This is what the previous government did. And, the one before that. It could have worked if, while borrowing to build infrastructure, it did not ignore the underlying constraints to growth and productivity.
Because they did not do that, Pakistan has ended up with an increasing level of debt, a balance of payment crises, and a government struggling to keep the growth spurt going.
When these challenges become dire — Pakistan often ends up getting a loan by the International Monetary Fund (IMF).
And, if our public discourse and policies remain the same, we will without doubt keep knocking at IMF’s door every few years (or some other lender for that matter).
The amount of Pakistan’s debt is not a problem. It is tax revenue and the tax compliance by the population a major problem. Less than one percent of the people of Pakistan pay taxes. In the developed countries more than 80-85% people pay taxes to the government. No matter how much money Pakistan borrow from the IMF or other sources, if we don’t have the revenue coming, we will be in the same situation as now. Major Tax Education is needed with minimization of cash based economy.
However in bringing the reforms to our fragile economy we need to connect politics with economics. In Pakistan, it is the political Lords who are to blame for the failure of any meaningful legislation benefiting the common person. To these Political thugs, Pakistan is merely a mint to make money while they keep all the looted wealth abroad. How can it be corrected? One simple and significant step that the present government can take is to abolish the 18th Amendment that is the source of division and weakened Federation. The 18th amendment, defined and developed by Condeleza Rice as a part of NRO. It was meant to weaken the Federation and to create linguistic and provincial divisions. Major setback of this amendment is education and Hydro dams. In absence of universal education policy, each province is left free to teach whatever the provincial government desired. Opposition to Kalabagh Dam and other hydro projects are because of weakened Federation. President Ayub was able to construct the largest dam at the time because of strong Federation.
On the contrary, the last decade has harmed the Pakistan’s economy the most because both the PPP and then PML-N government were not focused on strengthening the economy and instead looted. The institutions were being headed by cronies which resulted in these institutions becoming nonfunctioning. Most of all, everything had to be routed through their power corridors.
Moreover, Pakistan needs to build the quality of her human capital by educating its masses. One of the reasons why countries like China & India did well economically was because they increased their education spending. Unfortunately Pakistan still seems to be stuck in obsolete thinking where it feels that its “strategic location” will be enough to make it rich. In reality strategic location means absolutely nothing when you don’t have a population which can take advantage of that location.
Moving forward, we really need to think about making Pakistan an export-oriented economy with value-added goods and services for which the country has a comparative advantage. Social and welfare spending can go hand in hand with economic growth. For that, the government needs to justify its credibility for increased tax revenues.
IMF and other money lending global institutes will only offer palliative care to a cancer-ridden nation like us. We as a nation need to take corrective measures that will be painful. But first and foremost, do something to cringe the looted money from the elite. This would not only restore confidence on the government as well as reduce the monetary pressure on the system.
To make the matters simple the real reforms we need are not rocket science: recover the commons (health, education, housing, employment, nature) from the profiteers, audit and reduce defense spending, and stop taking ‘painful’ steps that hurt the poor, and, instead, inflict some pain on the rich. Nevertheless, it all depends upon the PTI government as to how they steer the nation and economy forward, the hopes, the slogans and all the loud chants before the election, now is the time to capitalize. Even if PTI is able to put the economy back on track, reorder budgetary priorities and take decisions which go towards uplift of the downtrodden, it should be acceptable.
