Perhaps never before has Pakistan experienced the economic crisis that it faces today. Even after the detonation of the nuclear device, and the subsequent freezing of foreign currency accounts, the situation wasn't this bad. This heap of economic dirt did not gather today, yesterday or even in the last five years; it is a consequence of collective economic mismanagement since independence. No single government gave this country a long term economic vision, what was given by many governments, who falsely believed that they are popular, has been a pipe dream. No clarity of economic thought. No design of economic growth conceived, even if it was conceived, most were aborted or were cases of still birth. Indiscriminate nationalisation of key industries being one case in point.
Perhaps never before has Pakistan experienced the economic crisis that it faces today. Even after the detonation of the nuclear device, and the subsequent freezing of foreign currency accounts, the situation wasn't this bad. This heap of economic dirt did not gather today, yesterday or even in the last five years; it is a consequence of collective economic mismanagement since independence. No single government gave this country a long term economic vision, what was given by many governments, who falsely believed that they are popular, has been a pipe dream. No clarity of economic thought. No design of economic growth conceived, even if it was conceived, most were aborted or were cases of still birth. Indiscriminate nationalisation of key industries being one case in point.
There has been no accountability for economic mismanagement. Here corruption is not being referred to, that is a separate disease that afflicts this country, more seriously than it does in other states. Deliberately pursuing policies to the peril of the nation have gone unpunished. The era of management by SRO's, the issuance and withdrawal, for personal gains is fresh in the minds of the country men. There is only hype of accountability for corruption, and most of it is politically motivated, alleged and true, depending who one supports. The grief inflicted upon this nation by the successive ministers of education is possibly a greater heinous crime against the country than mere financial corruption. They collectively failed to give shape to a forward looking education policy, the ailment is so deeply entrenched that even after decades of independence we are grappling with issues like single curriculum, rewriting and distorting history, etc.
Every soul in today's Pakistan is distressed at the sight of people queuing up for free flour and then over twenty of them had to lose their lives, for the sake of a sack of flour. How much more callous can any leadership be? At this sight if ordinary citizens, who have no responsibility, per se, to arrange for food for the population, have tears flowing down their cheeks, how do the leaders manage to have meals, with no regret, no grief, no concern or care.
The idea of this piece is not to lament, because to do that one needs unlimited space, but it is to point out some critical areas that must be attended to, for future economic growth. I would like to look less at the rear mirror, and instead look at the windscreen, that gives an opportunity to have a panoramic view of what lies ahead … a peek into the future, as the path unfolds. The rear mirror is always small, not without a reason.
As a nation, we are spending US dollars that we haven't earned; we are spending rupees that we haven't earned. There is a major trade gap and services gap too; the combined FCY revenue between exports and inward remittances (generosity of overseas Pakistanis) is roughly $62 billion and our import bill approximately exceeds $85 billion; there is a neat gap of almost $15-17 billion. The tax to GDP ratio is a meagre 9 percent, hence there is deficit financing in rupees too. A double whammy. Add to this woeful tale, is the figure of loan repayment/maturities. We live beyond our means, clearly. Should it therefore surprise us that our lenders ask how you have assets beyond your means!
We have no choice but to turn towards making our economy export oriented, both for goods and services. A cursory glance at our immediate neighbourhood causes immense embarrassment, they have IT software exports exceeding $92.3 billion, which in 2011, was a low of $35 billion; Bangladesh that does not produce a single staple of cotton has garments exports of $42 billion. I am saving myself and the readers of an acute sense of shame, by not giving comparative figures of our country. There has to be a serious and compelling urge for the government to initiate export related industries, by promoting the existing ones and by friendly policy making for the setting up of new industries.
Concessional export finance has been abused to the hilt. There is a need to give a fresh thought on how subsidies should be linked with performance. Any set targets if not achieved must attract heavy penalties. The government must appear to be serious to have growth in exports. Industrial policy must be developed to drive the primary objective of enhancing exports. Similarly the import policy must be designed to help boost exports. Promotion of exports is the answer to overcome deficits, both trade and fiscal. The revenue generation in rupees can begin by broadening the tax base, agriculture should be taxed. And why not? Just because most of the politicians have agricultural land doesn't mean, it must remain untaxed.
Relative to this, it must be clearly understood, that sale/purchase of land is no economic activity that yields in the long run. Buying and selling of plots doesn't give GDP growth. Land is one of the factors of production, it must be used for that purpose. Land must be used for agriculture or for setting up factories. Housing is a need too. This also helps in jump starting the economy.
For developing economies the role of the small and medium enterprises cannot be underscored. They are vital to support the growing or existing industrial base. We have neglected this sector for a long time. In the 1980's when Pakistan was sanctioning the setting up of joint ventures or even totally foreign owned auto assembly plants, the policy makers to their credit had the foresight to incorporate progressive deletion programme. Again the victim is the country not because nobody thought of it, it is lack of follow up to make it happen. The idea behind the deletion program was to develop the peripheral vendor industry, largely in the small and medium sector category. We must revisit these arrangements to make them operational and workable, and must not be used to frighten the foreign investors away. The vendor industry helps in savings of precious foreign exchange, besides, the generation of employment opportunities and creating a new class of entrepreneurs. Auto industry is just one example. There are other industries around which the development of SME must be incentivised.
We have talked so much about the creation of Special Economic Zones, but have hardly done anything concrete. There is no rocket science involved in making workable economic zones. If it is considered a difficult task, we can always take blueprint from friendly countries. China, Malaysia, Indonesia, etc have had successful zones created. In fact there would be no harm to handover the management of a few economic zones to China; to do this the Planning Commission must sit with the Chinese economic architects, to apprise of our priorities and focus. We can think of creating separate authorities for each economic zone; the ownership can remain with the state, but the management of these zones should be with private sector professionals. There is nothing wrong to have state control of ownership, things get murkier where the government starts to manage business enterprises. China's state owned corporations are a case in point, owned by the government but managed by professionals. If we wish to earn foreign currency through exports (visible and invisible), there is very little room to dispute the need for workable special economic zones.
Education has been the most neglected sector of the economy. It has received no attention of any seriousness. There are no long term plans on education policy. According to World Bank data, we have as a nation allocated a princely percentage of just 2.3776 percent of our budget to education, which is like saying that is the total deployment of resources to the future of this country. Pathetic. In the Human Development Report, out of 189 countries we are ranked at 152. Sad. Even Afghanistan has allocated 2.9 percent of its GDP towards education. India's allocation is close to 5 percent. The attitude towards the significance of education is dismal. As a solution, it is recommended that from every other item of budget allocation, let’s shave 0.20 percent, and redeploy it towards education. Ploughing enough resources for the future asset of the country requires no great imaginative abilities. Our neighbors have IT's of world standards, exceeding twenty in number spread across their country. We don't have even one. The result is that they get to be CEOs and CFOs of global organisation, be it in the private sector or in the arena of multilateral institutions. Education planning has to be done at least 100 years before the birth of a child, so had, said Bertrand Russell.
Governance and best practices which have remained elusive in all facets of our life, needs to emphasised most on the education sector. The ghosts and shadows of ghost schools, teachers and even ghost students should be exorcised with vengeance. Accountability with painful punitive action, must be initiated. The future is at stake. We have not come closer to the STEM basis of education, while the world has moved to a STEAM based approach. As concerned Pakistanis, can we today have the resolve to imagine what a typical twenty year old youth would look like in the year 2047, when the country will celebrate its 100th founding anniversary; please bear in mind that I am talking about a twenty year old in 2047. This child God willing will be born in the year - 2027. Are we prepared for the task? Hardly. Let's start thinking about what quality of education we must provide to keep them relevant to the future era. The future world economy will be more knowledge based. Let's prepare now.
Artificial economic respiration techniques are outdated and cannot be used endlessly. We must switch off the support mechanism, if the patient fails to respond in good time. For the longest of times we have placed our state owned enterprises, better referred to as white elephants on artificial respiration. Bold initiatives are required for privatisation. The government must rid itself of the sick units either by selling or having them cremated. It is expensive to maintain a dying institution. We must brace ourselves to perform without permission ‘corporate euthanasia’. The quicker, the better.
Today's headlines of newspapers read, "Federal Government spending soars to 0.6 percent of GDP". In the last fiscal it was 0.4 percent. To spend, the government neither earned nor is blessed with imagination to create new streams of revenue. It borrows perennially from local financial institutions, to the laters amazing advantage. There must be a cap placed on government borrowing. Further to contain the free ride financial institutions are having of interest arbitrage must be plugged, by imposing limits of investment in government papers as percentage of deposits. The targets must be separated between long term and short term papers. This will improve the DA ratio. Financial institutions who do not lend money to the private sector must be penalised. After all, they collect money from the man on the street and make available to themselves large pools of money, which must be used to move the wheels of the economy. The DA ratios must be assigned on a bankwise basis, because not all financial institutions have similar liability profiles or structures.
Again endlessly there is talk about developing a ‘charter of economy’, which in view of this scribe would tantamount to ‘chatter of economy’. Political parties manifest themselves by having different approaches to handle the economy. We need neither charter nor chatter, all we need is ‘consistency’. This single element has been the cause of our economic distress for the last many decades. Adhocism has been the name of the game. To achieve consistency in our economic programs, the nation must not rely on politicians --- they are a breed who change loyalties, like a chameleon changes its colours, often with the same speed. Instead institutions must be empowered to oversee the implementations of plans; the bureaucracy has to play a dominant role, with no self-serving interests or as appeasement to political will. The empowerment must have a strict and strong inbuilt mechanism of accountability. Japan and Italy are perfect examples of economic growth amidst political uncertainty and turbulence. Why cannot we be Japan, in South Asia … we are no less talented or intelligent!
One of the critical features of good leadership is to walk the talk. Gulf between thought and action reeks of corruptive thinking. Austerity can be emphasised, but not with a 90 member cabinet. The veneer is too thin of the false facade, everyone can see through. Austerity must begin from the top. Our politicians must learn the art of simple living. Pretentious behaviour accompanied by ostentatiousness is nauseating. To judge the possibility of living beyond means is not a tough call to make --- with a unique National Identity Card number, we can track, ‘all streams of revenue and all expenses’. The yawning gap must be questioned for clarification or explanation. The discovery of corruption must be dealt with an iron hand. The action must be swift. To discover corruption doesn't require brilliance, only average intelligence --- both the bureaucracy and the judiciary are not bereft of it. Speedy justice is the need; there should be no allowances for ‘adjournments’, ‘multiple hearings’ or even ‘stays’. Criminality cannot plead for time to prove its innocence and similarly the prosecution should waste no time to prove criminality. Allegations, unfounded and untrue, take up a lot of time, resources and energy. Frivolous suits brought to the court must be punished, with financial penalties.
To achieve economic growth we need political stability (like say China) and to achieve political stability we need to have a system that enshrines continuity.
The writer is a senior banker and a freelance contributor
