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An autopsy of the Pakistan’s economic crisis

Pakistan is the country of 208 million people. Its population is growing at the rate of nearly three percent annually. This means the country will need more and more funds and infrastructure to sustain quality life of its people in future. However, an autopsy of the state’s present economic outlook has revealed that the past and current economic policies have failed to achieve long-term objectives. Resultantly, the country is facing one of the worst economic crises in its history.

Roots of Pakistan’s economic crisis dates back to the time of its inception. The unequal distribution of funds during the partition paved the way for country’s dependence on first external loans from the International Monitory Fund (IMF) in 1958. Although the nature of economic crises has evolved over time, the crises have not ended. For the fiscal year (FY) 2018-2019, our economic growth has fallen to 3.4 percent, which is the lowest of all times. At present, the crises revolve around balance of payment, circular debt, exchange rate, debt and investment.
A balance of payments simply suggests whether a country saves enough money to pay for its international transactions. Unfortunately, for many years, the trade deficit in Pakistan has broadened except for FY 2018-2019;we still need $20 billion to avoid a foreign payment crisis.

The next factor behind the economic downfall is the circular debt crisis. It is the non-payment by the power purchaser for the generated electricity. The circular debt of Rs 807 billion has crippled the fragile economy of Pakistan. The present government vows to cut down debt efficiently, but the challenge of cutting down won’t be easy, as per the latest report by Aljazeera, Pakistan will need 15,000-megawattmore electricity in future. More demand and no payments to WAPDA will take the circular debt crisis to the next stage.

The exchange rate is the value of currency in terms of currency of another country or economic zone. Pakistani currency has devalued more than 30 percent against the US dollar in recent days. Such a significant devaluation has raised new challenges and impacted the loan payments and other financial obligations with which Pakistan has to comply.

Pakistan’s inability to repay its debts is adding fuel to the declining economic conditions. The country has a long history of borrowing from external sources such as the IMF. No sincere efforts have been taken by any government in bringing durable economic reforms. Borrowing has become the practice of our everyday life without putting any genuine effort to minimise dependence on the IMF. In the present scenario, despite our moral and political unwillingness to borrow, a six-billion dollar bailout package was needed to cap off intense chaos, which had begun as the result of the policies of the former finance minister, Asad Umar.

Lastly, the substantial reduction in local and foreign investments due to government’s fresh tax and tariff policies has also resulted in economic dormancy in the country. Foreign direct investment (FDI) has declined by more than 50 percent, whereas local investors are hesitating to invest mainly because of unfair accountability checks on capital and fresh taxes.

There is many causes of that what is explained above. They range from corruption and money laundering to international economic pressures and external relations to internal security conditions.

Corruption and money laundering have deeply affected our economy. Politicians and their trade partners have stolen money from multiple state-owned institutions for years; it is laundered using hawala/hundi in order to invest in overseas businesses. As per the reports of the leading national daily, Dawn, Pakistan loses $10-15 billion a year to money laundering. The country is already placed on the grey list by the international watchdog, Financial Action Task Force, owing to reasons of huge money laundering and terror financing in the country.

Political instability and lack of coherent and consistent fiscal policies are the next important factors behind the long standing economic crisis in Pakistan. The country is ruled partially by civilians and partially by non-civilian leaders. Their antagonistic economic policies have taken the country to the point of no return. No durable economic reforms have been introduced by any government to date. If steps for improvement are taken by anyone, the successive government have always revoked them, and then introduced fresh economic policies to serve their vested interests.

The past government’s inability and unwillingness to govern taxation also brought massive losses to us "

The global financial meltdowns, rise and fall of petroleum prices and fluctuations in exchange rate in one part of the world also affect the economies in other parts of the world. The global economic recession of 2008 also badly affected our economy. The effect of these crises on our national economy continued to 2014 and 2015. Pakistan’s economic growth was cut down by half from 8.3 percent in 2007 to 4.5 percent in 2009, as remittance and FDI drastically decreased, and Pakistani exports to the USA, the UK, Germany, Japan and Saudi Arabia were not accepted.

The poor external relations of Pakistan, especially with its neighbouring countries, are another major setback to the national economy. Many countries in other parts of the world have established Free Trade Zones and Special Economic Zones a long time ago, and are harvesting enormous economic benefits from regional and neighbouring countries. Pakistan’s total trade with its neighbouring countries, except china, is merely four billion dollars, which is just 5.7 percent of our total global trade volume, whereas the trade between Canada, the USA and Mexico under the North America Free Trade Agreement crossed $1000 billion in 2016. This simply implies that Pakistan like, other countries can enhance its trade with its neighbouring countries if it seriously works towards ameliorating external relations.

Security conditions in the post-9/11 era have also subdued our potential to grow. Although Pakistan received many billion dollars from the USA as the Coalition Support Fund and military assistance, the menace of terrorism caused Pakistan many economic and non-economic losses, which were much higher than the funds received from the USA. Many countries rolled back their businesses, stopped FDIs and their international airlines operations from our country.

All that, resultantly, have affected our past and present economic outlook; in addition, Pakistan also suffered the loss of thousands of precious lives of civilians and armed forces in an insurgency started by the Taliban after the US invasion of Afghanistan.

Lastly, the past government’s inability and unwillingness to govern taxation also brought massive losses to us. Tax evasions, exemptions and plea bargain policies incorporated through the Statutory Regulatory Orders helped many people convert black money into white. The new government has also failed to achieve good tax-to-GDP ratio. Currently, it hovers around 10 percent, which simply means that to cover 90 percent of the country’s expenses, the government would have to look for other sources of revenue.

There are many other reasons behind the economic downfall of Pakistan, which include growing non-developmental expenditures, failure to develop and protect local industry. With great urgency, government should make better policies before it gets too late. According to international security strategists, economic security is more important than conventional security in the twenty-first century. It is believed that the fragile economy is now the national security issue of Pakistan. Therefore, credible economic deterrence can be created by focusing on increasing remittance, ease of doing business, foreign direct investment, increasing tax net, enhancing exports, improving regional connectivity and internal security conditions. Such deterrence is also reliable.

The writer is a lecturer in the Department of Management Sciences, NUML, Multan





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