Two Lost Decades of Pakistan Economy 2002 – 2022


The last two decades – 2002 to 2022 — have proved disastrous for Pakistan’s economy. During the same period, developments in India make an interesting comparative case-study.  This article attempts to identify the mistakes made in the past and suggest corrective measures. This article is not narrating history. It aims to draw attention of the political parties and establishment towards the fact that if they fail to change Pakistan’s primary structure, the risk of default and other ruinous consequences will grow. All players in the field are the same on the policy side and their caliber has already been tested. As the society is not ready for change, reforms and corrective measures will be resisted. If the public at-large fails to understand the importance of change, Pakistan may suffer the same fate as that of the former USSR and Yugoslavia.

Burden of history

During the last 20 years, elections were held at regular intervals as per constitution in 2002, 2008, 2013 and 2018 and four different parties came to power, representing four schools of thought. This started with General Pervez Musharraf with Mir Zafarullah Jamali and then Shaukat Aziz as prime ministers (2002-2008), followed by the Pakistan People’s Party (PPP) rule under Yousuf Raza Gilani and Raja Pervez Ashraf (2008-2013), then the Pakistan Muslim League-Nawaz under Nawaz Sharif and Shahid Khaqan Abbasi (2013-2018), and finally the Pakistan Tehreek-e-Insaf under Imran Khan and followed by the 13-party alliance of the PDM led by Shehbaz Sharif as the premier (2018-2022). This means that all the relevant parties have ruled this country during this period, including the establishment.

However, they all failed to deliver, which included the military government. During all these years, there was democracy, assemblies, compliance to the international agreements and the ‘illusionary national pride’, but by the early 2023 almost all the relevant persons are convinced that the country’s economy is failing.

Primary verifiable facts

No economic analysis is complete without proper comparison, which has been made with India here. Some of the relevant facts are as under:     

  1. In 2002, the Indian Rupee was hovering at 46 to a dollar. In the beginning of 2023, it is at Rs.82. In Pakistan, the rupee was at 57 to a dollar in 2003, plunging to Rs.276 in early February 2023 in the interbank market. The devaluation was less than 100 percent against the dollar in India, whereas more than 400 percent in Pakistan.
  2. Indian exports were $127 billion in 2002, which willjump to over $660 billion by 2022, registering an increase of nearly 500 percent. Pakistan’s exports were $14 billion in 2002 and are currently pegged at $32-34 billion – a little over 100 percent.
  3. The current account deficit of India from 1947-2022 is $344 million per quarter whereas it is $825 million per quarter in Pakistan.
  4. India’s per capita GDP was $557 in 2002, which jumped to $2,207, according to the latest figures. Pakistan’s was $599 in 2003 which is now at $1,598.
  5. India’s military expenditure was 2.68 percent of GDP in 2003. Now it is at 2.88 percent. Pakistan’s was 4.09 percent, which decreased to 4.02 percent.
  6. In Pakistan, home remittance as a percentage of GDP has increased from 4.9 to 9.07 percent during the period. In India, they declined from 3.5 to 2.8 percent.               
  7. In Pakistan the literacy rate increased from 42 to 57 percent, whereas in India from 61 to 75 percent during this period.
  8. Pakistan’s population increased from 166 to 235 million, while India’s from 1,117 to 1,417 million. In our case, the population increase has been more than 40 percent, while in India only 25 percent.  
  9. India’s tax-to-GDP ratio increased by around 4 percent between 2003 and 2023, while Pakistan’s decreased by around 3 percent.
  10. India, June 2022: The price of electricity was $0.074 per kWh for households and $0.101 for businesses. Pakistan, June 2022: $0.042 per kWh for households and $0.143 for businesses. When the Rupee-dollar parity is applied to the electricity price, then the same will speak volumes about the competitiveness of Pakistan’s industry against an Indian exporter. The price is effectively four times higher than India.
  11. Foreign exchange reserves of India are around $540 billion with $600 billion loans, including $130 billion government loans. In Pakistan, the reserves are now less than $4billion with $130 billion loans, including $125 billion borrowed by the government.
  12. The international community has been exceptionally cooperative with Pakistan during this period. Pakistan received on average $1.75 billion foreign aid per year during the period. India, despite being seven times our size, received $1.50 billion aid per year on average.
dollar edited | Featured, Perspective from Narratives Magazine

State of Pakistan’s governance

Some facts:

  • During this period, there was ‘reasonable’ democracy in Pakistan and elections were timely held.
  • In every election, the ruling party lost and the opposition came into power.
  • All the parties in the field at the moment, including the military, have enjoyed power.
  • In 2003, all our indicators were approximately comparable with India and in some even better.
  • All the international events affected the two economies in a similar manner such as increase in commodity prices, COVID etc.
218903 edited | Featured, Perspective from Narratives Magazine
A highly flawed and controversial electoral process is one of the reasons of the continuing political instability in Pakistan.

However, today the comparison reveals that within a short span of two decades, we have completely destroyed the country. The question the scribe will discuss is whether this debacle is a product of the poor governance or the result of some ‘genetic defects’ in the structure of the state, which matured over time.

I have watched and worked with the country’s economic managers closely and can authenticate with facts and figures that all the last four different governments were following almost the same policies and systems, and their differences were limited to that of personalities in the office of the Prime Minister. This state is unworkable and will have serious consequences unless a major surgery is not undertaken.

Reasons of our fall

In the following paragraphs, the reasons for this mess will be identified. These are:

  • Culling the local industries.
  • Collapse of agricultural economy.
  • Flawed foreign exchange regime.
  • The power sector mess.
  • State-sponsored non-documentation resulting in a low tax base.
  • Population explosion.
  • Clueless political parties.
  • Intellectually compromised economists.
  • Hope for divine support.
  • Illusion about nuclear power.

Detailed Analysis

  • Culling the local industries

Since inception, Pakistan has adopted non-protectionist policies for industries in principle. However, in that process we ignored certain ground realities, including the composition of our population, the level of employment, the competitiveness difference between our industries with other countries, especially China. There was a time when we produced most of the consumer goods from shoes to handkerchiefs. Now almost all the local industries in such sectors are closed and Pakistan is not able to finance its imports. Traders, who have not done any business other than imports, are banging the doors of commercial banks when their LCs are not being opened.

The government appears to be resigned to the fact that this state is out of the tournament of developing countries like India, Bangladesh, Vietnam, Thailand and others. Now Pakistan has been reduced to the league with Afghanistan, Nepal and Sri Lanka. The story of tariff, which culled the local industry, can be understood by the analysis of the tariff structure of India and Pakistan done by a US think tank. It states about India as:  

138677478 15780996299511n edited | Featured, Perspective from Narratives Magazine

“India’s average Most-Favoured-Nation (MFN) applied tariff rate was 17.6 percent in 2019 (latest data available). India’s average MFN applied tariff rate was 38.8 percent for agricultural products and 14.1 percent for non-agricultural products in 2019 (latest data available). India has bound 74.3 percent of its tariff lines in the World Trade Organization (WTO), with an average WTO bound tariff rate of 50.8 percent. In addition to tariffs, India, in 2018, implemented a 10 percent social welfare surcharge on imports, except certain products exempted pursuant to an official customs notification.

India assesses the surcharge on the value of other duties (not on the customs value of the imported product), which reduces the levied value. A landing fee of one percent is included in the valuation of all imported products unless exempted through separate notification.

India’s average MFN applied tariff rate of 17.6 percent remains the highest of any major world economy. Since 2014, the Indian Government led by Prime Minister Narendra Modi has promoted the “Make in India” campaign, a drive to build the country’s manufacturing capacity in part by cutting barriers to foreign investment and introducing regulatory reforms.

As part of the campaign, India has raised duties on two broad groups of products to encourage domestic production: (1) an assortment of labor-intensive products; and, (2) electronics and communication devices, including mobile phones, televisions, and associated parts and components. India’s tariff regime is also characterized by large disparities between WTO bound rates and MFN applied rates. India’s WTO bound tariff rate averaged 50.8 percent, while its applied MFN tariff for 2019 averaged 17.6 percent.

India’s bound tariff rates on agricultural products are among the highest in the world, averaging 113.1 percent and ranging as high as 300 percent. Applied agricultural tariff rates are also high, averaging 38.8 percent. While India’s applied tariff rates for certain agricultural products are lower, the rates still present a significant barrier to trade in agricultural goods and processed foods (e.g., poultry, potatoes, citrus, almonds, apples, grapes, canned peaches, chocolate, cookies, frozen French fries and other prepared foods used in quick-service restaurants). The Indian Government took advantage of this tariff flexibility in both the 2019/2020 and 2020/2021 budgets, when it increased tariffs in each budget on approximately 70 product categories, including key U.S. exports in the agricultural, information and communications technology, medical device, paper products, chemicals, and automotive parts sectors, with no warning or public consultation process. Prior to tariff increases beginning in 2014, certain information and communication technologies were imported duty-free, including telecommunications equipment such as smartphones and related parts as well as network switches.

About Pakistan it states:

Pakistan’s average Most-Favoured-Nation (MFN) applied tariff rate was 12.1 percent in 2019 (latest data available). Pakistan’s average MFN applied tariff rate was 13.5 percent for agricultural products and 11.9 percent for non-agricultural products in 2019 (latest data available). Pakistan has bound 98.7 percent of its tariff lines in the World Trade Organization (WTO), with an average WTO bound tariff rate of 60.9 percent. For agricultural products, the average WTO bound rate is 96.2 percent. Tariffs are lower for nonagricultural products, with an average WTO bound rate of 55.1 percent. Pakistan groups tariff rates into categories by levels of domestic market protection. Between 2013 and 2017, Pakistan gradually reduced the number of tariff categories from 7 to 4, and reduced the maximum tariff category rate from 30 percent to 20 percent.

The current general tariff categories are 3.0 percent, 11 percent, 16 percent, and 20 percent. However, individual tariff rates within each category may vary. The weighted average basis of all applied tariffs within a category is equal to the category rate, and some individual tariff rates may still be significantly higher than the category rate listed. Most individual tariff rates range from zero percent to 20 percent.

However, there are higher tariffs on beverages (90 percent) and transport equipment (30 and 50 percent on different tariff lines). Since 2017, Pakistan has gradually reduced tariff lines.

In the Fiscal Year 2021 budget (July 1, 2020 – June 30, 2021), Pakistan lowered tariffs on more than 1800 product lines. The reductions focused primarily on raw materials and intermediate goods. Despite the reduction in tariff categories and tariff rates since 2013, concerns exist that Pakistan may be protecting several local industries, such as automobiles and finished goods, by imposing high tariff rates and, in some cases, additional customs and regulatory duties. Included in the FY 2021 budget that went into effect on July 1, Pakistan continued additional customs duties of 4 percent and 7 percent on applied tariff categories of 16 percent and 20 percent respectively, focused primarily on finished goods.

Additionally, Pakistan imposes a higher tariff rate (35 percent) on imports of automotive parts that compete with domestically manufactured products than on imports of automotive parts with no domestic competition (20 percent). In March 2016, the Ministry of Industries and Production adopted Pakistan’s Automotive Development Policy 2016–2021, which offered various incentives, including tax holidays to new entrants, aimed at attracting U.S. and European automakers to establish automotive manufacturing units in Pakistan. However, in 2019, Pakistan eliminated incentives for new entrants, and firms such as Hyundai and Kia, which had entered the market in 2017 and 2018 respectively, were not able to take advantage of those incentives. As a result, other foreign manufacturers that had expressed interest in Pakistan’s automotive market backed away, with no new foreign manufacturer entering the market since Kia in 2018. Pakistan approved its first electric vehicle (EV) policy in June 2020. The approved policy offers lower tax rates and customs duties on electric vehicles and charging equipment – a 1 percent goods and services tax (GST) is applied to electric vehicles as compared to 17 percent GST on non-electric vehicles, with only 1 percent custom duty applied on charging equipment. International firms have taken notice of the new EV incentives offered through the policy. Ruba Group Lahore and MG Group UK (Morris Garages) launched MG Electric Cars in Pakistan in 2020. In addition, Sazgar Motors announced a collaboration with Beijing Automotive Industry Holding Co., or “BAIC Group” (a Chinese state-owned enterprise), to manufacture electric vehicles. Pakistan also grants sector- and product-specific duty exemptions, concessions, and protections through the promulgation of statutory regulatory orders (SROs). SROs can be issued without stakeholder consultations nor time to allow for implementation and compliance by importers. A list of SROs along with other trade policy and regulatory documents is available from Pakistan’s Federal Board of Revenue (FBR)

There is not much to explain about the self-explanatory position of Pakistan in comparison to India. The biggest issue is the MFN’s average rate where there is a difference between India and Pakistan of over 5 percent. For Pakistan, the killer is the cheap imports from China.

The second interesting subject in our tariff study is all about ‘automobiles’ as the nation appears obsessed with cars.

The first lesson of the last two decades is to lay down a ‘Make in Pakistan’ import policy. If we are not ready to do so, then we have no chance. Now, all such imports, though cheaper than locally produced items, would not be importable as we do not have dollars to pay for them. I have witnessed during my stay in Islamabad the way the Minister of Commerce works without any planned layout. There is total confusion, discrimination and rent seeking. This cannot work. Period.

  • Collapse of agricultural economy

The following two extracts are enough to demonstrate the status of agro-economy of Pakistan in comparison to India.

Pakistan’s food import bill grew by 53.98 percent to $7.550 billion year-on-year during the 11 months of the current fiscal year (11MFY21) mainly due to sugar, wheat, palm oil and pulses imports to bridge the shortfall in domestic production of agriculture produce.

Harvest grain Punjab Pakistan 1024x683 edited | Featured, Perspective from Narratives Magazine
Pakistan’s agriculture sector is under-performing for the past several decades.

India is one of the largest agricultural product exporters in the world. During 2021-22, the country recorded US$49.6 billion in total agriculture exports with a 20% increase from US$41.3 billion in 2020-21. India’s agriculture sector primarily exports agri & allied products, marine products, plantation, and textile & allied products. Agri & allied products exports were valued at US$ 37.3 billion, recording a growth of 17% over 2020-21.

This article is not aimed at discussing the problems of the agriculture sector, but in a nutshell the problem stems from lack of effective land reforms in Pakistan.

India went through this process. Firstly, India abolished feudalism through land reforms in the Nehruvian era in the 1950’s, then in the late 1980s and the 1990’s, India consolidated lands through cooperative farming regimes and other such measures. In this manner, it created a middle-class in the agrarian economy as against ‘haris’ and ‘waderas’ in Pakistan. As a result, agriculture is not an economic subject for the middle class in Pakistan. Either it is an election base for the feudal landlord or a subsistence level for poor cultivators. This system is unworkable. No wonder, Pakistan’s agricultural productivity is one of the lowest in the world.

The yield of wheat in Pakistani Punjab is 24.5 q/ha as against 46 just across the Wagah border. There is no need to provide further statistics on this subject. In short, being a country where around 60 percent of the population is engaged in agriculture, spending of around five $5.0 billion on agro imports is not acceptable in any sense. Pakistan requires a complete revolution in the agricultural sector to get rid of this mess.

  • A flawed foreign exchange regime

During this period, Pakistan allowed its citizens to transfer their untaxed earnings in rupees to be transferred abroad without any restriction under a flawed foreign exchange regime introduced and maintained under Protection of Economic Reforms Act 1992 (PERA). The hard earned dollars from our meagre exports and home remittances were syphoned out of the country by tax evaders using the PERA provisions. Under these provisions any person, without any identification of any sort, was allowed to buy foreign currency to any extent from the exchange companies, deposit the same in the foreign currency account and transfer outside Pakistan. This law remained in force from 1992 to 2018. This is the period of butchery of Pakistan’s economy. If it is estimated that the untaxed money in Pakistan is around Rs.500 billion and even 50% of the same is transferred outside, then the outflow through these legally correct, but practically wrong will be around $2.5 billion per year if an average rate of Rs.100 per dollar is adopted. This means an outflow of $50 billion in two decades. With a country having exports of $34 billion even in 2022 this is a huge amount. Pakistan as a country has been mishandled and exploited by people who introduced and administered such laws.

The second aspect that has not been properly handled in Pakistan is ‘hawala’ transactions. The quantum is not less than $6.0 to $7.0 billion a year. In addition to financial issues, it is an easy way to transfer dirty money out of Pakistan. There is no perfect manner to stop ‘hawala’ transactions anywhere in the world. However, India has introduced quite reasonable provisions on this subject. These provisions are contained in their Foreign Exchange Management Act and not the FIA-type organisation. The writer raised this issue in his articles in 2017 onwards and personally suggested and presented papers to the Governor State Bank of Pakistan, but no concrete effort has been made for the reason that the central bank is effectively the hostage of exchange dealers. Pakistan may be the only country where exchange issues are discussed and commented upon by the money changers.

In Short, Pakistan’s rulers and legislators, without doing any homework, deregulated the foreign exchange regime that emptied our coffers of foreign exchange. The tragedy can be identified by a simple fact that in Pakistan individuals are allowed to maintain foreign currency accounts whereas companies are not allowed to do so. In India, companies are allowed and individuals are prohibited on that count. This is the manner in which Tata acquired the Range Rover jeep company of the UK. This is not a mistake. It is an intentional action to transfer ill-gotten funds out of Pakistan. With this background there is no reason to lament on present crises. It should be realised that in 1990’s the position of India was as reported by a newspapers as:             

In July 1991, the RBI pledged 46.91 tonnes of gold with the Bank of England and the Bank of Japan to raise $400 million but the government was quick to repurchase it months later as the situation improved.

  • Mess in Power Sector

The Power Sector in India is heavily subsidised against our mantra of supply of electricity at the cost of production. The latest status of subsidy in the power sector in India is reproduced as under:

Subsidies for electricity consumption are the largest of all of India’s quantified support for energy: direct tariff subsidies from state governments amounted to INR 110,391 crore (USD 15 billion) in fiscal year (FY) 2019 (Power Finance Corporation Limited [PFC], 2020a), and we estimate that cross-subsidies added at least another INR 75,027 crore (USD 10.2 billion). Subsidies play an important role in ensuring electricity affordability, but they also need to be well designed so they do not undermine the financial viability of electricity distribution companies (DISCOMs).

This means that Indians are going in a planned way. Their government is rich and not under the IMF programme. Therefore, it can provide such huge subsidies to the power sector to make available cheap electricity to their household consumers, agriculture and industries. We are constrained by fiscal deficit and the IMF conditions. So there is a mess. There is a subsidy called the circular debt of around Rs.4000 billion. This is ultimately borne by the government but after dodging the IMF for two to three years and spoiling the operations of Discos.

The other factor is the mounting losses in the electricity sector. This can be seen from the reproduction from a newspaper:

The Aggregate Technical & Commercial (AT&C) losses of Pakistan’s power sectors soared to 29.7%, the highest in the region, while other countries fared much better, according to the K-Electric Investor Presentation 2020, a copy of which is available with The Express Tribune.

This regional comparison revealed Sri Lanka had the lowest AT&C losses of 10%, followed by Turkey 14.8%, Bangladesh 21.9%, India 23.9% and Nepal at 24.4%.

The third and the most difficult part of the electricity mess are IPPs. Firstly there is a fixed capacity charge, which is substantially higher than the electricity we can afford to produce. The second menace is the IRR in dollars for the whole life of the contract with around 17% return. As an accountant, the writer can argue that these IPPs are bonds issued by the government and not a business where the owner has taken any risk.

The last issue is the misconception about unbundling. WAPDA is effectively there with a new cloak of CPPA and PPEPCO and other such names. It is the writer’s view that it will take decades for Lahoreites to mentally agree that WAPDA House is no more relevant for Pakistan’s electricity. We as a country do not like decentralisation. The FESCO and LESCO privatisation programme started in 2000’s but we may have to wait for another two or three decades for its implementation.    

  • State sponsored non-documentation resulting in low tax base

In India, the observation about number of taxpayers is as under:

Around 5.8 crore people have filed their returns so far. And it’s safe to say that there could still be another 1–2 crore people who may have paid their taxes but haven’t filed the returns yet. So if you tally all that, you’ll see that a measly 5% of Indians actually pay tax. A maximum of around 8 crore people out of 130 crore Indians.

Indians lament 58 million taxpayers, whereas we in Pakistan are happy with only 3.0 million. I was sent home when I tried to link the purchases of goods and services above a certain amount with the National Identity Card. It is important to note that Modi’s Government added over 35 million new taxpayers in India.

The mess in the tax collection system is not the biggest issue. The problem is the deliberate attempts by the successive governments to please the businesspeople in promoting undocumented financial culture. This scheme was introduced by Dr. Mehboob-ul Haque in the name of a totally absurd self-assessment scheme during the 1980’s. That scheme delinked the real income with tax liability. A whole generation of businessmen, born after the 1980s, do not actually know the relationship of actual results with tax accounting. This disease intensified when in 1990 the Nawaz Sharif government introduced the ‘Presumptive Tax Regime’ whereby an indirect tax became a direct tax. Furthermore in order to do money laundering, a provision was introduced whereby no question about the source of money could be asked for foreign remittance [Section 111(4)] of the Income Tax Ordinance, 2001. These faulty schemes were authenticated by judicial pronouncements Hudaibiya Engineering and Elahi Cotton cases.    

  • Population Explosion

Pakistan’s population has increased at a rate of 2.6 percent per annum against 1.3 percent in India. In Pakistan, the fertility is 3.56 births per woman (2020), whereas in India 2.05 births per woman.  In earlier days, fertility was higher in India than Pakistan. Why did the rate almost double with almost the same cultural norms on both sides of the border? The answer is ‘Maulvi’.

The rate of Pakistan’s population growth is 15th highest in the world and countries exceeding our rate are mostly sub-Saharan Africa with Equatorial Guinea at around 4%. No country can have sustainable growth with this rate of population growth. When East Pakistan became Bangladesh, its population was more than West Pakistan. Now we are larger than them.  

The cultural degradation which erupted after Zia’s regime has almost abolished any concrete measure for population control in the country. It is a country where increase in population in particular areas is encouraged by political forces to attain a higher number of seats in the parliament. This has been happening in rural Sindh for the last three decades. There has been no reliable census in the country after 1970. For the last 50 years, we have been living in a country where all the censuses are being heavily contested.  

The main reason for the population mess is the disempowerment of female gender. Pakistan is one of the few countries where the percentage of female workers as a total number of workers has substantially decreased after General Muhammed Zia-ul Haq’s period. Studies show that working women do not have more than two to three pregnancies as against six to seven for non-working ones.  

We do not see any serious debate, discussion, discourse or attempt to have control over population explosion. Either it is a fear of fundamentalists or we want a larger force to fight for the liberation of Kashmir. Other than that there is no logical explanation.  We even do not know whether population planning is a Federal or Provincial subject after the controversial 18th Amendment to the Constitution.  

  • Clueless Political Parties

Except for certain elements in the PPP (who have no say in the real power politics), and the Jamaat-e-Islami there is no real political party in Pakistan. These are only gatherings of electable candidates around a personality, who can help them win elections. During the last four governments, there are at least 25 percent of members of the Parliament, who have been part of all the four political parties which remained in power. The Muttahida Qaumi Movement Pakistan (MQM) makes an interesting example. It was in alliance with all the parties in power, but still acted like opposition. Karachi has been virtually destroyed in that process.

Political parties – when in opposition or in the government – do little to identify the real issues of the people, or carry out in-depth research on any issue with an objective to come up with solutions. When the PTI came to power, it had to change the whole financial team within eight months. The Prime Minister was ill-informed about the financial crises and he repeatedly asserted that the IMF option is no option at all. But the next day, the writer had to agree with the IMF to a tax-collection target of Rs.5,500 billion for June 30, 2019 without any homework. Two ladies from the IMF were adamant for a programme which was not implementable. Same is the case with Mr. Shehbaz Sharif, who has been in power for over 30 years when he told the press that he was not aware of the country’s crises. He was not lying. He had no basis to identify the real position as there is no inbuilt mechanism in his party to do the job.  In India, the position is totally different. Both Narendra Modi and Rahul Gandhi have adequate teams.

Another issue is the bias among politicians against the business people. This started with Zulfiqar Ali Bhutto. I know businesspeople, who leave the country when a vindictive politician comes to power and return back when he or she is gone. Then another set of businesspeople meets the same fate. This kind of vindictiveness, rent seeking, pressure tactics, political maneuverings ultimately places businesses out of the circuit. Business People leave Pakistan in search of security and peace of mind. No country can survive like this for long. Unless this culture is eradicated, no serious investment in the country will remain a pipedream. This country is not a place for a person, who is rich and resourceful and wants to run a clean business. The rent-seekers knock on the door in various forms and the price is as high as 25 percent of the profit for the year. In India, the corruption is much less, and revolves around the range of five to seven percent. The writer has personally seen two major business tycoons taking flights for the US at the time of change of regime. No country can be run like this. If we want democracy, the political parties would have to transform from a ‘jatha’ to an organisation.         

Intellectually Compromised Economists

Intellectually independent economists are umpires in any society. In Pakistan, there is a dearth of such persons. Here economists are not umpires but players in the political team. India developed reasonable think tanks which assist the governments in policy-making. In Pakistan, this job was taken over by the vested interest group in the form of trade bodies like the KCCI and the FPCCI. In India, the Confederation of Indian Industries (CII) acts like a think-tank for economic policies.

In Pakistan, economic policies, especially after the end of the fifth ‘Five-Year Plan’ in the 1970s, are designed on an ad hoc basis. India is going through the 11th Plan and all economic decisions are well coordinated. Currently, Pakistan faces the worst economic crises of its existence, but our economists have no structured proposals or serious roadmap for the government. This stems from the genetic problem of Pakistan. There were several Hindu Indians, who studied economics in the prestigious London School of Economics in the 19th and early 20th century, but not a single Muslim.  We are interested in law, therefore, in the matter of the privatisation of Steel Mills is discussed by the Supreme Court of Pakistan.  

  • Illusion about Nuclear Capabilities

Pakistanis are confident that there cannot be any default for a nuclear-country. In that process, they easily forget that Kazakhstan was a nuclear power before the split of the USSR.  In addition to this illusion, there is another misnomer. Many Pakistanis believe that we have governed Pakistan in an excellent manner and all our problems have been inflicted upon us by the “imperial pro-Israeli power” on account of our nuclear capabilities. This is not my subject, but I can easily say that 99 percent of our problems are self-inflicted. Nuclear power for us is a deterrent against India, but in 2022-23 it is not in New Delhi’s interest to destabilise Pakistan. Furthermore, only an insane person can think about using a nuclear weapon. Therefore, it is necessary that Pakistan should think out of nuclear conundrum and understand that these capabilities were not able to keep the USSR united. The question Pakistanis have to answer is whether their nuclear arsenal is an asset or a liability.

  • Divinity

Worldly affairs are generally not a priority in a theocratic society. Quaid-e-Azam Muhammed Ali Jinnah conceived a Muslim not an Islamic state. However, over time we moved from Muslim to an Islamic state. This has not happened in India. Now Modi is trying to impose Hindutva, which in my opinion will eventually destroy India if it continues.

In this process we forget the primary principle of Islam. It is about the role and responsibility of an individual and a society. In Islam, an individual is accountable after death on the Day of Judgment. However, society is accountable in this world as there is no concept of societal accountability on the judgment day. It is a divine revelation that a society which does not provide justice cannot survive. However, a society without a religion can do so. In Pakistan, we are trying to impose individual accountability without imposing any societal accountability — such as payment of taxes. This is the difference between the United States and Pakistan. There the people are afraid of the law. Here, there is no fear of the law despite all the pretentious piety in our society. This cannot practically work. If we analyze the societal attitude we note that in the past two decades the role of religion in world affairs has increased, which promoted individual saviours like Abdul Sattar Edhi, Dr. Adeeb Rizvi etc. However, in that process we forget that whatever the Citizen Foundation is trying to do at the primary school level, it can only be done by the government on the mass level.     

  • The Way forward

The proposed solutions have been summarised for the sake of brevity. Each suggestion has been placed in the order of the discussion in the aforesaid paragraphs:

  1. Revise Free Trade Agreements with China, Turkey, Malaysia, Sri Lanka and Thailand.
  2. A detailed cascading exercise for all consumer goods industry for Pakistan.
  3. Immediate ban on 100 percent foreign ownership for investment in consumer goods industries.
  4. Establishment of Industrial & Export Bank.
  5. Open trade with India.
  6. Effective land reforms;
  7. Abolishment of ‘Patta’ [Absentee landlord] system of agriculture and removal of exemption from the income tax for rent of agricultural properties.
  8. Demarcation of cultivation areas for various products.
  9. All commercial banks provide 20 percent of their advances to the agriculture sector.
  10. Computerisation of land records and abolition of ‘Patwari’ system.
  11. Agricultural marketing and storage companies to be exempt from duties and taxes for 20 years.
  12. State Corporations with private sector collaboration for seed development.
  13. Removal of subsidy for fertiliser plants and introduction of direct subsidy for designated crops through commercial banks for the cultivators. For example no subsidy for sugarcane but subsidy for edible oil products.
  14. No more foreign currency accounts for individuals.
  15. Allow companies to operate foreign currency accounts.
  16. Closure of all exchange companies.
  17. ‘Money changers’ entities to be owned by commercial banks.
  18. Introduction of regulation for ‘hawala’ transactions.
  19. Any startups with an IT platform (without any licence) to be allowed to process inward remittances with 1% fee to be paid by the State Bank of Pakistan. They should not be allowed to undertake outward transactions.
  20. Practical unbundling of WAPDA or any such organisations.
  21. Transfer of Discos to Provincial governments.
  22. Subsidy to electricity to be provided in a planned way out of the allocation of funds to provinces under 10th NFC.
  23. Privatise GENCOs to the local private sector with risk and reward.
  24. Buyback all the IPPs upfront.
  25. Subsidise expansion and utilisation of Thar Coal;
  26. Gradually close down piped domestic gas connection with a start from DHAs and Clifton and Gulberg.
  27. Government to be out of domestic and commercial gas provision business. Imported gas to be used for that purpose.
  28. Subsidy through companies for the poor. 
  29. No more gas connection for domestic use.
  30. Tribal areas
Shabbar Zaidi
Shabbar Zaidi
The writer is one of Pakistan’s best-known chartered accountants and a senior partner in A.F. Ferguson. He served as the 26th chairman of the Federal Board of Revenue

Share post:



More like this

Afghan Repatriation & Transit Trade Standoff

The repatriation of Afghans faces a major hurdle, not...

SPAR6C: Powering Pakistan & the World for Climate Action, Green Growth

The program selects four countries -- Colombia, Pakistan, Thailand, and Zambia -- each at different stages of institutional capacity, climate change mitigation strategy development, and NDC progress tracking.

Reconciliation & Replacement Commission

The current political, economic and security situation is alarming....

Promoting Equality of Opportunity: A Framework for Business Transformation

In the midst of these transformative global changes, businesses in Pakistan are finding themselves at a crossroads