With a middle class of around 40 million, the demand for high-end products has been on the increase for quite sometime in Pakistan. An import of one million smart phones every month and increased demand for home appliances, the country with a population of 190 million, is experiencing a silent economic development in urban centers and rapid GDP expansion.
Finance Minister Ishaq Dar takes a lot of pride in having fixed some of the flaws at the macroeconomic level, citing record levels of foreign exchange reserves and positive reviews by the World Bank, the IMF and other financial institutions. Islamabad also offers the examples of large transport projects like Metro Bus in Lahore and Islamabad-Rawalpindi.
A look at the macroeconomic trends and some of the gains in local industrial and services sectors also reveals that despite energy shortages and security issues of the last decade, not everything is doom and gloom in the country.
Besides, Pakistan has tremendous reserves of natural resources and with bumper harvests of cotton, wheat and sugarcane enjoys a respectable place among agriculturally rich Asian nations.
On the industrial side, it has a large industrial base and this week’s confirmation of a Sri Lankan order for purchase of the newly developed fighter jet planes-JF Thunder, it joins countries exporting high-tech arms.
But why are these positive trends not effecting a qualitative improvement in the lives of majority of the population? What is it that stops inclusive economic development of its teeming millions, particularly in areas outside of major urban centers? Why are the savings so low proportionate to the work people do?
The debate is not new and economists have long concluded that it is not any lack of resources but a sheer mismanagement or ineffective economic governance that stops distribution of output dividends.
Recent studies and analyses show two broad problems in the way of high and sustained GDP growth over the past several decades that in turn stops the country from achieving the goal of widespread and broad-based development. Internally, it is the absence of sustained reforms in both agricultural and industrial sectors (land reforms and devolution of administrative power) and externally a failure to diversify exports that could have earned benefits for skilled workers and farmers.
From the era of Korean War bonanza and the 1950s, when Pakistan joined Western alliances to the post-9/11 era, the military and civilian governments have repeatedly failed to benefit favorable world scenarios. In the 1950s and 60s the country focused more on import-substitution with establishing more and more factories to meet domestic demand. Little was done to value-add the natural resources. The economic managers of the country did not try to re-position even later. There was hardly any serious and sustained effort to increase revenue through promotion of tax culture. It was mainly due to government efforts to depend more and more on aid from the Western nations, entry into defense pacts and later knocking the doors of the international donors like World Bank, Asian Development Bank and International Monetary Fund (IMF) that Pakistan managed its revenues with temporary reprieves that haunt the national economy decades later.
The abundance of natural resources like those found in the energy-rich province of Balochistan has not been utilized properly due to a variety of factors including political disaffection exploited by local tribal chiefs. For years and decades, it has remained a classic example of resource curse phenomenon with intermittent insurgency waged by tribal leaders against the central government. This was the major reason that left Pakistan behind other countries of the region, especially China and India that now are leading Asian economies.
Indian economy that had been stuck in a sluggish growth rate of 3 percent due to protectionism until two decades ago, is now one of the largest in the region, thanks to key reforms and robust industrial and IT sectors. China, on the other hands, is second only to the United States in economic order.
On the other hand, despite much-claimed pro-poor efforts by successive governments, Pakistan failed to meet many UN-set Millennium Development Goals (MDGs) especially those related to education, health and access to drinking water till the deadline of the year 2015 and achieving the futuristic Sustainable Development Goals (SDGs) also seems out of reach unless the government introduces some fundamental reforms.
Even all sorts of subsidies and food stamp schemes have failed to empower the poor segments of the society economically with the result that around one third of the population lives below poverty line, with unacceptable levels of illiteracy, and a hurtful lack of socio-economic facilities.
Those, who have prospered and enjoy top infrastructure facilities, are like people living on islands of affluence amidst oceans of poverty and ignorance. The per capita income of Pakistanis has risen to US $t 1513. But this is the average or mean income that is meaningless for a big number of Pakistanis who despite toiling all the labor all day long earn no more than just 4 to 5 dollars a day. This has resulted in development disparities among federating units and even intra-provincial and within district inequalities. Punjab is rated as the most developed province while Balochistan dubbed as the most impoverished. The overriding influence of landlords as in Sindh and southern Punjab, tribal manipulations in Balochistan are also among the factors responsible for rampant poverty in these areas. Overall, Punjab and Khyber Pakhtunkhwa have achieved better results due mainly to skilled workforce and expatriates’ remittances.
However hopeful, the ongoing economic trends the IT growth, buildup of foreign exchange reserves, Chinese investment – which is likely to help resolve energy crisis – and improved security environment cannot deliver inclusive development unless accompanied by reforms.
The first such reform must target greater revenue collection that improves governance, stops corruption and places enough funds at the disposal of newly elected local governments that may help transfer economic gains at grassroots level.
Troubleshooting corruption, realizing devolution of funds, particularly from provincial capitals to districts and local levels, effective revenue generation, and adding value to a range of agrarian products are necessary to enable a fair distribution of wealth and sustain growth in the long-term.
The time for such a push for reforms in these four areas is ripe now as the country has a continuation of democracy, support of major economic powers like China and the United States as well as international financial institutions, and China-Pakistan Economic Corridor, is shaping up Pakistan to serve as a regional energy and trade hub.
