The economic crisis that Pakistan faces today is not the first; however, it is the most serious, given the magnitude of the foreign exchange gap that the country is facing. The term ‘default’ has been heard before during earlier similar crises; this time the threat is real. Technically, Pakistan is already in default; given that there emerges a net negative balance, if the foreign loans that Pakistan owes to foreign interests are deducted from the foreign exchange reserves. This time, default can be avoided only by compromising some of our political sovereignty.
This crisis has not arisen as a ‘short-term cash flow problem’ phenomenon. It is rooted in long-term decay of the productive sectors of the economy. The analysis of the last quarter century performance of the economy shows that 25-year average growth rates of key crops and manufacturing sectors have ranged from negative to as low as one percent and has been consistently unstable.
Agriculture and manufacturing are the commodity producing base of the economy and has deteriorated to levels where output, exports, revenues and employment opportunities are effectively declining. GDP growth reported year to year is artificial, as wealth is being created largely through speculation in the stock market, the property market and the commodity market. Pakistan has become a casino economy and development projects are identified, not in the public interest, but by contractor (thekedar) interests. The management of the economy, particularly post-2000, has rendered the economy hostage to foreign interests.
The ashraafia have enough financial cushion to bear the brunt of the emerging crisis. In any case, all they will have to worry about is how to reach the airport to fly out to the safety of their stashed-away investments abroad. The awaam, the bulk of the population, will be left facing mass unemployment and inflation – and poverty and hunger.
The economic decline also poses serious threats to the security of the country. Pakistan’s armed forces personal are second to none in courage and bravery and have not been shy of making sacrifices in times of war on our borders and within. However, soldiers, sailors and airmen cannot fight with their muscles alone. They need armored cars and tanks and fighter planes and warships to carry the fight to the enemy. All of these need gasoline; gasoline costs dollars; dollars are earned through exports; and exports are generated by a vibrant manufacturing sector. Wars cannot be fought on the back of a collapsing economy.
The attached tables and graphs show the magnitude of the problem. Urgent and radical measures are called for to arrest further decline. There are two gaps: the dollar gap (current account deficit) and the rupee gap (budget deficit). The dollar gap can be addressed by reducing imports and by raising exports. The rupee gap can be addressed by reducing non-development expenditure.
12-point Economic Revitalization Programme
- Ban all non-essential consumer imports
2. Shift the basis of electricity generation from imported fuels to:
- Domestic coal
- Off-grid solar
3. Rehabilitate Railways and shift bulk of inter-city goods transportation from road to rail transport [Rail consumes one-third less fuel per tonne/kilometer than road transport].
Set up a Holding Company to own Pakistan Railways and NLC and create an integrated goods transportation network: long distance by container trains and onward by container trucks.
4. Amend FDI policy to encourage investment that earn export value greater than profit remittance.
5. Reduce GST (Goods) rate to 5%; single stage (no adjustments, no refunds) to promote manufacturing.
6. Strengthen capital gains tax measures in capital markets to discourage short-term speculative trading.
7. Introduce principle of ‘Right of First Purchase’ in land/property transactions.
[Every proposed transaction, with details of size, structure and price, be placed on a designated website for, say, 20 working days and any third party to have first right to purchase the land/property at, say, 20% above the specified value. This measure will curb speculative trading in the land/property market.]
8. Introduce principle of ‘Right of First Purchase’ in imports.
[Every proposed transaction (Letter of Credit), with details of product and price, be placed on a designated website for, say, 20 working days and any third party to have first right to purchase the product at, say, 20% above the specified CIF value. This measure will curb under-invoicing and protect local industry.]
9. Revive PIDC’s role in setting up industries in PPP mode. Industries be set up by PIDC, with majority public funds and private management and sold to the private partner after achieving commercial production.
10. Fix retail gasoline price at $ 150 equivalent to conserve consumption and imports and to compensate for (short-term) revenue loss on account of reduction of GST (Goods) rate.
11. Reduce current expenditure, including non-combat defence expenditure by at least 20 percent.
The following spurious Ministries and Divisions be abolished:
- Education and Training
- Housing and Works
- Human Resources and Training
- Industries and Production
- National Food Security and Research
- Climate Change
- National Harmony
- National Heritage and Integration
- National Regulation and Services
The following Divisions be merged with their original Divisions
- Defense Production – Defense
- Information Technology and Telecommunications – Communications
- Postal Services – Communications
- Revenue – Finance
- Statistics – Finance
- States and Frontier Regions – Kashmir and Gilgit-Baltistan Affairs
- Implement a 10-year federally funded scheme to develop one million small/medium sized urban residential serviced plots annually across the country.
The multiplier impact of the scheme will produce two impacts:
- One, it will boost employment in a variety of sectors across the country.
- Two, the increased household income will expand consumer demand and revitalize domestic industry.