Daily Times

There is a constant discussion about Pakistan’s possible bankruptcy or a near default situation that seems to have subsided with the arrival of the new financial leaders in the country. However, I believe that we are still not out of the woods yet. Pakistan has been extremely fortunate with the benevolence of international countries as the aid for flood victims continues to pour in from all parts of the globe. In my last publication, I thoroughly discussed the implication of effectively utilising the funds and channelising the charity. However, today I want to explore the prevalent narrative that the near default or challenging financial situation is due to the floods followed by a tough global scenario post-COVID-19.

The country’s top economists seem to have buried their heads with one aspect of the discussion. However, if today we stand in a challenging financial scenario, it would be naïve to blame it on climate change, the depleting foreign reserves or the dollar fluctuations. Yes, these had an impact, but in my opinion, the underlining factors were more than just what we see on the surface. Pakistani economy’s downward trajectory began in the year 2007. After experiencing economic growth with a compound annual growth rate (CAGR) of 5.1% during 2001-2007, Pakistan experienced much weaker growth with a CAGR of 3.8% during 2008-2015, which was characterised by a burdensome investment climate, political instability, weak (but recently improving) fiscal discipline, inefficient public sector governance, and an unresolved energy crisis. The World Economic Forum Global Competitiveness Report 2015-2016 stated, “Pakistan’s economic environment is inferior to its regional peers. This is because of its high political and policy instability, poor infrastructure (especially the unstable power supply), corruption, and inefficient government.”

Our political and economic situation has only experienced sprints of growth and has lacked the consistency needed to achieve long-term growth.

What is truly unfortunate is that our political and economic situation has only experienced sprints of economic growth and has lacked the consistency desperately needed to achieve long-term growth. This is quite similar to what led to Sri Lanka’s bankruptcy; If we go back quickly, we can recall that Sri Lanka’s economy started to decline in late 2020. Authorities at the time attributed the cause to the rampant Covid-19 outbreak. However, according to one expert, this was primarily due to government ineptitude and accumulating debts with China.

I genuinely believe that Pakistan’s most significant challenge lies in poor financial management. Liquidity and insolvency challenges which may not seem too daunting, tend to mount up, especially in the case of developing countries such as Pakistan. Insolvency issues cannot be resolved merely by rescheduling debt but may necessitate a reduction of debt obligations to meet the debtor’s long-term ability to generate revenue. This has been a grey for Pakistan as the country continued to rely upon international financial bodies such as the World Bank and IMF. Pakistan’s overall public debt increased by approximately Rs9.326 trillion in the fiscal year 2021-22, which ended on June 30, 2022; it rose from Rs39.8 trillion in June 2021 to Rs49.2 trillion on June 30, 2022. The rupee depreciation resulted in an increase in total public debt of Rs3.764 trillion in just one fiscal year, 2021-22.

Now to move on to the solutions, there are certain critical areas that Pakistan needs to focus on. Firstly, the country’s power sector is one of the most significant sources of financial stress on the weakened economy, with a circular debt of Rs2.253 trillion. According to an IMF report, “DISCOs account for 95% of circular debt issues” in Pakistan. The report further states, “If only 3% of DISCO issues [power theft, line loss, and non-collection] can be improved, it will save Rs50 billion per year.” In light of the recent power outages in Europe due to the Ukraine-Russia war, some of the most prominent advocate countries of Green Energy and Climate Change fell back on their coal reserves. My argument to the decision makers in Pakistani leadership is why we are sitting on our coal reserves when we contribute less than 1% to global emissions. I have repeatedly reiterated, “we must go black before we go green.” Therefore, utilising our coal-generated power plants must be the government’s top priority in the country’s larger interest.

Secondly, industrialisation must take precedence in the country’s economic priorities. Pakistan needs to have an industrialisation framework for the next 20 years. We can learn that India’s technology industry boom was based on a clear long-term vision. By prioritising the IT sector, the Indian government collaborated with experts and the business community to devise a comprehensive plan that has resulted in tremendous growth making India one of the go-to IT destinations in the world. So much so that the US chip manufacturing industry is exploring the possibility of setting up a plant in the neighbouring country amidst the US-China chip war.

Pakistan’s Special Economic Zones are a great attraction for Foreign Direct Investors. Beginning with Chinese investors, they must be given complete relaxation till the year 2030 to set up businesses and manufacturing facilities. A one-window CPEC operation facility will help us expedite the business formalities and win the investors’ trust. Lastly, political stability, which has been an economic woe for the last seventy years, must be tackled. The political and judicial leadership must discourage early elections to save huge process costs. Also, a full-term government must be the aim of all political representatives of Pakistan regardless of their party affiliations. To move past this financial management failure, we must devise a comprehensive strategic economic framework that focuses on the above so we might be able to resuscitate the economy.

The writer is the Foreign Secretary-General for BRI College, China. He tweets @DrHasnain_javed