Pakistan stands at a crucial juncture. With every passing day, our dependence is increasing on external sources to sustain the national economy. According to the World Bank forecast on Pakistan Development Update (2023), the economy is expected to grow by only 0.4% by the end of the Fiscal Year in June.
The Slower Growth Rate can be attributed to the subdued private sector activity, import regulations, fiscal tightening, and the deteriorating confidence of consumers and investors in the business environment of Pakistan. Similarly, the hiked prices of global commodities due to the Russian invasion of Ukraine coupled with currency depreciation due to the termination of the informal exchange rate resulted in the depletion of foreign exchange reserves. Besides, the continuous delays in the IMF-EFF9th program review have urged the government to change the course of action by reducing subsidies and increasing energy taxes. The limited inflow of financial resources in the form of export revenues, and the drying foreign reserves is bringing record inflation (29.5%) in Pakistan. Consequently, the lower-middle-income poverty expanded to 37.2 per cent in Fiscal Year 2023.
Consequently, Pakistan’s dependence on external sources of income overpowers the internal ones. This dilemma holds implications for the economic sovereignty and economic stability of the country. The current state of affairs suggests that remittances from overseas Pakistanis are central to supporting the economy. Besides, reliance on a few key industries has made Pakistan vulnerable to global supply chain disruptions. In the past, foreign aid provided temporary relief but in the current state of affairs, the cautious approach of lenders like China and Saudi Arabia and ingrained corruption has added insult to injury. There is a need to reduce external dependence to achieve self-sufficiency and reduce vulnerability to external shocks.
The limited inflow of financial resources in the form of export revenues, and the drying foreign reserves is bringing record inflation (29.5 per cent) in Pakistan.
To build the core of the national economy, Pakistan needs to take multiple steps. For instance, the diversification of the economy beyond the traditional sectors is critical to foster economic resilience and reduce external dependence. This can be done by prioritising and targeting the IT, manufacturing, and services sectors. The approach requires targeting infrastructure projects and transportation networks such as railways, roads, and airports in strategic industrial locations inside Pakistan. Externally, the expansion and deepening of trade links with regional and global partners will stimulate indigenous economic growth. Resultantly, Foreign Direct Investment will expand due to the uninterrupted movement of goods and services.
Furthermore, the Human Capital Index (HCI) of Pakistan for the year 2023 was estimated at 0.1% in both absolute and relative terms by the World Bank report. However, Human capital is central to economic activity, which needs consideration in the case of Pakistan to attract investment, foster entrepreneurship and ensure sustainable economic development. Enhanced quality of education and advanced skill training is required to align the curriculum with the industrial requirements of the current time and promote vocational and technical training.
Information and Communication Technologies are another potential sector to augment the national economy through technological advancements and innovations. This is evident in the IT exports for FY2023 which held the highest proportion (US$ 1.94 billion-35.1%) among all services sector exports. Resultantly, the trade surplus from IT and ITeS exports indicated an increase of 16.7% as compared to a trade surplus of US$ 1.47 billion for FY2022. Promoting Research and development in the ICT sector will enable increased productivity and competitiveness in the international services market.
On the other hand, there is a need to establish small and medium enterprises that can help to reduce reliance on a few large industries. As the large-scale manufacturing growth for the fiscal year 2023 declined by 8.11% in comparison with the growth of 10.6% in the same period last year. Promoting access to simple regulatory procedures, financing, and business development services can help in the establishment of SMEs. This will enable the expansion of employment opportunities and a fostered trend towards entrepreneurship that will contribute to a diversified economy in a multitude of ways.
More importantly, the Pakistan Economic Survey indicates that our export base for FY2023 was US$ 23.2 compared to US$ 26.2 billion in the April- July period of FY2022. The striking decline of 11.7% reflects the need to expand our export base by diversifying markets and trading partners. This will help in achieving a balanced trade structure and trade surplus. Providing incentives to industries that have export potential along with negotiating favorable trade agreements with other nations on their behalf to facilitate their participation in international trade can help to expand the export base.
All the efforts in diversifying the economy can only be realised if Pakistan develops a good governance system and strengthens accountability. The government needs to streamline and reform its bureaucratic structure and implement anti-corruption measures to enhance investors’ confidence and enable a thriving economic environment. Besides, the policy objectives should not prioritise vested interests and short-term agenda that brings policy instability. Rather they should be made based on a sustainable development vision, the greater good, that fosters growth and prosperity in the longer run.
The writer is a freelance columnist.