T

he Covid-19 lockdown has damaged economies of all countries. Its effects may last for years to come. All economies will face recession. Countries dependent on global capital flows, tourism, remittances and exports will be hit hard. Recession in developed countries will reduce tourist outflows, employment of expatriates, and demand for products. World trade in goods and services will contract in volume; globalisation will shrivel.

Pakistan will not be an exception. The country’s economy was on a ventilator even pre-Covid. Now the bottom has cracked. The foundations of the economy have shifted, the parameters have changed. Business as usual is just not an option. All economic policies – fiscal, monetary, trade, agricultural, industrial – will need to adjust. Some high-prestige sectors will have to be pulled down from their pedestals, failing which the economy will wither.

The United States and Europe are major markets for Pakistan, accounting for more than half of its exports, mostly textiles. Recession there will shrink the demand and export income for the country and for the export sector. A drop in exports will cause closure of industries and mass unemployment resulting in a crash of tax revenues. Many industrial units may shut down permanently. Most of the primary job losses will be in the industrial clusters of the Punjab and Karachi. Demand for cotton will fall. Its impact will be borne by cotton producing provinces: the Punjab and Sindh. Transport of and trade in agricultural and industrial commodities will be affected.

The industrial slowdown will also reduce the demand for imported machinery and raw materials (eg chemicals and dyes). The combined effect of this will be a decline in tax revenues: import duty, sales tax, and excise duties, as well as corporate income tax receipts. Governments will not have sufficient revenues for salaries of their employees. Development expenditure may dry up altogether.

The first realisation that has to set in is that the golden age of the cotton economy is over. Textile exports, textile manufacture and cotton cultivation will no longer be the mainstay of the economy. The second will require a paradigm shift: the ‘market supremacy’ model will need to give way to a greater role for state regulation. The ‘globalisation’ model of generating growth will need to be replaced by the ‘autarky’ or self-sufficiency model. A country with a population of more than 200 million and endowed with natural resources can do that.

In essence, the economy will need to be structurally reorganised to produce for domestic consumption. It will itself have to be streamlined away from imported goods, including import-content local manufactures, towards products based on local raw materials. Industry will have to produce for the local market. Foreign Direct Investment will have to be allowed only if it contributes to export and profit repatriation does not exceed export receipts.

In agriculture, self-sufficiency in key commodities – wheat, pulses, sunflower, onions, potatoes, milk, meats, eggs, etc will need to be ensured given that foreign exchange will not be available to import these. Comparative advantage will have to make way for survival. Many items are currently not produced to match requirement (pulses, palm oil, milk products) and are imported. There are other items that are produced in surplus for export (rice, cotton, sugar). Acreage for the former category (wheat, pulses, sunflower) will need to be increased to meet domestic need and that of the latter category (rice, cotton, sugarcane) reduced to the quantities that can sell domestically and abroad – both by state regulation. Public investment will need to be made to enhance land and water productivity, so that acreage can be released for other essential crops.

Other crops that are currently given peripheral attention will need to be prioritised. Fish is a vital source of proteins; however, its price in the domestic market needs to be brought down by taxing export. A variety of fruits – including dates – are grown from Gwadar to Gilgit-Baltistan and from Mirpurkhas to Malakand. Value addition, based on local raw materials, has to be the new axiom for the industrial sector.

Industry can no longer be left to the whims of the private sector. The state has to re-enter the arena. The Pakistan Industrial Development Corporation has to be revived. After all, the foundation for the industry was laid by the PIDC in the 1950s and 1960s. The PIDC had set up industries – with state capital, management and risk – and then sold them to the nascent private sector. The model will have to be revived, with some amendments. The PIDC can also set up industries in the private-public partnership (PPP) mode, with state-provided capital and private management. The latter may be given the option of buying out the state’s share.

The single-most important objective of the state will have to be meeting the food needs of the people. Other needs will be fulfilled by default, given employment and social security support. 

The single-most important objective of the state will have to be meeting the food needs of the people. Other needs will be fulfilled by default, given employment and social security support. Housing is an important need, but an intervention will have to be limited to cater to middle income and low-income households. Farm houses, swimming pools, jogging tracks and golf courses as part of housing projects will have to be banned altogether.

The Covid crisis has brought forth the fact that there is a multitude that does not exist in official records and cannot be reached for relief or support. It is imperative that a universal basic income or social security regime is set up. Direct cash support to about half the households – 15-20 million – will need to be provided, with a large share in Balochistan, ex-FATA and Gilgit-Baltistan. The fiscal structure will need to be rationalised to meet this end.

The country’s economy can no longer afford the large size of the civil bureaucracy and the military establishment. The revenue crisis will have to be dealt with by reducing non-development expenditure. There is considerable room for reductions. At least a third of the federal administrative divisions can be abolished or merged with other divisions. After all, what can be the utility of or justification for divisions for National Harmony, National Heritage, National Regulation, Climate Change, Food Security and Postal Services? Expenditures on archaic and duplicative entities will need to be revisited. Overall, a reduction of up to one trillion rupees in non-development expenditure is urgently called for in order to stabilise the economy. This is a call for survival.