, into the foreign market, hence proving the country direction to be flawed. Having discussed the poor direction of Pakistan’s economy, it is imperative to discuss the other point of view about the debate.

How Pakistan’s Economy is on Right Track?

NSP puts Economy at Centre:

Proponents of Pakistan’s economic policy-making of the current day argue that the economy’s direction is correct since the new National Security Policy document clearly states a shift of priority from traditional form of security to economic – security as the center point of Pakistan’s national security. It is argued, that now Pakistan’s economy will be the forefront of national Interest, and this means that the economy will go from strength to strength. NSP discusses the economy’s love issues such as the twin-deficit, poor growth and economic sustainability. Furthermore, it states that state-level efforts shall be aimed at balancing the aforementioned through the simple strategy that foreign policy shall now be dictated by economic partnership and prospects, as opposed to strategic security interests regionally and globally. It is, however, to be understood that the NSP is merely a document (that too, devoid any strategy about actually implement the line of policy it states). Based on this mere document, some people argue that Pakistan’s economy is on the right track.

Improvement in BOT:

The recent austerity measures imposed by the immediate ex-Prime Minister of Pakistan, as well as the newly imposed taxes on luxurious imports such as iPhones and cars, are another reason why some believe Pakistan’s economy is headed the right way. As mentioned before, costly imports, and a resultant trade deficit, greatly challenges Pakistani economy through their diminishing effect on the foreign reserves of the country. Therefore, the government of Pakistan recently to discourage imports and instead but the infant industry of the country. Thereby, it is believed that since companies like Oppo and Vevo (mobile phone brands are given a cushion to scale up the whole economy a headed on the night path.

CPEC being materialized:

The CPEC (China Pakistan Economic Corridor) is a multi-billion dollar economic cooperation and partnership project signed between China and Pakistan. This project is largely based on the – “Trade, not aid maxim, therefore, makes many believe that through the signing of the project, Pakistan’s economy is on the right Path. CPEC includes a plethora of projects, diversely ranged between energy, power, infrastructure, telecommunication and other projects. This project aims not only at economic growth and development, but also stronger ties with the neighboring State, expected soon to promulgate itself as a global power. Even through currently, CPEC are not being benefited from the way it should be, it leads many Pakistanis to believe that Pakistan’s economy is very much on the right track.

Steps Pakistan Can Follow To Put Economy on the Right the Track

Having shed light upon both the views about Pakistan’s economy, it is imperative how, to discuss the right way forward for the struggling economy.

Implementation of National Security Policy (NSP) in Letter and Spirits:

Firstly, the National Security Policy needs to be implemented in true letter and spirit. As of now, the NSP is nothing but a black and white document. As the famous saying goes, truth is the torch that gleams through the fog without dispelling it”. Learning from the while words, it needs to be ensured that the policy line elucidated by the critical document is also translated into concrete and swift action. Furthermore, the problem with NSP is that it doesn’t mention and workable strategy to achieve the policy objectives at grass-root level. Merely lip-serving never does the job, so the implementation of the policy needs to be devolved at the local governments Level so as to achieve Pakistan’s short and long term economic policy objectives.

Ensuring Capacity Building of Services Sector Labor Force:

Secondly, capacity building of the labor force of the services sector sought to be done at a won footing while the world is achieving new AI heights of advancement and productivity in service delivery day-by-day, Pakistan’s services sector cannot be left behind. The services sector contributes around – two-third, to the total GDP of the country, and is yet deprive of best vocational skills across the board. Non-existing vocational – training – centers are not the way ahead, a skillful labor class is. So, vocational institutes need to be set across the country to equip the massive labor force with much needed skills and productivity related Knowledge.

Increase Female Labor Force Participation FLFP:

Thirdly, Female Labor Force Participation rates, which the around an abysmal figure of 22.6% as per the latest economic report, need to be improved. As staple as it is, fumeless hold up half of the sky and do half of the work. If the economy is to be set on the right path, half the labor force cannot be dormant. FLFP needs to be increased through awareness of women; creating a safe environment, and a capacity building of women so that the economy can operate near its full potential.

Increase Tax Collection:

Fourthly, tax collection needs to be increased from the current 10% of GDP. This needs to be done through devolving tax-collection, make tax-filing easier through technology use and making taxes simple to calculate as well as equitable. Once achieved, this shall shun foreign dependence and move the country in the right direction: sustainability and self-sustenance.

EEMRGING ECONOMIES IN THE REGION

In the South Asian region, India and Bangladesh are the emerging economies. As of 2020, with $2,709 billion, India’s GDP is around 10x higher than Pakistan’s GDP of $263 billion. In nominal terms, the gap is even more than PPP terms (8.3 times). India is the 5th largest economy in the world in nominal method. The nominal ranking of Pakistan is 48. India’s economically largest state, Maharashtra, has GDP ($398 billion) much greater than Pakistan. Even the second largest economy Tamil Nadu ($247 billion), is very close to that of Pakistan’s. The margin between two countries was lowest in 1993 when the Nominal GDP of India was 5.39x of Pakistan, and the highest was in 1973 (13.4x). Both countries together, share 10% and 18.5% of total Asia’s GDP. The comparison between rests of the countries in year 2021 in the region is given below:

Bangladesh, India, Afghanistan and Pakistan Comparison:

Country	Population (Million)	GDP	GDP Growth Rate	Inflation Rate	Current A/C Balance (% of GDP)	Unemployment	Revenue (% of GDP)	Expenditure (% of GDP)	Fiscal Balance (% of GDP)	Trade Balance (% of GDP)
Bangladesh	171.68	416.2 bn $	6.9%	5.6%	-0.9	4.4%	9.3	13.0	-3.7	-5.5
Pakistan	222.59	341.4 bn $	5.6%	8.9%	-0.6	4.6%	12.4	18.6	-6.2	-8.3
India	1,369.00	3,195.2 bn $	8.9%	5.4%	-1.6	4.7%	9.4	16.2	-6.9	6.0
Afghanistan	31.40	20.1 bn $	-2.4%	5.2%	11.2	11.7%	25.7	27.9	-2.2	-25.3

Conclusion:

To sum it all up, Pakistan’s economy is currently headed on the wrong path and is not at par with majority of the countries in the region with same opportunities. Tax collection is very low, and foreign dependence is higher than a sustainable level. The twin-deficit is soaring, and foreign reserves are depleting. The GDP growth rate is inadequate and all sectors including agriculture, Industrial and services are deprived off of sensible and long-term policy making to boost them.

The addition of economic needs to the NSP is not enough, neither is a sub-par utilization of the China-Pak economic corridor Policy at all levels needs to be overhauled, to include the needs of the struggling labor force through conducive vocational training. Tax collection heads to be increased manifold in order for the economy to run smoothly. And female participation in the labor force needs to be bolstered, to achieve the potential of the economy and its manpower. Quaid-e-Azam believed that Pakistan is made to stay on the map forever as a respectable state, and through pertinent aforementioned measures, his words shall stay to be true forever.