Pakistan’s economic crisis: governance failures and missed opportunities

By Mansoor Ahmad
September 10, 2024

A foreign currency dealer counts US dollars at a shop in Karachi, Pakistan, May 19, 2022. — AFP/File

LAHORE: Pakistan’s economic troubles are deeply rooted in governance failures, flawed policy priorities and an overreliance on foreign assistance. Internal governance and resource allocation decisions have largely shaped the current situation, with terrorism and global geopolitics also playing a role.

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The economic decline, as viewed by various experts, is a multifaceted issue primarily driven by internal governance failures and compounded by the country’s involvement in external conflicts, including the war on terror. Here’s a breakdown of the issues based on expert opinions:

Pakistan was once strategically positioned as a trade corridor for Central Asia. However, this advantage has been lost due to a combination of poor governance and neglected infrastructure. While the war on terror contributed, the gradual deterioration of governance standards is seen as a primary cause. The China-Pakistan Economic Corridor (CPEC) has also struggled to make significant progress.

The country’s road, railway, and air transport infrastructure are in disarray. Railways, which were once the most cost-effective mode of transportation, have been neglected despite having excellent tracks. The situation has become so dire that shipping a 40-foot container from China to Karachi costs less than moving the same container from Karachi to Lahore. This clearly indicates inefficiencies in domestic logistics and transport networks.

The preference for road-based transport over rail has increased transportation costs, reduced competitiveness, and worsened traffic congestion. Instead of capitalizing on a well-developed railway system, Pakistan’s policy focus has been flawed.

Blaming external forces -- foreign powers, the war on terror, or even weather -- is common in discussions about Pakistan’s economic problems. However, the fundamental issue lies in domestic governance. Politicians, bureaucracy, the military, the judiciary, and economic planners have collectively contributed to the turmoil by neglecting economic development and governance.

While external factors have played a role, experts believe Pakistan’s woes are largely self-inflicted. Poor planning, corruption, inefficiencies, and a lack of accountability have eroded the country’s ability to leverage its natural position effectively.

IMF programmes have led to a situation where the poor are burdened with heavy taxes, while wealthier segments, including the elite, enjoy tax exemptions. This imbalance further fuels inequality and economic stagnation.

In contrast to South Asia and Far Eastern economies, which have embraced technological advancements and shifted towards high-tech and high-value-added industries, Pakistan remains mired in low-cost, low-quality, and low-value-added production, unable to compete on a global scale.

Resource misallocation is another core issue. Instead of investing in education, technology, and infrastructure to build a competitive economy, successive governments have focused on short-term gains, signing agreements and conventions that are not necessarily in the country's best interest.

The rush to sign international commitments without careful analysis has tethered the country to unrealistic and sometimes detrimental obligations. Pakistan’s foreign policy has often overshadowed sound economic policy. Economists argue that national economic interests should dictate foreign policy decisions, not the other way around. The focus on foreign diplomacy and regional alliances should align with economic needs rather than political or military objectives.

Regional trade has been severely underdeveloped, despite Pakistan’s proximity to major emerging markets. Experts suggest that promoting regional trade could be a significant opportunity for economic recovery. There is a need for a merit-based approach to the economy, free from the whims of political rulers and guided by long-term national interests. This means creating transparent, accountable governance structures that prioritize sustainable development.

To move forward, fundamental restructuring of governance is necessary, focusing on domestic reforms, equitable taxation, technology-driven production, and merit-based economic policies is also a must. Only then can Pakistan hope to regain its lost economic ground.

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