Islamabad: Pakistan is once again going through a deep economic crisis and as usual we had no choice but to throw ourselves at the mercy of the IMF. This article is an attempt to give a brief analysis of what has specifically hurt our economy.
Even a cursory look at the growth of imports over time is enough to tell us about our confused priorities and the causes of the current crisis. They have grown from $0.5 billion in 1960 to $80 billion in 2022.
Energy, foodstuffs, iron and steel account for 40 percent of total imports, which says it all. We claim to be an agricultural country but routinely import wheat, sugar, vegetables and edible oil.
Similarly, we have failed miserably to utilize indigenous energy effectively. Regarding steel, PSM, which started in 1981, has been closed since 2015. Also, Taweerqi Steel, established with an FDI of $330 million, has been closed since 2013 due to non-serious issues.
Historically, in the first four decades, we were able to proceed at the behest of the global division between capitalist and socialist blocs. Thus, by 1990 the US had given us only $40 billion in aid.
We even had the audacity to sneer again and again, for example calling the $400 million in aid offered in 1980 peanuts and calling for a review. As it was in US interest until 1990, they continued to pour dollars into Pakistan.
However, as the Russians withdrew from Afghanistan and the socialist bloc began to disintegrate, they closed the dollar valve by invoking the Pressler Amendment, which had actually been in effect since 1985.
As a result, US aid to Pakistan from 1990 to 2000 was barely $0.6 billion. However, instead of trying to get back on our feet, we frantically started looking for new sponsors and found them in the form of the Gulf States. When we did the nuclear tests in 1998, 50,000 bpd of free oil for two years is the same exposure. Dependence only grows with time and takes on new dimensions.
Given the background, 9/11 ironically acted as a storm for us. America needed us so the dollars started flowing again. Thus, approximately $30 billion was provided from 2001 to 2010. However, relations took a turn for the worse after Osama bin Laden was killed in a night raid in Pakistan in 2011.
This incident took place in November of the same year after the attack by NATO forces on the Pakistani border check post at Salalah, as a result of which 24 Pakistani soldiers lost their lives. Pakistan retaliated by closing its borders to NATO supplies for an extended period.
Drone strikes that began in 2004 peaked in 2010, further straining relations. In the given background, the Americans again closed the dollar valve.
But, when the aid stopped, nothing was learned, we went into a cycle of borrowing. So, while our public debt was Rs 711 billion by 1990, it increased 5.1 times to Rs 3,684 billion by 2001.
However, after 9/11, due to the resumption of US aid, the pace of growth slowed considerably till 2010, increasing by 2.4 times to only Rs 9,006 billion.
In the next 10 years, it increased to Rs 36,399 billion, a four-fold increase, as the US re-emerged. It currently stands at Rs 62.46 trillion (including liabilities), a substantial increase from Rs 50.496 trillion in September 2021 and a reflection of the acceleration of the thaw that began more than a decade ago.
Another important criterion cannot be ignored, that is, while external debt was Rs 330 billion and domestic debt was Rs 381 billion in 1990, they have similarly increased to Rs 13,601 billion and Rs 23,283 billion by 2020.
This essentially reflects that while the Americans pushed us forward, other potential donors and creditors also closed their fists. Being habitual borrowers, we resorted to internal borrowing to fill the respective financial gaps rather than trying to control our spending and build wealth.
The Marshall Plan
A “Friends of Democratic Pakistan” group was launched in September 2008. As part of the aforementioned initiative, we had the audacity to request a “Marshall Plan” providing $30 billion in aid.
As for the original Marshall Plan, which totaled $13.2 billion in U.S. aid, it proved sufficient to revive the economies of 16 European countries, including West Germany, France, and Great Britain.
After it expired in 1952, economic growth in the aforementioned countries surpassed pre-war levels. Other examples of fair use of such aid are Taiwan and South Korea.
What to do.
Despite the many IMF programs and lavish provision of loans and aid, virtually every socio-economic parameter of ours remains stagnant.
At the same time, any model that involves active participation and planning and execution on our part, like CPEC, has so fairly failed to take root. Thus our creditors and donors have largely subsidized the rot and incompetence of the ruling elite until now.
Therefore; a) Lenders and donors can begin to link all their programs for Pakistan with measurable targets for structural reforms. b) We have more than 200 PSEs. To generate immediate cash, these include equity, starting from the energy sector (E&P, gas utilities and DISCOs), G-to-G with PSEs in Russia, China, Singapore, Norway and the GCC. The grounds are negotiable. At least three board positions against each such transaction.
Professional new directors will be a breath of fresh air for PSEs, which are currently suffocating under their bureaucratic stranglehold and consequent unprofessional boards.
Also, this entire exercise needs to be managed by a dedicated team of world-class professionals under the leadership of a professional. If it is left to a secretary, it will be ruined from the first day.
The time has come to completely separate the bureaucracy from any agency involved in planning and execution. c) 60% of households in rural areas of Pakistan are completely landless. Getting rid of feudal lock stock and barrel and cooperative farming is inevitable to be complemented by a big dose of technology and R&D in agriculture.
As far as the implementation of the above somewhat radical measures is concerned, our ruling elites lack the necessary willpower and capacity. However, the current public outrage in the aftermath of the given acute crisis certainly provides ample ground for a progressive national democratic vehicle to emerge and play this historic role.
