Pakistan continues to experience deep economic turmoil. Years of mismanagement by subsequent governments and political instability have contributed to the economic crisis. As I write this article, the country’s liquid foreign exchange reserves stand at an abysmally low at around US$ 4 billion, enough to cover less than a month’s imports. The Stand-by-Agreement (SBA) with the International Monetary Fund (IMF), the lender of last resort, remains stalled. The lack of progress on the IMF programme means that inflows from ‘friendly countries,’ a euphemism for China and Middle Eastern countries, especially Saudi Arabia and the United Arab Emirates (UAE), have not materialised. Subsequent governments, including the Pakistan Tehreek-e-Insaf (PTI)-led coalition and the Pakistan Muslim League-Nawaz (PML-N)-led Pakistan Democratic Movement (PDM) government, have meandered through these crises, hoping for a miracle. Limited attention has been given to the root causes of the deep structural constraints contributing to the boom-bust growth cycle affecting the country’s economy. The economic woes have been exacerbated by instability and the almost constant political engineering, which has become a hallmark of Pakistan’s political economy. 

In the rest of the article below, I will highlight some of the major issues affecting Pakistan’s economy, especially manufacturing. I will follow this with some suggestions to help alleviate these problems.

Manufacturing 

A substantial structural change has occurred in Pakistan’s economy over the last two decades. The services sector has emerged as the primary growth driver, while industry and agriculture have underperformed. Within the industry, growth in manufacturing has been particularly sluggish. A comparison with other large regional economies in South Asia shows that the share of manufacturing in GDP is the lowest and has been for a considerable period, showing evidence of secular stagnation. The declining share of manufacturing in the GDP has raised fears that Pakistan is going through premature de-industrialisation (Hamid & Khan, 2015; Nazeer & Rasiah, 2016). 

The literature highlights several issues contributing to this dismal picture in the manufacturing sector. A strand focuses on the negative effects of rapid liberalisation and deregulation, which increased the cost of inputs, for example, electricity (Zaidi, 2005). Furthermore, the privatisation of banks increased the borrowing costs for manufacturers (ibid.). More recent empirical evidence, however, suggests that over the last two decades, while tariff barriers have come down, governments have enacted non-tariff measures and regulatory duties to protect local industries. This has meant that the overall trade protection is at the same levels as in 2001. This is especially true for politically connected firms that have benefited disproportionately over the last two decades from a mix of tariff and non-tariff measures (Malik, 2022). Malik (ibid.) argues that trade protection that is given to special interest groups, especially firms with political connections, has contributed to the anti-export bias, leading to the problems of stagnant exports, low productivity, and the perennial current account deficit.

The anti-export bias also contributes to lower productivity. Evidence suggests that there is substantial heterogeneity in productivity levels between firms that export and those that don’t (Lovo & Varela, 2020). They estimate the productivity gap to be 25 per cent. Low productivity negatively affects the ability of local firms to compete in export markets (Safdar, forthcoming) as can be evidenced by the decrease in the share of exports to GDP from 12 per cent in 2000 to 10 per cent in 2021.

Apart from the anti-export bias, the structure of manufacturing remains concentrated in low-technology areas like textiles and food processing. Pakistan failed to enter high-technology areas, unlike the more dynamic economies in East Asia and, more recently, in Southeast Asia like Vietnam. This concentration is a function of policy frameworks that have created islands of what Naseemullah (2017) identifies as rent-thick areas within manufacturing in the name of food security and import-substitution industrialisation (ISI). The sugar industry is a classic example of an industry where the country has limited comparative advantage, yet it has received generous rents and state patronage (Safdar, 2015). Similar is the case with other significant contributors to large-scale manufacturing (LSM). Cement and automobiles are also technology laggards, where local manufacturers have limited prospects of achieving global competitiveness (Safdar, forthcoming). Within manufacturing, there are a few politically connected areas where rents remain high. Based on an analysis of the return on equity (ROE) for firms listed on the stock exchange, Pasha (2018, p. 158) shows that the ROE is the highest in ISI sectors like automobiles and food. Despite the importance of textiles in Pakistan’s exports, the ROE of firms engaged in textile spinning, weaving, and textile garments is the lowest among listed companies (ibid.).

Trade protection that is given to special interest groups, especially firms with political connections, has contributed to the anti-export bias, Leading to the problems of stagnant exports, low productivity, and the perennial current account deficit.

On the other hand, more dynamic industries that can become globally competitive and offer opportunities for technological deepening, like pharmaceuticals and electronics, have struggled to attract investment (Safdar, forthcoming). Exports also remain concentrated in low-technology areas, and the country continues to focus on a narrow basket of goods for a substantial portion of exports. The continued dependence on textiles is an example of this concentration. 

As opposed to creating value-enhancing rents similar to the East Asian experience, in the absence of performance monitoring by the state, state policies have created value-reducing rents based on patronage. The state’s ability to monitor rent distribution has become much weaker, while its ability to reallocate these rents is non-existent (Khan, 2000). This has given rise to a manufacturing sector where large parts remain dependent on continued state protection, with a limited incentive to improve productivity or competitiveness or to move up the value chain and diversify.

Elite interests & manufacturing

The incentives of the ruling elite do not gel with long-term development goals, and there is a focus on maximising short-term returns. Part of the problem is the access to substantial and recurring geopolitical rents over the last four decades. Access to these security rents, the distribution of which has been centralised, has had profound implications for the state’s capacity to implement growth-enhancing policies (Roy, 2013). The mode of unproductive rent capture worked even during periods of direct military rule. For example, during the decade-long rule of Pervez Musharraf, there was a marked increase in the demand for consumer durables and luxury goods on the back of high external inflows (Pasha, 2018). Pakistan’s elite favoured accumulation and speculation in real estate finance and energy (Naseemullah, 2017). Despite the inflows from external sources, speculation and consumption-based rents dominated while crowding out rents generated in manufacturing (ibid.; Dawani & Sayeed, 2020). 

The incentives of the ruling elite do not gel with long-term development goals, and there is a focus on maximising short-term return

Given the incentive structure, the returns generated by manufacturing cannot compete with those from real estate. Furthermore, lower returns in manufacturing, especially in textiles, have meant that an increasing number of local manufacturers have diversified into real estate. Pasha (2018) argues that the taxation regime has also evolved to increase returns available to real estate developers. There is little regard for the economic and social consequences of the growing number and scale of housing societies as they expand in peripheral cities and towns that supply a substantial portion of the country’s food. Organisational interests linked to the country’s leading political and economic actors have been significant beneficiaries of this accumulation model by dispossession. This link contributes to the privileged position that real estate enjoys within Pakistan.

Real estate speculation has more profound implications for Pakistan’s manufacturing sector. The failure of numerous industrial and export processing zones in the country is also linked to their emergence as spaces of speculation and rent generation (Jamali et al., 2021). While these zones and industrial estates have been successful across countries in Asia, their contribution to exports in Pakistan remains minuscule. The limited ability of the state to enforce rules has meant that even when rules are enacted to discourage speculative behaviour, they are routinely disregarded or amended, further increasing the returns to engaging in such activities. 

Can it be done without manufacturing?

Changes in the global economic structure have meant that service-led growth has emerged as a major paradigm in thinking about growth and economic development. The argument is that given advances in technology, and the changing structure of production, policymakers in countries like Pakistan that have struggled to industrialise can follow a services-led growth strategy, focusing on Information Technology (IT) and other such emerging technologies to boost growth. These slogans have enamoured Pakistani policymakers; however, Rodrik (2014) argues that while there is no denying that the role of services is growing, service-led development is unlikely to contribute to rapid growth and good jobs in the same way as manufacturing did in the past. Furthermore, structural constraints are posed by how the services sector is organised; unlike India, where higher productivity tradable services like banking and software dominate, Pakistan’s service sector is dominated by low-productivity traditional untradable services. Thus, the domestic services structure cannot support a service-led growth strategy.

Moving beyond Structural constraints

The above analysis highlights some structural weaknesses affecting Pakistan’s manufacturing sector. Structural weaknesses have been exacerbated by a short-term time horizon which has worsened unproductive rent-seeking. A growth model predicated on speculation, especially in real estate, further contributes to Pakistan’s deep-rooted economic problems. The growth model is deeply entrenched in Pakistan’s political economy. Those who gain from this economic model are unlikely to support any changes which could negatively affect their rents, even in the short run.

The road ahead is tough; however, the following suggestions could help put the country on a more sustainable growth plane:

1. Despite the initial promise, the China-Pakistan Economic Corridor has had a limited impact on Pakistan’s manufacturing sector. Despite assertions that CPEC will be a game changer, there is limited evidence of industrial relocation to Pakistan. Given the incentive structure, most Chinese investment has flowed towards rent-thick areas like power generation rather than manufacturing. In Vietnam, on the other hand, in 2018, 61 per cent of Chinese investment was in the manufacturing sector (Safdar, forthcoming). Foreign investment in manufacturing, especially textiles as the largest export-earning sector, remains dismally low. The challenge for policymakers is to alter the incentive structure to attract Chinese investment in manufacturing. There are fears regarding the impact on local manufacturers; however, in the absence of interest by local firms, inducing Chinese manufacturing investment needs to be a policy priority. This inducement must be accompanied by phased performance and local sourcing guarantees to build backward linkages.
2. Linked to the above point is the operationalisation of the Special Economic Zones (SEZs). The Chinese routinely highlight the importance of SEZs in their development. While policymakers continue to observe that the next phase of CPEC is based on industrial development, the lack of seriousness can be gauged from the fact that none of the prioritised SEZs is ready. Work on Dhabeji, which is located next to the port in Karachi, is in the early stages, and the SEZ is unlikely to begin operations in the short run. Given this situation, there is a need to expedite work on the SEZs and attract private Chinese capital. Given the scale of investment by the Chinese in CPEC, the Central Chinese government could play a role in inducing some Chinese firms to relocate their operations to Pakistan.
3. The incentive structure, which is predicated on short-term speculative returns, must change. This is vital to attract capital towards manufacturing, especially those sectors that can generate exports and become globally competitive. Changing the incentive structure is extremely difficult given Pakistan’s prevailing political settlement and the privileged position that the real estate sector enjoys within that settlement. A broad-based coalition with backing from the country’s most powerful organisation is required to alter this incentive structure. Given their organisational interests, this is easier said than done.
4. Within manufacturing, there is an urgent need to channelise learning rents to more dynamic industries. Given the political linkages of firms that have access to these rents, getting industries to forego these rents in the absence of a coalition of actors is unlikely to be successful.

Dr Muhammad Tayyab Safdar

The writer is a Post-Doctoral researcher at the East Asia Center and the Department of Politics,
University of Virginia. His research explores the political and economic implications of China’s
rise for countries that are part of the Belt & Road Initiative. He holds an MPhil and PhD in
Development Studies from the Department of Politics & International Studies, University of
Cambridge.

The post How State’s Patronage To Elite Class Is Worsening Pakistan’s Economic Crisis appeared first on Dissent Today.

The scale of the economic challenge we as a nation face is best summarised by Figure 1. While labour productivity in Pakistan only increased by 45%, labour productivity in Bangladesh, India and China (not reported) saw an increase of 190%, 263%, and 790%, respectively, over the last three decades. What is more revealing is that, compared to these countries, the increase in labour productivity has been the lowest across almost all the sectors in the case of Pakistan.

An obvious question that comes to mind is why has Pakistan lagged behind relative to its neighbouring countries? And what can be done to reverse this trend?

To better understand why Pakistan has lagged behind its regional peers in terms of labour productivity, it is important to start by recognising that labour productivity depends on both the level of productivity and the physical capital available for production. This distinction between the level of overall productivity and the physical capital as two driving factors underlying labour productivity is of critical importance. The popular discourse on labour productivity often ignores the role of physical capital and confuses it with productivity in general. This is a mistake.

In the rest of this article, I discuss both the role of productivity and physical capital to explain why labour productivity in Pakistan has increased by so little since 1990s.

In an exercise done by this author, a one percent increase in productivity can potentially increase Pakistan’s GDP by 2.53%. This is significantly higher than what Jones (2011) estimates for most other economies. However, the overall productivity growth in Pakistan has remained abysmal to say the least.

Figure 2 plots the annual productivity growth for Pakistan for the period between 1968 and 2018. Since 1968, the average productivity growth is estimated to equal 1.24%. It was only for the short period in the 1980s that the average productivity growth reached close to 3%. The 1990s and the 2000s once again saw the annual productivity growth fall below 1%. It then increased to 2.5% during the recent decade. The key message that comes out of this exercise is that, despite significant benefits in terms of economic prosperity, the productivity growth rate has continued to fall short of what is required to sustain long periods of high economic growth.

But once again we are forced to ask a question, why has productivity growth remained low in the case of Pakistan? In one of his lectures, Charles Jones notes, “Poor countries are poor partly because of few inputs but also because of inefficiency in using those inputs.” In a similar spirit, Franklin Fisher had earlier remarked, “In dealing with actual economies, the barriers (for resources to move) may be more important than the frontier.” It is easier to appreciate this if one considers that, over the past five decades, almost 40% of the growth in GDP per person for the United States came from the better use of its human resource i.e. right person for the right job. The potential benefits for developing economies from improving how they use their existing resources are also enormous.

To better understand why Pakistan has lagged behind its regional peers in terms of labour productivity, it is important to start by recognising that labour productivity depends on both the level of productivity and the physical capital available for production.

Conceptually, the poor use of resources affects a country’s development prospects by undermining overall productivity. For example, Hsieh and Klenow (2009) show that inefficient utilisation of resources may reduce productivity by about two to three times in the case of China and India. In its vision document, the Economic Advisory Group cites several examples from the literature showing how several of the developing countries improved their overall productivity by letting their existing resources move to more productive activities. Meza et al. (2019) show that 41% of the increase in Mexico’s productivity between 2003 and 2012 was because of improvement in allocative efficiency, i.e. due to economic resources moving from less productive to more productive activities. Improvement in allocative efficiency was an important part of productivity growth during Chile’s decade-long period of growth following the debt crisis of the early 1980s (Chen and Irrazabal, 2015).

At the onset of the 2013 crisis, organised sectors and businesses linked to powerful families successfully lobbied to increase trade protection in the form of non-tariff measures to protect themselves from international competition.

In the context of Pakistan, the two broad themes which have the potential to cover much of the ground on inefficient use of economic resources are trade protection and the low levels of labour mobility. Pakistan undertook significant trade liberalisation during the 1990s and the 2000s. The tariff rate came down from more than 50% in the 1990s to less than 20% in the late 2000s (Malik and Duncan, 2022). The authors show that much of this progress was partly reversed during the last decade. However, while the focus on the average tariff rate gives useful information on the degree of protection from international competition, it hides important sources of distortions. A closer look at the data shows that the effective rate of protection enjoyed by the sectors dominating Pakistan’s economy is substantially higher (Varela et al., 2020). It is this excessive protection of traditional sectors from international competition which prevents Pakistan’s economy from adapting to the requirements of the 21st-century economy.

The second theme centres around low levels of labour mobility. Consider the fact that only 15% of the total migration that happens within Pakistan happens for economic reasons (LFS, 2021). Understanding why this is the case requires asking if this is due to a lack of affordable housing; poor transportation network; issues around security of life and property; dependence on social networks due to unreliable provision of public goods such as health care; Or lack of opportunities. Pakistan, as a country with a relatively abundant labour force, has enormous potential in competing globally in products which use labour more intensively in production. But if the country’s labour force cannot relocate in response to the needs of the economy, the potential benefits from integrating with the rest of the world will not materialise.

The two themes discussed above leave much else to be desired. Some of these include liberalising pricing regimes and replacing minimum support prices with instruments such as crop insurance for small farmers; revamping the education system with the aim to introduce and mainstream pathways for vocational training at the level of higher and post-secondary education; designing appropriate tax policy to discourage speculative investments in both urban and farmland; undertaking judicial and civil service reforms; and, importantly, the democratisation of political parties (EAG, 2020).

However, addressing the structural issues mentioned above is often not straightforward for both political and technical reasons. On political reasons, Jones points to the economic interests of the ruling elite as an important factor behind why a country’s resources are not used efficiently. Jones (2013) says, “The state-of-the-art in that literature suggests that misallocation is the equilibrium outcome of a political process interacting with institutions and the distribution of resources (including physical capital, human capital, ideas, and natural resources). It is, evidently, not in the economic interest of the ruling elite to improve the allocation of resources, despite the potentially enormous increase in the size of the economic pie that is possible in the long run.”

In a recent paper published by PIDE, Adeel Malik and William Duncan document this phenomenon in the context of Pakistan. They show how at the onset of the 2013 crisis, organised sectors and businesses linked to powerful families successfully lobbied to increase trade protection in the form of non-tariff measures to protect themselves from international competition. Likewise, the 2018 crisis saw a sharp increase in import duties in sectors linked to powerful families. The 2022 crisis has proven to be no different.

On the technical side, Fisher reminds us, “It is very risky to look at a planned economy and predict where it will end up if it shifts to a system of free markets.” Likewise, Yao (2014) says, “High growth is not granted when a command economy is transformed into a market economy.”

However, these challenges are not specific to Pakistan alone. As low as it might first appear, the average productivity growth in Pakistan is not too different from what is observed for the rest of the world. For example, since 1980, the average annual productivity growth in the case of India has been 1.5%. The same for Pakistan has been 1.4% over the same time period. In fact, Pakistan’s average productivity growth has been three times higher than the rest of the world. Figure 3 plots the distribution of annual productivity growth for the country-year pair. There are two important points to note. First, there is considerable variation in the annual productivity growth across country-year. Second, the average annual productivity growth across country-year has only been 0.4%.

A cursory look at the data also suggests that there is no obvious relationship between the level of economic development and productivity growth. The correlation between annual productivity growth and the level of GDP is close to zero. In other words, it is not the case that countries at any level of economic development experience faster productivity growth on average.

This observation is not new. There is already considerable literature showing that the contribution of productivity growth to the East Asian growth miracle was rather unimpressive. For example, Collins and Bosworth (1996) estimate that, while GDP per capita grew at an average rate of 4.2% over the period from 1960 to 1994, the contribution of productivity growth to the annual GDP per capita growth rate was only 1.1 percentage points on average.

Admittedly, the above discussion should not be taken as conclusive. There are countries which succeeded in achieving high growth rates driven by continuous improvement in productivity. For example, output per hour increased at an average rate of 3.3% in the US between 1948 and 1973. Jones (2016) shows that almost all of it can potentially be explained by advances in productivity.

Moreover, methodological choices can also change results substantially (Barro and Sala-I-Martin, 2004). For example, taking a different approach, Hsieh (2002) shows that the contribution of productivity growth to annual GDP growth for Taiwan increases from 2.1 percentage point to 3.7 percentage point. The same for Singapore increases from close to zero to 2.2 percentage point.

The more relevant question in the context of this article is how else can the countries sustain long periods of high economic growth. After all, countries across the world have made substantial gains when it comes to improving the living standards of their citizen without a substantial increase in their overall productivity. This provides the motivation for understanding the role of physical capital as the second key driver of improvements in labour productivity.

It is argued that for countries which are broadly similar, the country with less physical capital will offer higher returns on investment. As a result, if these countries were to open up their economies to foreign investment, they will experience an inflow of capital which will contribute to their economic development. While this is not always the case, this is certainly true for several emerging economies, including India and China.

Figure 5 shows that, as India and China opened up their economies to foreign investment in the early 1990s, they experienced a significant increase in inflows from international private investors (blue bars).

In contrast, while Pakistan has also seen investment from international private investors, these inflows have not sustained for longer. In effect, most of the non-debt-creating inflows are concentrated in a few years during the last three decades. Figure 6 shows that the only time net private equity inflows remained above 2% of GDP for more than a year was in the mid-2000s.

By not accumulating reserves, policymakers have effectively prioritised today’s consumption over future consumption. Indeed, in doing so, they have effectively left the citizens worse off.

In addition to foreign investment, domestic investment in these countries has increased as well. For example, the gross savings rate (as % of GDP) increased from close to 15% during the 1980s to more than 30% in the 2000s.

China and Bangladesh have also seen a significant increase in their savings rate during this period, except that the increase for China is smaller due to an already high savings rate, to begin with. In contrast, the gross savings rate for Pakistan has declined over the same period.

Why is it that both foreign and domestic investment has not increased in Pakistan despite Pakistan having comparable socio-economic conditions to the rest of the countries in the region? Like always, there is no one good answer to a question as important as this. Nonetheless, I put forward the reason which I think is most important: macroeconomic risk in the form of frequent currency crises.

The best way to visualise how macroeconomic risk may affect firms’ investment decisions is through Figure 7. Figure 7 plots the annual return on a KSE100 five-year index fund. I select five years since it matches the average duration of the business cycle and, as a result, is most suited to capture macroeconomic risk. Two things stand out. First, the average return on this index fund equals 16%. In real terms, the average return equals 8%. Second, the standard deviation (i.e., risk) is also quite high at 17%.

The two observations are of critical importance. The higher average returns are consistent with the notion that less developed countries tend to offer higher returns on investment. As a result, liberalising the economy should result in an increase in investment. However, there is also considerable macroeconomic risk associated with undertaking investment in Pakistan. The average return of 16% and standard deviation of 17% means that the Sharpe ratio is less than one, thus making both foreign and domestic investment less attractive.

This simple observation has important policy implications. A better set of macroeconomic policies which lower the risk of repeated currency crises can go a long way when it comes to incentivising investment and bringing about substantial improvements in labour productivity. The set of macroeconomic policies which help achieve this is well known. However, in the context of Pakistan, the role of accumulating foreign reserves deserves additional attention.

Figure 8 highlights an important difference between Pakistan and the regional economies discussed above. While all the economies received a varying degree of private inflows over the four decades, all the countries except for Pakistan used these inflows to accumulate foreign reserves. In fact, China accumulated more in foreign reserves than the net private inflows it was receiving in any given year for more than a decade. It is easy to appreciate that the macroeconomic risk in developing countries with large reserve cover is definitely less than in the case of countries which don’t.

In the discussion above, I have stepped back and taken a broad view of both the structural and macroeconomic challenges Pakistan face. Without going into technical details, I have also hinted at several of the reform measures the policymakers can take to address these challenges and lead Pakistan’s economy out of the quagmire it is stuck in.

However, the discussion skips several important questions which are arguably more fundamental to understanding the challenges highlighted above. For example, by not accumulating reserves, policymakers have effectively prioritised today’s consumption over future consumption. Indeed, in doing so, they have effectively left the citizens worse off. But why is it the case that policymakers in Pakistan prioritise today’s consumption more than policymakers in our neighbouring countries? Second, while I am equally guilty of doing this above to get my arguments across, there is no good reason to believe that what is ‘macroeconomic’ is independent of what is ‘structural.’ It is very much likely that the structural problems which prevent sustained growth also force policymakers to bet on expansionary (procyclical) policies to deliver short periods of growth for electoral victory. But, if so, what prevents the politicians from addressing these structural bottlenecks that ultimately give way to irresponsible macroeconomic policies? I leave it to the reader to explore the answers to these questions.

Ahmed Pirzada

The writer is Chairperson of Economic Advisory Group, Pakistan; Senior Lecturer in Economics,
University of Bristol; and, Fellow of Higher Education Academy, UK.

The post Labour Productivity In Pakistan: Why Are We Falling Behind? appeared first on Dissent Today.

Pakistan, much like the rest of the world, suffered from significant economic shocks last year. Inflationary pressures fueled by a post-COVID and wartime world economy revealed the vast structural deficiencies that have been plaguing the country for years. Political instability and weak governance has prevented the establishment of concrete, necessary economic and social reforms. Today, Pakistan is faced with a severely declining reserve of foreign currency and the depreciation of the rupee – it is hurtling towards bankruptcy.

These are difficult circumstances for Pakistan, as they are for the world. In the face of such severe shocks, Pakistan needs to strengthen its resilience as a state. Such a path, however, does not rely solely on economic policymaking, but deeper strategies to augment its political and social composition. To this end, we would like to share our own experiences in navigating this way forward, in Bangladesh. We now firmly believe that the way forward is the way inward – that the nurturing of any state must start from within, through inclusive politics.

How does one work towards inclusive politics? From our experiences in the Youth Policy Forum, we have learned three pivotal lessons which we would like to share here. First, in the South Asian context, the concept of a development bargain must not only be acknowledged but leveraged; second, youth participation in policymaking is pivotal to reintroduce dynamism in the process of reforms; and finally, any economic transformation must be accompanied by a powerful, all-inclusive coalition of stakeholders working together. We firmly believe that these strategies can and should be replicated in Pakistan, where they have the potential to transform the foundations of Pakistani economics, politics, and society for the betterment of all Pakistanis.

Crafting Successful Development Bargains: Civil Society and Private Sector in Bangladesh

The World Development Report in 2017 had signaled a new approach to understanding the trajectory of economic development in countries, by paying particular focus on the political elite. Indeed, this was particularly relevant in the South Asian context, where political, economic and military elites have played a domineering role in public policy over the last few decades. Consequently, economic transformations hinge on the consent and agreement of ruling elites. This has been defined as the elite bargain, defined as the agreement between elites to ensure power sharing and resource allocation. This concept led to what Dr. Stefan Dercon introduced as the development bargain – where elites shift their priorities from solely protecting their interests to also ensuring positive development futures for their state.

Bangladesh is a textbook example of a development bargain: despite facing significant political instability over the past few decades, its elite have largely upheld the primacy of goals such as economic development and stability. This is, of course, not without cause: the economic growth of Bangladesh is critical to provide the rents the state relies on to preserve itself. However, it has also created favorable circumstances for non-state actors, granting them essential freedoms to operate successfully.

The best example of these are non-governmental organizations (NGOs), which play a significant role in development. The government, acknowledging its own capacity limitations, opened up several spaces of public service (ranging from healthcare to education) for the participation of NGOs such as BRAC and Grameen Bank. These NGOs have worked to actively fill gaps in public service delivery, and have not been obstructed by the government in such endeavors. This contrasts with a case where a government is unwilling to concede its responsibilities to third parties, and at the same time fails to produce the necessary public services its citizens demand.

Similar can be said of the private sector, particularly the garments sector, which overcame the foundations of political patronage in the economy by assuming political roles themselves. This enabled the safeguarding of their industry and the adoption of largely pro-business policies that would ensure the growth of economy and industry in Bangladesh. In Pakistan, the dominance of military elite in economic growth and development is well established and has crowded out the possible role that the civil society can play in development. Much like the case of Bangladesh, there is a need to open up space for the private sector and civil society to play a broader role in development, and more importantly, to fill in crucial public service and economic growth gaps.

Reinvigorating Reforms: Youth as Drivers for Policymaking

There is a surprising dilemma in the history of politics in Bangladesh: countless movements in our proud history over the past half-century have been driven by young people, and yet, today, the average age of our parliament is 59.48 years – well above the global average of 53 years. The reintegration of youth in policymaking has been a prime goal for us at Youth Policy Forum, and it has led to an unprecedented dynamism in the field of policy change for the country.

The foundation for youth participation in policymaking is a basic one: young people have the greatest interest in the incoming future, of which they are central participants. Their perspective is thus critical to ensure the longevity and robustness of public policy. At the same time, they are able to bring in innovation and newfound evidence into the policymaking process. The process of engaging youth in policy, however, is a long one: it involves educating young people, nudging them towards research, and finally encouraging the transformation of their research into tangible advocacy.

Our experiences in Youth Policy Forum have led us to understand that policy education must be completely accessible – thus, it must not only be free of charge, but also in local languages. This enables mass learning, and more importantly, allows for greater understanding of nuances in policy making among general citizenry. These adaptations must not come at the expense of quality: countries such as Bangladesh and Pakistan now sport numerous academics who would be able to adapt their lessons for the young freely and easily, and their skills must be leveraged for policy education.

Not only does policy education enhance the knowledge of audiences, but it paves the way for creation of further knowledge, by granting audiences the skills to pursue policy research and analysis. Young people can leverage digital tools for researching issues they are interested in, and can apply policy methodologies in such endeavors. These efforts, however, must also be accompanied by the presence of a strong, expansive network of other young people to advance policy dialogue and collaboration.

Youth Policy Forum started as a Facebook group for young people to discuss policy together. It is this basis – as a network of young people – that has enabled it to connect young, brilliant Bangladeshis from around the world with stakeholders across the board. Now, young people are able to present their policy insights to actors such as political leaders, civil servants and other key stakeholders, all while being guided by renowned experts. This is an unprecedented policy process, entirely established by and for the interests and competencies of the youth.

Removing the Barriers of Entry in Policy – the Case of Privilege Resistance

It is now evident that South Asian countries have fallen behind East Asian counterparts in terms of economic development. While countries like Japan, South Korea, Singapore, Malaysia diversified their economy and upgraded to high value manufacturing and services, success of countries like Pakistan, Bangladesh, and India has been modest. Recently, Vietnam, Philippines have also upgraded their economy to a large extent. The divergence is vast and dramatic: the value added productivity of the average Pakistani worker in the past three decades has seen a 40% increase; a figure which pales in comparison to the average Vietnamese worker, whose productivity has increased by 328%.

In Pakistan, the dominance of military elite in economic growth and development is well established and has crowded out the possible role that the civil society can play in development.

It is important to understand how East Asia made this transition and why South Asia failed. Work by Alice Amsden on South Korea, Robert Wade on Japan, and Joe Studwell on the region as a whole10 point to the state facilitating learning and productivity of the private sector firms with a strong export performance. Even in Pakistan, firms that systematically export their goods are 26% more productive than those that do so passively; but even such firms are still 21% more productive than those that do not export. East Asian states have made economic upgrading a policy priority across their government, while efforts in South Asia have been dismal. Bangladesh, India, Pakistan all have a lot to learn from the East Asian experience. One lesson to learn is this: for social upgrading, we need economic upgrading, and for economic upgrading we need rapid learning both by the firms, and by the policymakers. This learning cannot happen if the state keeps the private sector closed to a favored few cronies, if the state focuses on preserving rents of its closed allies and keeps subsidizing the losers. Take for example the case of trade in Pakistan: work by Malik and Duncan have demonstrated how politically connected industries (in contrast to politically unorganized industries) have successfully lobbied for higher anti-tariff policies in line with their interests, but harmful towards long term upgrading goals. The role of the state would be to unleash the entrepreneurial spirit of its population, pave the way for learning and innovation, eventually resulting in improved productivity and better living conditions. Pakistan must take a leap out of the book of successful East Asian economies and promote competition and learning, with better investment climate, quality investment on human capital, and reduction of wasteful spending. The first step in this would be to take stock of its potential economic sector which has potential to upgrade, and then have critical conversations on what is stopping upgrading or who is blocking upgrading. The civil society as mentioned above needs to play a critical role in this but eventually it is the powerful business and government elites who have to undertake the painful reforms. They must understand Pakistan cannot continue like this and they have to generate new and productive rents in new sectors. Protecting existing rents for the cronies and vested elites would only strain the already fragile social contract in Pakistan, the time for reform, time for economic upgrading is now. And it would require a coalition among the business, government, and civil society who believe in the true potential of the country and its people.

Conclusion

The economic onslaught of the past few years have revealed the decrepit underbelly of the Pakistani economy and the urgent need for action. It reveals that the wider society has become more important than ever in steering the economy side by side with the state towards a more prosperous and resilient future.

This is a journey that must be made concertedly: the state must prepare to open up avenues for civil society to participate in policymaking, and it must prepare the economy for a transformational period of upgrading. At the same time, the civil society must prepare itself to take responsibility for newfound competencies it will share with the state. In Pakistan, words such as policy engagement and economic upgrading can no longer be relegated to ivory towers; they must be opened up for the people. These efforts will set Pakistan on a prosperous path, as had been longed by its people for so many years.

Abir Hasan Niloy and Zaheer Abbas

The writers are researchers from Bangladesh. Md Abir Hasan Niloy is the co-founder of Youth Policy Forum and a DPhil student at Department of
International Development of the University of Oxford.

Zaheer Abbas is the Head of Reform Management in Youth Policy Forum, and a sophomore at the
Dual BA Program between SciencesPo Paris and Columbia University

The post Youth Participation In Policymaking: What Pakistan Can Learn From Bangladesh appeared first on Dissent Today.

The Achilles heel of Pakistan’s economy is the failure to institute stable and sustained economic growth. There is a mad rush to growth for a few years, followed by collapse with high fiscal or current account deficit or both. The IMF is called in. Some patchwork is done and a sigh of relief is enjoyed. The relief is temporary as the anti-growth structure of the economy remains untouched. This game of musical chairs has now been played 23 times in the half century elapsed since the second partition of the country in 1971. All players are equally to blame – politicians for their short-sightedness, military for its long term delusions, judiciary for myopic interference in economic affairs, bureaucracy for its lack of professionalism, businesses for poor competitiveness, landlords for failing to make their own lands productive, media for ignoring economic realities, intelligentsia and ulema for obfuscating discourses and even the ordinary people for not protesting enough against the rot.

Part of the explanation is that, over the years, understanding of the economy has been made a complex game. This article is an attempt to show that there are simpler and more accessible ways of looking at the economy and appreciate what ails it fundamentally. Ask a housewife in Lahore or Karachi, the question posed by the German chancellor, Angela Merkel, in 2008: “The root of the crisis is quite simple. One should simply have asked a Swabian housewife, here in Stuttgart, in Baden-Württemberg. She would have provided us with a short, simple and entirely correct piece of life-wisdom: that we cannot live beyond our means.” Instead, we have followed Keynes without paying attention to the context. Keynes had observed in one of his Essays in Persuasion (1931) that “We have plenty of cloth and only lack the courage to cut it into coats.” Clothes in Pakistan, as we all know, are not plentiful. A senior federal minister has publicly stated that the country has defaulted. Yet the programme with the IMF is not focusing on the expenditure side of the budget. Relatedly, the attention has been diverted away from the expenditure side of the national accounts as well.

When the country embarked on its development plans in the 1950s, there used to be a major debate on the saving and investment gap. Over the years, questions of saving and investment rates have been relegated into the background. Their place has been taken by fiscal deficit and the current account deficit. The twin deficits do suggest that saving is low. But how many of us know what is the domestic saving rate and where is the growth, whenever it happens, coming from?

The real GDP growth at basic prices was negative in FY20 due the devastating impact of the pandemic. It revived to 5.74 percent FY21, mainly because of the base effect. But its continued upward path with a growth of 5.97 per cent in FY22 created an illusion of revival, which was shattered soon by the international as well as local forecasts of growth of less than the population growth in the current year. Initially, the State Bank expected it in the range of 3-4 per cent but subsequently reviewed it further down. Consistent with Pakistan’s known history of political cycles of booms and busts, some economists fear a negative growth. Regardless, the official forecast of the government was 5 per cent.

Source: Planning Commission

Table 1 tells a story not told often. First, and foremost, growth in Pakistan is almost entirely driven by consumption. As its point contribution exceeds the GDP at market prices, it means that our consumption contributes to growth in countries we import from. Growth, to be sustained, has to be driven by investment.

In the past six years, the average contribution of total investment was 0.2 percentage point. It was less than the 0.3 percentage point contribution of public consumption. The highest GDP growth in this period, 5.97 per cent in FY22, had the highest contribution of consumption at 8.3 percentage points. The rate of total investment increased from 14.6 percent of GDP to 15.1 percent of GDP. With the private investment unchanged at 10 percent, the increase was completely attributable to public investment. Despite the slight increase, the rate of investment remains among the lowest in the world with a ranking of 133 among 151 countries. Bangladesh has a rate of investment of 30.5 per cent. In Pakistan, the rate of investment declined from 18.7 per cent in the 1990s to 17.7 in the 2000s and 15.5 per cent in the 2010s. It remains stagnant at the average for 15.6 per cent in FY16-22. Stagnant investment and declining labour productivity cannot produce growth sufficient to absorb the annual addition to the working population, what to speak of the existing pool of the unemployed.

Even the low level of investment is dependent on external financing. It will be seen in Table 2 that in FY22, national savings financed only 11.1 per cent of the investment, with a gap of 4.1 percent of GDP filled by the net inflow of external resources, or the so-called foreign saving.

The national savings rate is low, and the domestic saving rate should also worry us. Domestic savings, it may be noted, are achieved by deducting workers’ remittances and net investment income from abroad from national savings. These include household savings, business savings and public savings. Financial liberalisation and financial inclusion measures have not had the expected impact on household saving. Much of the financially included household saving is crowded in by the government for consumption, as public saving is ruled out in an environment of persistently high fiscal deficits.

Domestic financing plays a crucial role in the revenue collection efforts of developing countries. As Table 2 shows, domestic savings declined from 9.8 per cent in FY16 to 6.4 per cent in FY19. In FY20, it increased to 7.6 per cent but started to decline again reaching as low as 4.5 per cent in FY22. The average for the period is 7.4 percent. The second highest GDP growth rate of 5.97 per cent was achieved with the lowest domestic saving rate of 4.5 per cent. Domestic saving have been declining since the 1990s when it was 14.2 percent of GDP. In the 2000s, it declined further to 11.8 per cent. Now it is in single digit.

Pakistan’s low domestic saving rate is the inevitable outcome of the economic system’s failure to carry out real (not cosmetic) structural reforms over the decades.

We have an investment rate that fails to move to a respectable level, leaving growth to consumption financed by foreigners and the local elite. Debt accumulation is the inevitable result and the economy is seriously exposed to external shocks. Low domestic saving reduces financial independence and the chances of sustained economic growth.

As noted above, low domestic saving rate is the inevitable outcome of the failure to carry out real, not cosmetic, structural reforms over the decades. Periods of high growth generated by foreign saving did not bring forth domestic savers and investors. Indeed, foreign savings substituted for domestic savings. High growth leading to higher incomes that do not translate into higher domestic savings and investment is a recipe for decline in the times to come.

Immediately, there is no alternative to completing the IMF programme in a strict compliance mode. In the medium term, the approach that investment will generate its own savings has to be abandoned. The country should learn to save and invest accordingly. A domestic saving rate of 20 percent of GDP and national saving rate of 22 percent invested in productive assets is doable.

Dr Pervez Tahir

The writer is a political economist with a PhD from Cambridge. He served as the Chief Economist at the Planning Commission of the Government of Pakistan. He is presently a columnist at Express Tribune.

The post To Fix The Economy, Pakistan Must Learn To Save And Invest appeared first on Dissent Today.

In his 11th August 1947 address to the Constituent Assembly of Pakistan, our founding father Muhammad Ali Jinnah talked about the curses of bribery and corruption. He also talked about the “great evil” — the evil of nepotism and corrupt employment practices that can weaken any country’s foundation. He also pointed out the biggest obstacle to India’s freedom and the lesson to be learned from the fact that Great Britain was not only able to conquer India, but also hold 400 million souls subjugated for such a long time.

Nearly 76 years later, here we stand, a nation divided and on a pathway toward economic, political, and social ruin. Trust, which is conceptualised as the currency of the realm, has vanished as our elites occupying the various institutions and seats of power focus on a mutually destructive path with the country and her interests turned into a painful casualty of deep and resentful hostility.

Sustained and consistent weakness in policy-making across decades (both external and internal), systematic weakening of the concept of national interest, and constant tension amongst institutions and political elites mean that results of this top-to-bottom deterioration are now here for all to lament.

Let’s analyse what could have been and where this current path is leading towards. Using IMF’s world economic database, which covers data since 1980, one can glean the contours of the divergent paths of Pakistan, India, and Bangladesh over the last 42 years. In 1980, according to IMF data, the GDP per capita in PPP terms (an estimate of economic output per person) tells a story of different starting points with Pakistan’s per capita income being 84% and 34% higher than India and Bangladesh respectively. Fast forward to 2022, the same comparison stands at 20% and 15% below India and Bangladesh respectively.

The lagging trend, which Pakistan has experienced since 1980, shows what lies ahead; For instance, if the current country-specific trends were to continue and Bangladesh and India’s per capita growth were to slow to 7% per annum from the current double-digit pace, Pakistan’s GDP per capita in PPP terms will only reach $16,200 (using 2017 prices) whilst India and Bangladesh would be both at $45,000 and above by 2050, leading to a future of these three countries which would look tangibly and deeply different from each other when it comes to the level of economic and social development and progress.

These statistics and their projections highlight the sustained decline in both the quality and quantity of economic outcomes which have occurred over the last 42 years for Pakistan (and more clearly since the 90s) and in all probability will lead to very different end-points for the various countries.

However, challenges of the 21st century mean that these trajectories of the last four decades can’t even be taken lightly by any of the above countries including Pakistan. According to Burke, Hsiang, and Miguel’s (2015) climate change damage function approach, the whole of the sub-continent is mapped to include some of the most vulnerable countries to the challenge of human-driven global warming. Indeed, all three countries in the absence of meaningful mitigation and adaptation face total economic collapse, if temperatures were to continue to rise 3C and above compared to preindustrial levels.

As a country, our state and our people have systematically underplayed the importance of sound economic policy and its interaction with geopolitics and broader national security. Our record of constant dependence on the IMF for support is a testament to this failed thinking and application (which is factually worse than most other emerging markets).

I am often asked like many members of Pakistan’s diaspora about coming back and changing the country. This question in itself shows our collective thinking and requires self-reflection. Countries are not built and changed by individuals. They change and progress through collective will and the application of national character. Here individuals can certainly lead by example as our forefathers did in their fight for an independent country at the start of the 20th century but they are only facilitators not the cause of the change.

We shouldn’t forget that India and Bangladesh that started the post-independence journey in 1947 along with Pakistan are now breaking free and taking a giant leap, but Pakistan is deteriorating fast into social and economic mayhem.

We shouldn’t forget that two countries (India and Bangladesh), which started the post-independence journey in 1947 (with Bangladesh starting again in 1971) are now breaking free and taking a giant leap, when it comes to creating sustained and meaningful economic prosperity for their people. Whilst we as a nation are not only lagging but deteriorating fast into social and economic mayhem, whilst losing our sense of self and pride along the way.

The rot can be stopped and reversed and countries have woken up from the crisis before to carry out fundamental changes to their approach and implementation (e.g. Asian countries after the 1997 crisis or India after the early 90s balance of payment crisis or Europe after WW2). However, such a turnaround requires acknowledgement of failures, incompetence, and above all, the national will to tackle the challenges and break free from all the forces which are holding us back.

Right now, the painful reality is that we have lost our core and now run the danger of losing Jinnah’s dream of a prosperous Pakistan, permanently for us and our future generations.

Salman Haider

The writer is a Pakistani poet and activist based in Canada.

The post Some Key Lessons That Pakistan Can Learn From Its Neighbours appeared first on Dissent Today.

Goldman Sachs caused a stir when it said that by 2075, Pakistan could become the world’s sixth-largest economy. Most other prognostications of Pakistan are grim.

During the 75 years that have elapsed since its birth in 1947, Pakistan has exhibited a volatile pattern of economic growth. Episodes of military and civilian rule mark its history.

Pakistan is a victim of elite capture. It’s the surprising omission in the book, Why Nations Fail? It contends that countries fail where elites freely extract economic rents, property rights are weak, there is no respect for rule of law, and a large underground economy. The population has no incentive to innovate and invest because their gains are seized by the state, which creates a vicious cycle.

Countries with “extractive” economic and political institutions remain poor, while those with “inclusive” institutions lift their people out of poverty. Inclusive institutions have representative legislatures, good public schools, open markets, and respect for intellectual property. These countries invest in infrastructure, educate their populations, and fight poverty and disease. Their open intellectual environment encourages innovations and attracts foreign capital.

The authors discuss the case of North and South Korea, which were two split 80 years ago. The North went the way of communism while the South embraced markets and eventually democracy.

In sub-Saharan Africa, Congo ranks at the bottom while Botswana ranks at the top. Congo suffered because it was in the grip of a self-centered, exploitative dictatorship. Botswana focused on developing inclusive institutions, held regular elections, enforced property rights, and never had a civil war. People were happy because the governing elite voluntarily valued the public interest over private greed.

In the US, a century after the civil war, the south remains relatively poor compared to the north because the institutions in the north were inclusive while those in the south were exploitative, with slavery being its most dominant manifestation.

A history marred by institutional failure

Institutional failure permeates Pakistan’s history. In the beginning, civilians governed poorly. In 1958, the army seized power, economic growth picked up and political stability was imposed. Pakistan entered into defense agreements with the US, which gave it significant amounts of aid. In 1965, Pakistan blundered into war with India. A new political party emerged on the scene with a socialist agenda.

A coup within a coup occurred in 1969, general elections were held in 1970, and but the results were annulled in 1971, leading to a civil war and the secession of the East in December.

The military handed over power to a civilian government. A wave of nationalizations followed and the economy stalled, creating a political crisis. The military seized power. In this third episode, the military governed for 11 years, political stability was enforced, the army aligned itself with the US, and foreign aid began to flow in. Economic growth resumed. Military rule ended when the ruling general died in a plane crash.

Another period of the civilian rule followed, but economic growth was uneven. It ended in 1999, when the army seized power. In this fourth episode, the economy began to grow as political stability was enforced and foreign aid began to pour in. In a few years, terrorist attacks unleashed a crisis of governance, an emergency was declared, and ultimately the military ruler resigned. Since then, civilians have ruled.

India had lagged behind Pakistan in its economic growth rate but that relationship flipped in 1999. More tellingly, Bangladesh moved ahead of Pakistan, even though East Pakistan had lagged behind West Pakistan since independence.

Pakistan’s GDP growth has been declining since 1961.

The data also show that economic growth has been higher under military rule than under civilian rule.

Unlike the experience of Asian Tigers, military rule in Pakistan has been unable to institutionalise economic growth. Nor has it yielded quietly to civilian rule. Pakistan’s long-standing rivalry with India, and its frequent involvement in wars in Afghanistan, have given the military the excuse it needs to stay in power.

The situation today

Institutional failure continues to pervade Pakistan. The economy has been teetering on the brink of bankruptcy for months. Inflation is at an all-time high. The trade and budget accounts are in the red. Foreign debt has broken all records. The number of months with which the country’s foreign exchange reserves can cover imports continues to shrink. The currency is in free fall.

Traditional allies such as Saudi Arabia are reluctant to lend money to Pakistan. The IMF has presented stringent conditions before it will make the next loan.

The power grid has become increasingly unreliable, as was seen in January when the entire nation went dark.

Last year’s floods devastated the lives of millions. Their full effect has yet to be felt, and will only become evident once this year’s crop production is measured.

Politically, the country is in the grip of one of the worst crises in its history. The ruling coalition and the opposing party, which was in governance until April of last year, don’t see eye to eye on any issue. Name-calling, arrests, tortures, murders, and mass rallies are an everyday occurrence. Behind the scenes, the military is holding its cards close to the chest.

On the foreign policy front, relations with India continue to be strained. Pakistan continues to spend a large amount of the budget on defense, being locked in an arms race with India, which encompasses both conventional and nuclear weapons. Relations with Afghanistan are tense since many of the terrorist attacks in Pakistan can be traced to groups affiliated with the Taliban which govern Afghanistan.

Why is Pakistan failing?

Its poor economic performance is driven by weaknesses in the structure of its economy. Its key economic indicators — such as the ratio of savings and investment to GDP, the ratio of taxes to GDP, and the ratio of exports to GDP — are much lower with those for India and Bangladesh.

Corruption and nepotism are pervasive, and not just at the level of the elite. They are visible at every level from the peon on up. That’s notwithstanding the fact that religion is embedded in the social and political fabric of the country.

In the late 1960s, a populist leader weaponised poverty by asserting that every person is asking for “bread, clothing, and shelter.” His ideology of Islamic Socialism failed to deliver. He was himself part of the elite.

In 2018, another populist leader appeared offering to create a new Pakistan which would combine the best elements of Islam, Socialism, and Democracy. He claimed he would rid the country of the corrupt leadership of the two parties that had governed the country since 1988. He promised he would not borrow any money from abroad.

He also failed to deliver and lost a vote of no confidence in parliament before he had completed his term.

The current government is composed of the two parties that he had derided. They inherited a mess but instead of solving it, they have deepened it. The country is now on the brink of ruin. The former prime minister is drawing very large crowds throughout the country and has weaponized religion by adopting a verse from the Opening Chapter as his motto.

Between false messiahs and the army

Pakistan suffers from an abundance of false messiahs. And it suffers from the constant interference of the military in politics. No one can challenge the generals. Every army chief presents himself as being indispensable for the survival of the country. Two recent books challenge the army’s performance on the battlefield and question its larger-than-life role in national and international affairs.

Twenty years ago, in a similar vein, I published Rethinking the National Security of Pakistan. From a national perspective, I was right. But I was wrong from the viewpoint of the generals.

A way has to be found for the elite to give up their franchise. A way has to be found to get the landlords to divide their estates. A way has to be found to get the multi-millionaires to start paying taxes. And a way has to be found to force the army to step down from the commanding heights of the economy.

In other words, a way has to be found to change the national culture of Pakistan and only then will the country exit the elite capture syndrome.

A way forward

If the economy continues to teeter on the cliff and the political standoff between the governing parties and the main opposition party continues, the country may descend into chaos and anarchy.

Historically, in situations such as these, the army seizes power. This time, the army does not appear to be in a position to seize power because the former prime minister has managed to turn much of the nation against the military. The army is paralysed into inaction. A few former generals are vocally criticising the army, which is without precedent.

If the army won’t take over and elections won’t be held, the situation may implode with riots, widespread looting, robberies, murders and assassinations, and a total breakdown of law and order.

That may cause the elite to flee the country. A revolution may take place. A new leader may emerge who can begin the task of transforming the country. If the new leader is cut in the cloth of a Lenin or a Mao, that won’t bode well for the country. If the new leader is cut in the cloth of a Khomeini, that won’t bode well for the country either.

If the economy continues to teeter on the cliff and the political standoff between the governing parties and the main opposition party continues, the country may descend into chaos and anarchy.

But three good outcomes are still possible.

First, a sincere and competent individual may take the helm and begin the task of transforming the nation’s culture.

Second, the elite may have a change of heart, realising that the days when they fleeced the country and called the shots are over.

Third, and this is the least likely scenario, elections will be held later this year, returning Imran Khan to office. He may have an epiphany and govern as an enlightened man, finally delivering on the tall promises he made in 2018.

If one of these scenarios comes to pass, then Pakistan can get back on the road to development. This will be a complex task that will take many years and encompass many dimensions that span the political, social, cultural and economic spectrum.

Reviewing the example of other countries that have turned themselves around, the reform agenda will encompass eight steps.

First, the authority of the state will have to be re-established. Before that can be done, the leadership will have to earn the people’s trust.

Second, new economic policies will have to be implemented which reduce poverty, increase social cohesion, and create the conditions for long-term stability.

Third, infrastructure will have to be rebuilt, including the power grid, telecommunications, water, sewage, roads and bridges.

Fourth, the police force will have to be reconstituted with a focus on enforcing the law, promoting human rights and eliminating corruption.

Fifth, the educational curriculum will have to be modernised so it can promote a culture that values honesty, respect for diversity, tolerance for differences of opinion and thus shape the creation of a more inclusive society. Female participation in education should be encouraged because ultimately women can play a great role in enhancing the productivity of the country’s workforce.

Sixth, the media would be encouraged to help change the culture of the country by promoting gender equality and diversity of languages, traditions and religious beliefs, and learning from other countries.

Seventh, legislation should be passed that prohibits discrimination based on gender, race, ethnicity, religion or sexual orientation.

Eight, national participation in arts and culture should be encouraged through exhibitions, concerts and performances that celebrate differences in opinions, beliefs and languages to promote understanding and national harmony.

If these eight conditions are fulfilled, Pakistan will get back on the road to recovery and take its rightful place in the comity of nations.

Ahmad Faruqui

The writer is an Economist-at-Large based in the US. He has been writing political commentary since 1986 and has authored or edited three books on Pakistan.

The post What Will It Take To Put Pakistan Back On The Road To Development? appeared first on Dissent Today.

In a series of tweets, the finance minister said that negotiations with the International Monetary Fund (IMF) related to the completion of the ninth review of a $7 billion loan programme were near conclusion.

Anti-Pakistan elements are spreading malicious rumors that Pakistan may default. This is not only completely false but also belie the facts. SBP forex reserves have been increasing and are almost
US $ 1 billion higher than four weeks ago despite making all external… 1/2

— Ishaq Dar (@MIshaqDar50) March 2, 2023

due payments on time. Foreign commercial banks have started extending facilities to Pakistan. Our negotiations with IMF are about to conclude and we expect to sign Staff Level Agreement with IMF by next week. All economic indicators are slowly moving in the right direction. 2/2

— Ishaq Dar (@MIshaqDar50) March 2, 2023

Once the deal is signed, the lender will disburse a tranche of more than $1 billion from the $6.5 billion bailout agreed to in 2019, which will serve as a lifeline for the country that has reserves barely enough for three weeks of essential imports.

The finance minister added that the staff-level agreement with the global lender will be signed by next week.

He claimed that the rumours about the possible default were not true and stated that the “State Bank of Pakistan forex reserves have been increasing and are almost US $ 1 billion higher than four weeks ago despite making all external due payments”.

He concluded that these are positive indicators.

News Desk

dissenttoday.net

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