Pakistan must change direction

Pakistan’s persistent failure to develop a strong economy and combat growing poverty stems from incompetent governance accompanied by massive corruption at the highest levels, leading to economic collapse, and bringing the nation on the verge of becoming a failed state. We must change directions, but before doing so we must understand what has gone wrong.

Political instability has long plagued Pakistan, disrupting governance and economic planning. Frequent changes in leadership and military interventions have resulted in inconsistent policies, making it difficult to implement long-term reforms. The abrupt dismissal of governments, such as those of Nawaz Sharif in 2017 and Imran Khan in 2022, has created uncertainty and discouraged both domestic and foreign investors.

Corruption further exacerbates economic woes. Lack of effective justice, control of the judicial system to get favoured decisions through bribery or political pressure, mismanagement of public funds, nepotism, and bribery are rampant across institutions. High-profile scandals, such as those revealed in the Panama Papers, have implicated top politicians and eroded public trust. Projects like the Orange Line Train in Lahore have faced allegations of inflated costs and misallocation of resources, highlighting how corruption drains funds meant for development. The reluctance to have local bodies elections and pass the funds and powers for implementation to the grassroots has made a mockery of democracy.

An inefficient tax system is another significant impediment to economic growth. With one of the lowest tax-to-GDP ratios globally, Pakistan struggles to generate sufficient revenue. The Federal Board of Revenue (FBR) has failed to expand the tax net effectively, relying heavily on indirect taxes like sales tax, which disproportionately affect the poor. Out of a population exceeding 240 million, only around three million individuals are active taxpayers, leaving the government financially constrained. The 18th Amendment led to a disastrous transfer of education and health sectors as well as a major chunk of funds to the provinces, creating national chaos and disruption.

The energy crisis created by corrupt governments that made disastrous long-term contracts with power providers has destroyed the possibilities of industrial growth in the country and a huge percentage of industries closed down creating massive unemployment and increasing poverty while political leaders transferred illegally acquired funds to safe havens in London and elsewhere. Chronic power shortages and high energy costs disrupt production, particularly in the textile industry, which accounts for a significant portion of exports. Circular debt in the energy sector, surpassing Rs2.5 trillion, has worsened the crisis.

Overdependence on agriculture further limits Pakistan’s economic diversification. Agriculture employs nearly 40 per cent of the workforce but contributes only about 22 per cent to GDP. Outdated farming techniques, water shortages, and inefficient irrigation systems keep productivity low.

Pakistan's industrial base remains underdeveloped and overly reliant on low-value-added products like textiles. High value-added high-tech products are almost absent, and this is the major reason for our low exports. Unlike Bangladesh, which has successfully diversified its exports to include high-value garments and other sectors, Pakistan remains trapped in a narrow range of industries. This lack of diversification makes the economy vulnerable to global market fluctuations and hinders sustained growth.

Despite the spectacular progress made by our universities during the initial decade after the establishment of the Higher Education Commission in 2002, the country’s education system has not contributed to the development of a strong knowledge economy. With a literacy rate of around 60 per cent, Pakistan lags behind its regional peers.

Public schools, especially in rural areas, lack basic facilities, and many students fail to meet minimum competency levels. For instance, the Annual Status of Education Report (ASER) frequently highlights that over 20 per cent of primary school students cannot read basic sentences. Additionally, limited access to technical education restricts the development of a skilled workforce essential for modern industries.

Rapid population growth, at an annual rate of 2.1 per cent, places immense pressure on resources. The youth bulge – over 60 per cent of the population is under 30 – has not translated into a demographic dividend due to insufficient job creation. Youth unemployment rates exceeding 8.0 per cent reflect this mismatch, leaving many young people without opportunities to contribute productively to the economy.

Pakistan’s underfunded healthcare system further weakens its economic prospects. With healthcare spending below 1.0 per cent of GDP, public hospitals are overcrowded, and rural areas lack access to even basic medical services. Poor healthcare outcomes, including high maternal and infant mortality rates, diminish the quality of human capital, particularly among the poorest segments of society.

Poor governance exacerbates these challenges. Inefficiency, bureaucratic delays, and political interference often derail development projects. The construction of Islamabad’s New Airport, which took nearly 13 years and cost far more than initially projected, illustrates the lack of accountability in project implementation.

The rising debt burden further constraints Pakistan’s economy. With external debt exceeding $125 billion, the country has repeatedly turned to the IMF for bailouts. Debt servicing consumes a significant portion of the national budget – 41 per cent in FY2022-23 – leaving little room for infrastructure development, education, or healthcare.

Low foreign investment also hampers economic growth. Political instability, terrorism, and bureaucratic red tape deter investors. Major multinational companies have scaled back operations due to an unfavourable business environment. Net Foreign Direct Investment (FDI) fell to $1.3 billion in 2022, and was at the low level of $1.82 billion in 2023, down from $2.2 billion in 2018.

Inadequate infrastructure, particularly in transport and energy, further hampers development. Poorly maintained roads and outdated railways limit trade efficiency and regional integration. The Karachi Circular Railway project, delayed for decades, exemplifies the lack of investment in urban infrastructure necessary for economic growth.

Terrorism and security issues have also taken a heavy toll on Pakistan’s economy. Decades of instability following 9/11 have cost the country over $150 billion in economic losses. Attacks on critical infrastructure and businesses disrupt economic activity, discourage tourism, and tarnish Pakistan’s global reputation as an investment destination.

The country also suffers from a brain drain, as skilled professionals seek better opportunities abroad. Approximately 765,000 Pakistanis emigrated in 2022 and another million have migrated in 2023, depriving the country of talent and innovation. The government’s inability to provide competitive salaries and career growth further exacerbates this exodus.

A holistic approach that addresses governance, economic diversification, access to quick justice, social equity, and resource management is essential to transforming Pakistan’s economic trajectory. For real progress, we need a technocrat democracy where the ministers and secretaries are all top experts in their respective fields. Our leaders must be honest, technologically competent, and sensitive to modern-day demands and challenges so that Pakistan can transition to a strong technology-driven knowledge economy.

The writer is a former federal minister, Unesco science laureate and founding chairperson of the Higher Education Commission (HEC). He can be reached at: ibne_sina@hotmail.com