here can be little disagreement that Pakistan’s economy has been in dire straits for several decades. Soon after independence, Pakistan performed quite well and its economic model was emulated by other emerging economies, including China and South Korea. How and where we lost direction and how to break out of the current economic mess requires an accurate prognosis of what ails Pakistan’s economy. Before we can start exploring the options for turning around the national economy in the long run, we need to identify the major problems and the factors contributing to those.

Pakistan’s economic problems are mostly structural. An implication of the problematic economic structure is that no easy, quick fix is available to the policymakers, populist narratives of some demagogues notwithstanding. In terms of a complex machine analogy, the economy cannot be turned around by simply tweaking an individual part. What is required is a complete overhaul. Some of its major parts need replacing and others significant repairs.

Pakistan has a low per capita productivity, adverse balance of payment terms, high poverty rates and widening inequalities, gross inefficiencies, lack of innovation and misallocation of scarce resources. Together, these necessitate frequent bailouts by the IMF and friendly countries.

Identifying the root causes of the economic problems upfront is crucial for a meaningful solution-focus analysis. Identifying the root causes of problems is synonymous with identifying the institutions that interact in complex ways to determine the economic outcomes.

For starters, functional political institutions are vital. For all practical purposes, Pakistan has been following a security state paradigm rather than a welfare state paradigm. Its preference for the security state paradigm is understandable in view of its strategic location, an intractable relationship with a hegemonic neighbour in the east; an ambivalent relationship with an unstable state in the west; and problems of militancy and extremism within its borders. Most of our security woes currently are of our own making, stemming from our decisions in the past to join proxy wars for immediate gains. Little wonder that a significant portion of the small resources pie is devoted to the defence. A history of economic mismanagement and a cavalier attitude towards public funds have resulted in an unsustainable national debt. Once a significant share of the national pie is spent on defence and debt servicing, not much is left for a country of around 230 million people.

A closely related problem hindering economic growth is the political instability. No elected prime minister has ever completed his or her term. Democracy has always been regarded under threat from the establishment. Democratic norms have been further eroded in recent years through deep political fissures and fault lines.

Additionally, there is limited investment in human capital. We have a poor health infrastructure and a largely directionless public education system. Consequently, the workforce has suboptimal productivity levels. Poor returns on education and a general failure as a transformative agent make education less attractive. Pakistan’s dismal performance on transparency indices is a stark reminder that education has not been successful in setting right the moral compass either.

Pakistan’s economic problems require both short-term and long-run solutions. The short-term solutions include limiting defence expenditure, narrowing the balance of payments deficit by capping the import of luxury items and using best practices for export promotion. Reducing public expenditure by cutting down on colonial area amenities for the top echelons of civil and military bureaucracy might also help.

The long-run remedies include replacing the security state paradigm with a welfare state paradigm. Massive defence expenditure is unsustainable with a majority of the population lacking access to basic amenities. The paradigm shift requires a fundamental change in the political power structure. Political governments must be in the driving seat in setting the foreign policy direction. The governments must focus on normalising diplomatic ties with the neighbours by emphasising peaceful coexistence.

Institutional stability is yet another critical prerequisite of an economic turnaround. No government can deliver the optimum results when it is dogged by a constant fear about its stint in office. The deleterious effects of repeated incursions into the functioning of political institutions by other state institutions can hardly be over-emphasised. When the establishment becomes a stakeholder in the power equation, the incentive system in the political domain is greatly distorted. The focus of the political governments shifts away from delivering on their promises and improving the living standards of the ordinary people. Political parties then become focused on earning the blessings of the establishment for remaining in the driving seat.

An economic turnaround also requires that the judicial arm of the state ensures the sanctity of the contracts. No genuine and long-term economic activity can flourish with poor law and order. A massive amount of capital fled Karachi in the past when extortionists affiliated with political parties used to harass businessmen. The tragic Baldia Factory fire must be an eye-opener. Harassment of the business community by nonstate actors, including workers of some extremist groups, continues to this day in certain parts of the KP.

A poor law and order situation sends the worst possible signals to the economy. Pakistan’s poor ranking on the World Justice Project Rule of Law Index implies that the people have little confidence that justice will be done expeditiously and without imposing a punitive cost on the aggrieved party. This is not the condition an investor finds inviting. Speculation and other rent-seeking activities thrive in such conditions. A stark example of this is the real estate business. Many people currently prefer to park their savings in real estate hoping for windfall gains. When most of the capital is concentrated in the real estate business, it leads to two unfortunate outcomes: the property rates get artificially inflated and go through the sky, spelling disaster for those in genuine need of affordable housing, and there is no investment in the productive sectors that can generate employment opportunities. The cumulative result is widening inequality and increasing poverty.

Bipartisan support for basic economic policies is yet another requirement for a thriving economy. This requires mature political institutions. Bickering over the nomenclature of a poverty alleviation programme essentially funded by public taxes, reflects poorly on the political parties.

Other interventions that can help turn around Pakistan’s economy while ensuring sustainability include ensuring even and equitable development across all regions, providing an efficient public transport system, optimising the energy mix, providing sustainable housing and discouraging wasteful expenditures. Investment in human capital is key to achieving all these objectives.

The writer is an associate professor in the Department of Economics at COMSATS University Islamabad, Lahore Campus