ECONOMIC CHALLENGES OF PAKISTAN
PAKISTAN ECONOMIC OUTLOOK:
Economic growth likely remained strong in Fiscal Year 2018, which ends in June 2018, according to advance estimates released by the government in late April. The economy has likely picked up steam on the back of a wide recuperation in the farming segment because of enhanced conditions, and more grounded producing action. All things considered, gauges uncover that the legislature has been not able address auxiliary issues, for example, monetary slippage. In addition, the present record deficiency will probably crumble in FY 2018 because of solid household request and an exaggerated swapping scale. The two currency devaluations in March, however, should help boost international reserves, which fell to an over three-year low in March.
At the time of independence Pakistan’s economy, which was having nothing to survive, has made his way in the line of developing country through many experiments in political and economic history. The economy had witnessed relatively free market system at one time (mostly in democratic government periods like 1988 to 1999 and 2008 to on till now) and command at the time of 1971 to 1977 and all dictatorship eras. For this reason, the economic history of Pakistan becomes more interesting. Despite having so much turbulent time, Pakistan has witnessed the time of fastest growth in South Asia region. But the inconsistent policies and narratives of every government failed this state many times. These variable policies are still freezing the Pakistan to live among the developing world. The business people and proprietors, who rose in view of various monetary indiscretions, have commandeered the financial improvement of nation. This world class held hands with military and bure acratic muscle of the nation and remained a key player in expelling distinctive popularity based governments. Beside this, the linkage with international monetary institutions during 80’s also started to engulf the economic independence of the country and has trapped this country in to debt trap. Pakistan is rich in every type of resources, but the situation is getting worse with every passing day. Despite of having vast reserves of coal, oil, gold, gas and many other valuable minerals, Pakistan is depending on international aid for its economic and social revival. Pakistan has vast fertile land which led it to self-sufficiency in food. The share of different sectors in the economy has been changed much since independence. Pakistan has also a large pool of human re source which can be turned into productive one by adopting a wise policy. Now the agriculture is sharing almost 21% in GDP which was more than 50% at the time of creation of this state in 1947. Whereas, the industrial and services sectors have gained in their share in GDP up to 20.9% and 57.7% respectively from 8.03% and 39.3% i n 1947. The exchange account stayed in shortfall amid the greater part of the years in history is still in a similar condition because of more reliance on imports. The intemperate reliance on imports and lack in vitality segment has likewise bothered our outside trade saves. The consistent debasement of Pakistani rupee was likewise consequence of these financial issues. Open obligation, to deal with the economy, is rising strongly as it achieved over 60% of Gross domestic product. It is evident from the above discussion that Pakistan’s economy has a lot of problems, so an integrated economic, social and political framework is needed to bring out of this imbroglio.
PAKISTAN ECONOMIC GROWTH:
The financial standpoint for next monetary year could be adversely influenced by potential political clamor following July’s broad race, raised monetary awkward nature and lower family unit spending because of higher swelling. In addition, a flood in vitality costs will add weight to the outer records. Center Financial aspects specialists expect development of 4.8% in FY 2019 and 4.9% in FY 2020.
Pakistan Economy Data:
2013 2014 2015 2016 2017
Population (million)183 186 190 194 197
GDP per capita (USD)1,267 1,314 1,428 1,466 1,547
GDP (USD bn)231 245 271 284 305
Economic Growth (GDP, annual variation in %)3.7 4.1 4.1 4.6 5.4
Consumption (annual variation in %)2.1 5.6 2.9 7.6 8.7
Investment (annual variation in %)2.6 2.5 15.8 7.5 10.0
Industrial Production (annual variation in %)0.8 4.5 5.2 5.7 5.0
Unemployment Rate6.0 6.0 5.9 6.0 –
Fiscal Balance (% of GDP)-8.2 -5.5 -5.3 -4.6 -5.8
Public Debt (% of GDP)62.6 62.7 61.8 65.5 65.0
Money (annual variation in %)16.9 12.6 12.8 14.5 13.9
Inflation Rate (CPI, annual variation in %, eop)5.9 8.2 3.2 3.2 3.9
Inflation Rate (CPI, annual variation in %)7.4 8.6 4.6 2.9 4.2
Exchange Rate (vs USD)99.6 98.68 101.9 104.7 104.9
Policy Interest Rate (%)9.00 10.00 6.50 5.75 5.75
Exchange Rate (vs USD, aop)96.82 102.9 101.4 104.3 104.8
Current Account (% of GDP)-1.1 -1.3 -1.0 -1.7 -4.0
Current Account Balance (USD bn)-2.5 -3.1 -2.8 -4.9 -12.1
Trade Balance (USD billion)-15.4 -16.6 -17.2 -18.4 -26.7
Exports (USD billion)24.8 25.1 24.1 22.0 22.0
Imports (USD billion)40.2 41.7 41.3 40.4 48.7
Exports (annual variation in %)0.3 1.1 -3.9 -8.8 0.1
Imports (annual variation in %)-0.5 3.8 -0.9 -2.3 20.6
International Reserves (USD)8.5 11.8 16.0 20.9 18.7
External Debt (% of GDP)25.0 25.3 22.7 24.5 26.2
CHALLENGES TO PAKISTAN’S ECONOMY
a. We Consume More and Save Less.
Out of every hundred rupees of our national income, we consume 85 rupees and save only 15 rupees, which means hat the amount of money which is available to invest for economic growth and advancement is too little. Because to grow by 6%, you need at least 24-25% investment rate – and if you want to rely on domestic savings, your saving rate should be 25%. India’s saving rate was about the same, but last year they recorded 34% saving rates. China’s sparing rate is half, so this is the complexity regarding why we are in genuine trouble in light of the fact that as a country this is an issue which we need to perceive. We need to no less than twofold on reserve funds rate else we will stay reliant on remote sources.
b. We Import More and Export Less.
Till 2007-2008, 80% of our imports were financed by our export earnings. This ratio has come down to only 50%, it may go up to 60% but a gap of 40% of financing needs in order to keep with the import level still exists. As a nation we prefer to use even the basic commodities of foreign countries rather than locally manufactured goods. Except if we don’t change this demeanor of inclining toward the foreign products we need to continue depending on untouchables to fill in this hole b/w our imports and fares. Depending on untouchables’ implies that there are cycles, ups, and downs i.e. at the point when things are great, one gets financing, and when things are terrible one starves for financing. No country which endeavors to protect its respect must experience this specific course. The lower is this hole between our fare profit and use on imports – and that can be accomplished just by exhausting our fares; our dependence on outside sources would be diminished.
c. Government spends more than it earns as Revenues.
Fiscal deficit is the difference between the revenues which are collected in a year and the total expenditure incurred by the Government. Pakistan’s government takes away 20% of national income as its own. 80% is left in the private sector and 20% in the hands of the government is spent on defence, debt servicing, development on education, health, general administration etc. The income created is just 15% of the Gross domestic product, best case scenario, and in the most exceedingly awful days it is 12 to 13%. Out of the each rupee of wage gotten by a Pakistani, all things considered, assess paid is just 9 paisas and 91 paisas stay with the person. In 2007-2008, Pakistan’s financial deficiency was over 7% which implies its pay or incomes were just 13% of Gross domestic product though, uses were 20%. Hence, monetary shortfalls must be financed from some place, so how would you fund them; you either go again asking the outside benefactors, or to the State bank of Pakistan. The financing provided by the State bank of Pakistan is dangerous because it creates high inflation in the economy, which is injurious to the middle class, those earning fixed wages and salaries, and the poor. Therefore, there is an uproar in the country if the inflation rate goes up. In 1999, our Debt to GDP ratio was 100%, which means that the entire national income was pledged as debt. Every single penny was pledged to the creditors. This proportion was decreased bit by bit finished next six to seven years and brought down to half, a normal for every one of the economies. Notwithstanding, the manner in which the things are going throughout the previous two years, it has moved from half in last two yrs to 58%, and with every one of the borrowings it might go to 60%, while the Monetary Obligation Law 2005 says, that the administration ought not surpass the obligation Gross domestic product proportion over 60% and is required to lessen it by 2.5%; and that isn’t going on. The reason the monetary deficiency is enlarging is low income gathering. How can you expect that only nine paisas out of every rupee of income generated by Pakistani population suffices to meet the requirements of defence, infrastructure, development, debt servicing etc. This is just not possible. In India, tax GDP ratio is 15% and still they have fiscal deficit. So Pakistan is way below the norm for developing countries. Many people say that defence takes away a lot of government expenditure. Whereas, the fact is that defence expenditure is only 20% of government expenditure. It is only 4% of GDP, and is not such a large expenditure as compared to debt servicing which is 7-8% of GDP and almost 40% of government expenditure. In this manner, government needs to contain its financial shortage by raising incomes. Agriculture incomes are exempt, professionals, retailers, wholesalers, transport owners and many other service providers evade taxes by paying a small fraction of what is due. Continuing large fiscal deficits year after year may plunge the country into debt trap again.
d. Our Share in the World Trade is shrinking:
In 1990, Pakistan’s share was 0.2% of the world trade. After 20 years it has come down to 0.12% in a very buoyant world economy. World exchange has been becoming speedier as looked at the world yield. India in a similar period had multiplied its offer from 0.7% to 1.4%, while Pakistan is going the other way and that is the motivation behind why sends out/imports awkwardness is expanding. We are not exploiting the open doors which a light world economy is giving. Pakistan is screwed over thanks to just a couple of items – materials, cowhide, rice, games, products and the careful merchandise. We have not entered the business sectors for more powerful items. All our exports are to a few markets – the USA, EU and the Middle East. So this narrow export base and very limited geographical spread are not allowing us to expand our share. Except if we enhance the nature of our items, go out and do the promoting abroad, put resources into innovative work, the prospects don’t look encouraging. That is why we are lagging behind other countries which from way back are over taking Pakistan.
e. We Badly Lag in Social Indicators:
One of the most glaring weaknesses is that a country like Pakistan that should have had best indicators in literacy, infant mortality, fertility rates, in access to water supply, in primary enrolment ratios has social indicators which are more comparable to Africa rather than to the countries of similar per capita income. Even Tajikistan, which is a very poor country, has better literacy rate and primary enrolment ratios than Pakistan. What does it means? It means that if we had literacy rate of 100% instead of 55%, then in 2009-2010 our per capita income would have been 2000$ rather than 1000$. Instead of 30 million middle class in Pakistan we would have 60-70 million middle class people; we would have poverty reduced to 15-20%. We have resolved to accomplish the thousand years improvement objectives by 2015 i.e. we will have the capacity to achieve 80-85% proficiency rate, however it is dicey that this will happen. For what reason do we have local disparities? Why Baluchistan is lingering behind different regions? It is a result of education rates and essential enrolment proportions. There is an immediate relationship between local imbalances and backwardness with the level of instruction.
f. We Face Energy and Water Shortages:
Another challenge we face today is energy and water shortages, and that is not because we are not generating enough electricity or we are not having enough water. With the losses of KESC from the point it has generated to the point they realize the billing is 45%, so 55% people are paying for those who are stealing the electricity. Legislature of Pakistan out of its own constrained assets is paying 200 billion rupees consistently as endowments for power. Our industry is off guard that they get the requests from remote nations yet they can’t execute the requests in light of the fact that there are power blackouts. Notwithstanding financial misfortunes it additionally makes burden for seeking after ordinary life. We have silting of our dams, yet no extra dams have been developed since Tarbela in 1974. We have water course losses of about 20-25%. Even after these losses, the water is inequitably distributed. The powerful land masters can take more noteworthy offer of water from the channels when contrasted with poor ranchers. Accordingly, the profitability of poor rancher is just a single ton for each section of land when contrasted with 3 tons by vast holders. In the event that we give the water evenhandedly to the little agriculturist, he would likewise have the capacity to build the efficiency from one to no less than two tons coming about into extra salary, increment in fares of nourishment grains, cotton and products of the soil which will add to trade profit of Pakistan. With the climate change taking place with all the glaciers in Himalayas which are going to melt, we are going to have difficulties in future due to global warming.
g. Cost of Doing Business is high:
Pakistan is ranked among the bottom half of the rankings of the countries where cost of doing business is quite high. It is not high for any particular reason but because of our bureaucracy totally sitting on their seats without taking actions or decisions in time. Except if there is some weight or motivation for them, the ordinary organizations especially the little and medium organizations have major issues on account of administration. Regardless of whether we have financial specialists who are invited by the central government, when it boils down to common and nearby governments there are given a circled – the land isn’t accessible, the water isn’t accessible, the gas isn’t accessible, power isn’t accessible, street isn’t accessible. Absence of coordination among different government offices, countless laws and controls that are obsolete and obsolete have turned out to be not kidding hindrances. Labour laws, inspections by multiple agencies, the delays in the court system, infringement of intellectual property rights and evasion of taxes by competing firms in the informal sector have rendered some of the well established firms unprofitable, or the feasibility of starting near ventures questionable.
h. Crisis of Governance and Implementation Weaknesses:
If we glance on policy documents of various governments on education, agriculture, health, trade policy etc, and look at the same policy forty years ago and the problems, there is hardly any significant record of implementation of those policies or plans over this period. We produce five years plans and all kinds of medium term frameworks, but it is the poor governance and implementation that are the weak links in getting things done. Except if we fortify common administrations and achieve a legitimacy based arrangement of enlistment, advancement, execution assessment, pay, disciplinary activity, and so forth, we won’t have the capacity to perceive any distinction in the nature of administration. Requests are given by the higher ups yet they are not done; synopses are endorsed, but rather they stay covered in the records and in this way; regardless of whether it is instruction, wellbeing, water supply, income or lawfulness, you can bind the issue to the administration issues. Unless we fix the governance issue, the economy is not going to take off at the speed which is required.
j. Uncertainty and Unpredictability due to Lack of Continuity:
Every government whether military or civilian starts with a clean slate, as if nothing happened before them and nothing will happen after them. This is not the way the real world works. You take the activities and projects which were started by the past governments, assess them regarding what the qualities and shortcomings were, settle those shortcomings and convey them forward. It will take just couple of years to convey these acquired tasks to finishing and the nation will profit by new engine ways, new ports, roadways, instructive organizations and so forth. Be that as it may, habitual pettiness of progressive governments results into unexpected end of every single such undertaking and projects. At the point when these are continued the cost has raised three times and it takes a few extra years to finish them. In the in the interim the general population of Pakistan endure in light of this absence of congruity. At the point when looked with such unusualness about the future, the speculators are contemplating whether they ought to put resources into this nation as they are questionable whether the new government when comes in would stop or modify what the past government was doing, or stick to the duties made to them. Take the case of advanced education Commission, which was sending 1700 understudies for PhDs abroad yet the new government comes in and suspends the subsidizing of those projects. This solved down the process of faculty development for our universities at a time when we should have been sending twice as many scholars.
k. Political Stability, Law and Order/Security:
The overall arching theme is that for a robust economy we should have political stability, law and order and security. The Armed Forces of Pakistan deserve gratitude for what they have done in Malakand Division to bring about stability as far as the law and order situation is concerned. The sooner the nation is disposed of this picture of political unsteadiness, poor peace circumstance and uncertainty, whereby financial specialists from everywhere throughout the world dither in coming to Pakistan and contribute, we won’t have the capacity to gain any ground in this nation. In 2007, Pakistan was a standout amongst the most loved nations among the worldwide speculator network. A multi year bit of paper was glided which was a bond for Pakistan to be paid in 2037 and Pakistan got four times finished membership at a value which was just 300 premise focuses over the US treasury. Not very many nations can profess to have that sort of believability with universal reserve chiefs. However, in two years time we have missed that boat. Therefore, it is imperative that we resume the journey which has been interrupted by nurturing a stable, secure and peaceful political environment.PROSPECTS/SOLUTIONS TO IMPROVE ECONOMY:
How can we overcome these challenges and problems and improve our economy? A lot has been written and talked about, but I will focus on only a few action points.
Change in National Psyche and Mindset:
We as a nation are too much negative oriented and too much cynical where we find everything wrong in this country. Unless we change our mindset and unless everybody who is doing what he is supposed to do, carries out his or her task with sincerity and honesty, we are not going to go anywhere. We should not expect any Messiah to come and fix our problems we have to do it ourselves individually and collectively. There are no alternate ways accessible. Media is muddying the water by their staggering stories and welcoming alleged specialists who contribute in anticipating negative reasoning and negative national mind. Except if we have a positive “can do” attitude, it will be hard to advance. Except if every single one of us changes our outlook as opposed to accuse the legislature and the framework, we are not going to go anyplace in this race for worldwide monetary survival. This is easier said than done. But I expect our younger generation to be more responsive and responsible.
Building up of Human Capital.
There is no substitute to building up human capital. Private sector, public sector, NGOs, local communities, philanthropists etc, all here to put their hands on deck and participate in making sure that every child goes to school. Every high school graduate has some technical and vocational skill or goes for higher education. Except if we develop human capital, we are simply going to be deserted on the grounds that the world economy will be an information based economy. It’s anything but an economy where you remember material or replicate that in the exam and forget about it – that is not true anymore. One needs to procure the information and utilize it with a specific end goal to apply to critical thinking. This is a new paradigm where human capital is as important as machinery and equipment. Pakistan lags behind other countries in the institutions, infrastructure and incentives for human capital formation. We have no choice but to accelerate the pace to catch up with others.
Use of Technology:
The technology is spreading like a wild fire. How many people five years ago could have thought that even in a small towns and villages of Pakistan, one would access to mobile telephones. 95 million Pakistanis have mobile phones today. You can utilize this innovation with a specific end goal to give them keeping money administrations, data on atmosphere/climate, agribusiness augmentation, wellbeing, training and so forth. It is a great instrument which can jump a considerable measure of time which we have squandered. Utilizing innovation especially the data/correspondence innovation for the improvement of social and monetary issues of Pakistan is something which should be done however it is impossible the manner in which we have compartmentalized this into various services. A more holistic and comprehensive approach that deploys technology for poverty reduction has to be put in place.
Young Labour Force:
Pakistan is one of the few countries which has a young labour force which can be harnessed for its own and global economy. Japan, Europe, USA and after 2050 China are going to have aging population where the ratio of old to young people is going to increase. India and Pakistan are two nations where the proportion of more youthful individuals to the more seasoned ones will increment. On the off chance that we device these young fellows and ladies appropriately, we increment the female work compel cooperation, give them abilities and information, they can turn into the work drive for whatever is left of the world. This will give a major lift to Pakistan’s own economy. In 2001, specialist settlements were not as much as a billion dollars; today we have just about 7-8 billion dollars. Now this can be multiplied by three or four times if we have educated labour force i.e. skilled labour force going for overseas employment. This is also a way to create employment opportunities because if you have large number of younger people coming to labour force and you don’t have job opportunities for them you can have social upheaval. Therefore, it is imperative to create employment opportunities for them and one of the avenues is to train them in the kind of the skills which are needed not only by the national economy but also by the international economy.
e. Governance, Devolution and Decentralization.
As the population is increasing, one cannot govern Pakistan sitting in Islamabad, Karachi, Lahore, Peshawar or Quetta. One has to devolve powers, decentralize and delegate authority, provide resources to the local/district governments so that they can take decisions at their own. Those choices would be especially as per the prerequisites and the requirements of those networks. Sitting in Islamabad one can’t imagine what is required in Chaghi or Loralai, however the general population in Loralai and Chaghi know precisely whether they require water, manures or natural product handling industry. Give us a chance to regress forces to the general population at the grassroots level and there would be greatly improved portion and usage of assets. There must, notwithstanding, be responsibility of the nearby governments by the commonplace governments and of common governments by the national government yet not impedance or usurpation of forces. If we do that, then a lot more can happen with same amount of resources which are being wasted today, and the economic growth rate can be raised from 6-7 percent average to 8-9 percent annually.
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