Pakistan got its independence in 1947, but since then it has been struggling to stand on its feet as compared to its neighbor who has gone to the moon while we are still struggling to get a hold of the basic necessities. After its independence, other than the 1960 in which Pakistan was considered the best economic year of Pakistan, it had a model economy and was praised globally for its development.
Pakistan enjoyed a healthy and functional economy despite being in wars, in changing demographics, and in the face of many military coups; it stood strong out of it all.
Pakistan at that time had shown great development at 6% per annum; for that many foreign states praised Pakistan during this era and wanted to follow Pakistan’s economic planning strategy. This was considered the most prosperous era in Pakistan.
But fast forward to 2023, more than 70 years later, Pakistan is facing a serious economic crisis, which brought Pakistan on the verge of bankruptcy. In the March-April of 2023 the government of Pakistan set up camps to distribute free flour to the people so that their back-shattering burden is somewhat taken care of. While receiving this sasta aata or free flour, many stampedes were broken out, due to which many people lost their lives. This shows how devastating the economic burden is or how high the cost of basic necessities is that people are willing to die for it.
The desperation shows how worse the conditions are for the common people, that people have to die just to get a sack of flour. How did we come to this position in which we have to die just so we can get a bag of flour? When we talk about the worsening economic conditions of Pakistan we cannot simply talk about it without making it highly political and start giving remarks to the political leaders or that of the political parties. It is not that simple.
Pakistan is riddled with many issues that are sinking its economy. These issues may range from high inflation, to the concern of the balance of payment, from the crushing debts to the issues of budget deficit.
Poor governance, a broken judicial system, lack of transparency, lazy staff in the governmental institutions, and no implementation of the laws, corruption, and lack of education, all these issues lead to a broken system that leads to the broken economy of Pakistan. In the last five years, Pakistan has shown no sustainable growth. This pushed Pakistan to the verge of default earlier this year. To explain why Pakistan is the way it is there is no production or output.
As Paul Krugman, An American economist said “Productivity is not everything but, in the long run, it is almost everything”. The economic growth of a state is done if it gives back an output, which means it produces things and then sells them off. It is not enough just to have the resources by your side, you simply cannot collect the resources and then expect your economy to boost those resources that need to be utilized in order to produce an output that in turn will be the cause of economic growth.
Although Pakistan is an agrarian state, with the potential to produce almost every type of fruit or vegetable the inflation rate is at a soaring 30%, this is due to Pakistan being a dependent state, with the major commodity being petrol along with staples as well. Now if the global rates of petrol raised, internal inflation skyrockets causing the basic necessities to be out of reach for the common, like electricity or petroleum prices. As of now, the per unit cost of electricity that a Pakistani citizen pays is 65 rupees, which is at its highest throughout all of Pakistan’s history.
Pakistan’s GDP, per capita income, and growth rates are at the lowest in all of its surrounding states, only Afghanistan which is a war-torn state.
Unemployment and inflation are the highest in the region. Pakistan stands at 161 out of 185 countries in the Human Development Index. Last year, Pakistan was faced with an unprecedented flood, which left many devastated. Many of the districts that were hit by this flood were the ones that were among the most vulnerable. This flood is to be blamed for the recent soaring inflation of the food staples.
The international study of the economic losses brought upon by the devastating flood last year exceeds $30 billion, it is also stated that the national poverty rate may increase from 3.7 to 4 percent, which might push between 8.4 million to 9.1 million below the poverty line. Although this was a natural disaster, still the economic conditions of Pakistan did not worsen overnight, in fact, it was the sour fruit of the careless and unintelligent policies and the state-led decisions that brought us to this point.
The key reason for the economic downfall is the country’s fiscal deficit. The reason for the fiscal deficit getting wide and wide is the non collection or below the intended collection of tax. Pakistan needs to widen its tax base in order to get out of this predicament, but it also needs to balance it to make it fair, as it is burdening the manufacturers while the service sector is taxed quite low.
As the manufacturing sector is taxed unjustly, the industry will shut down, and as it was stated before, without production or without output, the states will not survive. These unjust tax burdens discourage industrial growth, firstly, it will prevent a new industry from starting, and secondly, it will halt the growth and expansion of the existing industries. To overcome all of these issues so that Pakistan can have a better economic life, the following must be done. The fiscal deficit needs to be reduced, along with the reduction of fiscal deficit by having a balanced tax collection. Along with it Pakistan needs to improve the governmental overspending and to minimize the wasteful expenditures.
There is less production, Pakistan focuses on imports rather than producing goods and then exporting them.
Due to this, Pakistan has been unable to earn, so it has to depend on loans from international institutions such as the IMF. Till December 2022, Pakistan is holding almost $216.3 billion in external debt which is many different lenders.
To overcome the above-mentioned issues there is a lot of work to be done, we first have to work on human capital development through education and skills development, the quality of education should meet international standards as it will let us compete with modern economics. We need to teach moral values so that people work honestly, we need to overcome the export deficit and need to increase our exports, we need to encourage export oriented industries, and we need to increase our production as well.
Furthermore, there should be trade agreements with other states, we also need to promote domestic businesses and attract foreign investment by having relaxed regulations and easy procedures so that more and more businesses develop, which in turn will increase employment. The state of Pakistan needs also to prioritize the development of infrastructure that includes the energy sector, the roads, etc. As in the beginning, it was stated that we are an agrarian state we need to boost agriculture productivity as it will increase the farmers’ income, which in turn will decrease the poverty of the rural residents.
Reforms should be made in farming techniques, irrigation systems should be enhanced, and there should be research centers that work to make the agriculture sector prosper.
Pakistan needs to lead a multi-pronged approach; it needs to increase its exports, invite foreign investment through better policies, develop better infrastructure, set financial solutions or reforms, betterment of the agriculture sector, and the most that it needs to work on is the improvement of human capital. All these reforms will improve the standard of living of the common people of Pakistan.
The author is an International Relations scholar at Minhaj University Lahore, specializing in Foreign Policy Analysis, Strategic Studies, and Maritime Research. With a keen interest in understanding global dynamics, the author brings a unique perspective to these fields, contributing valuable insights to the discourse on international affairs.