Economic Meltdown” in the Country needs to Undertake Multilateral Reforms
By Professor Dr. Shahid Munir
Pakistan is currently facing a severe economic crisis that has led to what many define as an “economic meltdown”. The country’s economy has been struggling for some time now, with issues such as a growing trade deficit, high inflation rates, and a rapidly devaluing currency. In recent years, these problems have intensified,
The economic meltdown has had a distressing impact on the people of Pakistan, with widespread unemployment, poverty, and social unrest. The government has implemented various measures to try and stabilize the economy, such as securing bailout packages from the International Monetary Fund (IMF) and implementing austerity measures. However, these efforts have not been enough to rectify the situation and there is a growing consensus that more drastic reforms are needed.Because the challenges facing Pakistan’s economy are complex and multifaceted, requiring rigorous efforts from all forums toimplement the necessary reforms and put the country on a path towards sustainable growth and development.
In this article, some of the possible causes that have worsened the situation and proposed some solutions are presented:
1.Black Market to White Market
Pakistan’s annual budget is about Rs. 9.5 trillion, with tax revenue amounting to 6.5 trillion Rs. resulting in a deficit of 3 trillion Rs. per year. The root cause of this deficit is that the country’s expenditures exceed its income, leading to financial disproportions. According to a global report by IPSOS, the black economy of Pakistan is estimated to be 40%, largely attributed to tax evasion, smuggling, and shadow economy activities. If such activities, are effectively brought under the tax net, it could potentially help Pakistan overcome its deficit. This would also reduce the need for the country to take out loans. However, it is important to note that addressing the deficit and achieving financial stability requires a comprehensive and sustainable approach that involves addressing not only revenue collection but also expenditures, investments, and economic growth.
2. Population Control
In other issue is population, when compare to other countries in the region, Pakistan’s population growth rate is relatively high at 1.8%, whereas India’s growth rate is 0.8%, China’s is 0.1%, and Sri Lanka and Bangladesh’s is 1.1%. With a population of 240 million and a per capita GDP of 1658 dollar, controlling the population growth rate could help increase the per capita income. If the population were 150 million instead of 240 million, the per capita income could have been potentially increase. It is important for the government to take measures to slow down the population growth rate.
3. The Need to Empower Local Governments
Empowering local government bodies could possibly be a more effective approach to ensure accountability and transparency in development projects. Local government bodies are better positioned to understand the needs and priorities of their respective cities and can work closely with them to plan and execute development projects. This approach can help reduce corruption and increase public trust in the development process. There are rich examples of local government in the developed countries for example in the USA, states are referred to as “Laboratories of Democracy” because different experiments are tried out and successful ones are adopted. The USA has a decentralized system where powers and responsibilities are not only devolved to the 50 states but also to counties and cities which raise most of their own revenue. The Deng Xiaoping, who enlightened China’s economy and ordered local government officials to establish four economic zones in four regions of China. Out of these four regions, Shenzhen was very successful within five years, and inspired by its success, there are now 35 economic zones that have become the role model of export-based economic growth in China.
Additionally, In the USA, there are counties similar to the divisions we have here, which are responsible for collecting taxes. These counties engage in healthy competition with each other in terms of education and health, and while it is permitted to collect taxes. This competition extends to the economic sector, where the standard of living is higher. We can bring this experience at, division, and districts level to implement a similar system in our country, with an elected commissioner in each division and an elected mayor in each district and develop a spirit of healthy competition among all. Just like Gujranwala competes with Gujrat, Faisalabad competes with Lahore, and Karachi competes with Lahore, we could measure their success by the amount of tax revenue collected, the quality of universities and hospitals in their areas, and the types of welfare projects they offer. However, indeed there is a need to strengthen our local government system.
4. Need to boost our remittance earnings
Remittance, which refers to money sent back by immigrants to their home countries, can be a significant source of income to improve the economic situation. The remittance sent back by skilled and employable youth can help to support their families as well as contribute to the economic development of the country.
According to data from the Bureau of Emigrants and Overseas Employment, the Pakistani economy received significant contributions from remittance in 2021. Remittance accounted for 31.31 billion US dollars, which is equivalent to 9% of the country’s GDP. The direct foreign investment was valued at 2.1 billion US dollars.
In 2022, a total of 832,339 Pakistanis migrated overseas for work, compared to 76,500 in the previous year. Among them, 92,000 were highly educated individuals, including doctors, engineers, IT experts, accountants, and nurses, who migrated to countries such as KSA, UAE, and Romania. Additionally, 350,000 trained workers, 2,500 doctors, 5,534 engineers, 1,800 associate electrical engineers, 2,000 computer experts, 6,500 accountants, 2,600 agricultural experts, 900 teachers, 12,000 computer operators, 1,600 nurses, 21,517 technicians, and 213,000 drivers went overseas for work.
While some may consider this phenomenon as “brain drain,” but can be seen as an opportunity for Pakistan to export its skilled workforce, especially those who are highly educated.
On my recent trip to the UK, I learned from the “Association of Doctors” that there is a need for 5,000 nurses, each earning approximately £78,000 per year, that is equivalent to 18 to 19 lac Pakistani Rs. Instead of exporting a large number of unskilled workers, Pakistan could export more IT experts, English language teachers, doctors, pharmacist, Engineers, Technologist, data analyst and nurses to boost its remittance earnings to up to 80 billion US dollars. India earns more than 115 billion dollars per year from its IT industry, while Saudi Arabia earns 85 billion dollars from oil exports. Therefore, Pakistan needs to pay more attention to human resource planning and development to maximize its potential in this field.
The important point to be noted in this regards is that, Pakistan has a young population, with 64% of its total population aged 15 to 30 years old. However, the accessibility to universities for this age group is only 13%, compared to 44% in urban India and 24% in rural India. Increasing accessibility to university education is crucial, as it would help Pakistan develop a skilled and employable workforce that can be exported to the international market. The Vision 2025 aimed to increase university accessibility to 30%. But we are stuck with 13% and need to urgently address this issue.
5. The manufacturing sector can play a crucial role in improving the economic situation in Pakistan.
Pakistan’s manufacturing sector is the largest of its industrial zones, contributing approximately 12.13% to the country’s GDP. This sector is further divided into three components, namely, large-scale manufacturing (LSM), small-scale manufacturing, and slaughtering. LSM accounts for the largest share of 79.6% in the manufacturing sector, followed by small-scale manufacturing, which contributes 13.8%, and slaughtering, which contributes 6.5%. In 2021, Pakistan’s industrial sector contributed approximately 19.12% to the country’s GDP, and it recorded a growth of 7.81%. This is a significant improvement compared to the negative growth of 5.75% in 2020, indicating a promising economic outlook for Pakistan. The manufacturing sector’s growth is expected to play a significant role in the country’s economic development and progress in the coming years. The growth of the manufacturing sector can lead to the development of various other sectors, such as transportation, logistics, and services. As the manufacturing industry expands, it creates a demand for raw materials, infrastructure, and support services, leading to the growth of other industries and employment opportunities. The government can take various measures to support the growth of the manufacturing sector in Pakistan. These include providing tax incentives, improving infrastructure, reducing bureaucratic red tape, and investing in research and development. Additionally, the government can focus on improving the quality of education and training to develop a skilled workforce capable of meeting the demands of the industry cheap energy and transform import.
6. The Mining Sector has the Potential to Contribute Significantly to Pakistan’s Economy
Pakistan is a country that is rich in mineral resources including coal, oil, gas, copper, gold, lead, zinc chromite, iron ore, limestone, and many others, making it a very promising area for the exploration and prospecting of mineral deposits. Based on the available information, the country has more than 600,000 km2 of outcrop area, which displays diverse geological potential for metallic and non-metallic mineral deposits. After the implementation of the 18th amendment to the constitution, all provinces in Pakistan have the freedom to exploit and explore the mineral resources within their jurisdiction. This amendment has allowed the provinces to take ownership of their resources and has enabled them to utilize these resources to their advantage, resulting in increased investment in the mining and quarrying sector. The mining and quarrying sector contributes 13.19% to the industrial sector, and its share in Pakistan’s GDP is 2.4%. This sector has the potential to significantly contribute to the country’s economic growth and development. It can generate employment opportunities and contribute to the development of infrastructure and transportation systems.
However, there are several challenges that need to be addressed to fully realize the potential of the mining sector in Pakistan. These include the lack of proper infrastructure, a shortage of skilled manpower, outdated technology, inadequate regulatory frameworks, lack of investment in the sector, inadequate infrastructure for mining and exploration activities. Additionally, the country has also faced political instability and security challenges, which have deterred foreign investors and hindered the development of the mining industry i.e.
Australia and Indonesia have well-developed mining industries and have attracted foreign investment by implementing policies and frameworks that support the development of the sector. Both countries have significant mineral resources, and they have established regulatory frameworks that ensure sustainable mining practices. Pakistan can learn from their experiences to develop policies and frameworks to attract foreign investment and overcome the above challenges. In this way Pakistan can maximize the benefits from its mineral resources.
7. Improving agricultural productivity is crucial for Pakistan
Improving agricultural productivity is crucial for Pakistan, as the majority of its population is directly or indirectly dependent on this sector. Agriculture contributes about 19.2% of the country’s gross domestic product (GDP) and accounts for 37.4% of the employed labor force in 2021. Additionally, it is the largest source of foreign exchange earnings for the country. But the productivity of wheat in Pakistan is relatively low compared to some neighboring countries. According to data from the Food and Agriculture Organization (FAO), Pakistan’s average wheat yield in 2020 was around 2.8 metric tons per hectare, which is lower than the yields in India and China, which were around 3.5 and 4.9 metric tons per hectare, respectively.
The issue of low productivity may not always be linked to soil fertility or water scarcity. In some cases, the root cause could be the lack of government interest in adopting improved seed varieties, efficient irrigation practices, and promoting the use of mechanized equipment in wheat production. One potential solution to address this problem is through the use of genetic modification of crops, which involves the manipulation of an organism’s genes to introduce or modify specific traits. This technology has the potential to enhance crop yields, improve resistance to pests and diseases, and enhance the nutritional content of crops. In certain countries, genetically modified (GM) crops have already been widely adopted.
Additionally, to improve agricultural productivity, various measures can be taken, including the adoption of market-based approaches. These approaches can help farmers access information on best practices, connect with buyers and suppliers, and expand their markets. Industrial experts in the field can also provide valuable guidance to farmers on improving productivity and increasing yields. By adopting the above measures, Pakistan can unlock the full potential of its agricultural sector and drive sustainable growth.
8. Skillful and employable youth (Artificial intelligence, Robotics, Data Science, Gaming, Animally)
The development of a skillful and employable youth in emerging industries such as Artificial intelligence, robotics, data science, gaming, animation, internet of things, synthetic biotechnology, nanotechnology can have a significant positive impact on Pakistan’s economy. These industries are rapidly growing and have the potential to generate high-paying jobs and promote innovation and creativity. By investing in education and training programs that focus on these areas, Pakistan can equip its youth with the skills and knowledge needed to succeed in the global marketplace. Moreover, the growth of these industries can contribute to the development of a knowledge-based economy, which can lead to increased competitiveness and economic diversification. By exploiting technology and innovation, Pakistan can position itself as a leader in these industries and attract foreign investment and talent. To achieve this goal, Pakistan needs to prioritize the development of its education system and create a supportive environment for entrepreneurship and innovation. This can include initiatives such as providing access to funding, and promoting collaboration between industry and academia. Overall, the development of a skillful and employable youth in emerging industries can play a significant role in addressing Pakistan’s economic challenges and creating a brighter future for the country.
9. Pakistan has a range of cheap energy resources that can help address the country’s energy needs and contribute to economic growth and development
Pakistan has a diverse range of energy resources, including hydel, coal, wind, solar, and biodiesel, Shale gases and oil. The cost of production of these energy resources varies, and each has its advantages and challenges.
Hydel power is one of the cheapest sources of energy in Pakistan. The country has significant hydroelectric potential, with several large dams and power stations already in operation. The cost of producing hydel power is relatively low, and it is a clean source of energy. However, the availability of hydel power is dependent on water availability, which can vary seasonally and annually.
Wind and solar power are renewable energy sources that are becoming increasingly cost-competitive. The country has significant wind and solar potential. However, wind and solar power are intermittent sources of energy, and their availability is dependent on weather conditions.
Bio diesel is another renewable energy source that can beexplored in Pakistan. While bio diesel is a clean source of energy, its production can have adverse environmental and social impacts if it competes with food crops for land and water resources. It can be produced from waste vegetable oil and caster seeds etc. In addition, we must not overlook the potential of castor oil, which can be derived from the seeds of the castor plant that grows in arid regions. Biodiesel can be produced from castor oil, and we can earn significant revenue by exporting it.
Pakistan earned export revenues of 30 to 32 billion rupees, and last year we imported 17 billion rupees’ worth of RLNG and aromatic oil. On the other hand, it takes a great deal of effort to secure a loan of this amount. To reduce our reliance on imported furnace oil, high speed diesel, RLNG, LPG which costs us 17 billion dollars annually, we must tap into our own natural resources, such as wind, coal, solar, and hydropower. Coal is another significant source of energy in Pakistan, and it is relatively cheap to produce. Whereas our coal reserves can generate cleaner energy.
The country should encourage the installation of IGCC local power plant for cheaper and environment friendly electricity.Further to this, we can manufacture our own solar panels to harness the power of the sun, rather than importing them from China.
Moreover, we can also follow India’s lead and mix biofuels with diesel and petrol to save money. Furthermore, installing cow and buffalo dung gas plants in rural areas can be a viable option for using the methane produced for energy. It is imperative that we utilize our indigenous resources to bring about positive change.
10. Peace and Economic development as national agenda
Political stability and peace are essential for economic growth, as it creates a favorable environment for businesses to operate, and investors to invest. In Pakistan’s case, political instability and security challenges have hampered economic growth, discouraged foreign investment, and limited business opportunities. If all political parties could come together and work towards a common goal of peace and economic development, it could lead to the creation of policies and initiatives that prioritize economic growth and stability. This could include investments in infrastructure development, education, healthcare, and other areas that have the potential to drive economic growth.
Furthermore, a united approach towards economic development could also help improve Pakistan’s international image, increase foreign investment, and promote trade partnerships. This could lead to a positive cycle of growth and development, as more businesses invest and expand, creating jobs and driving economic growth.
11. Friendly relationships with neighboring countries is indeed important for Pakistan’s economic development
Having peaceful and friendly relationships with neighboring countries is indeed important for Pakistan’s economic development and overall stability. Regional peace and stability can facilitate greater trade, investment, and cooperation, which can benefit all countries in the region.
Pakistan has had historical tensions and conflicts with its neighbors, particularly India and Afghanistan. However, there have been efforts in recent years to improve relationships through dialogue and diplomacy. For example, Pakistan has made efforts to improve trade and economic ties with India, and has supported peace talks between the Afghan government and Taliban.
In addition to government-level efforts, people-to-people exchanges and cultural diplomacy can also help build trust and understanding between neighbors. Educational and cultural exchanges, sports events, and tourism can all contribute to fostering greater cooperation and friendship.
Overall, it is important for Pakistan to prioritize peaceful and friendly relationships with its neighbors in order to promote regional stability and economic growth. We should try to start regional trade in local currency that can reduce stress on Pakistan’s economy as well. The future of the people of the region is tied with common progress.
The writer is Chairperson of Punjab Higher Education Commission