Recently we celebrated the 75th anniversary of our independence with a lot of fervor and enthusiasm. Do our national aspirations and claims commensurate with our policies and actions and are we treading on the right path that can lead us to the destination of economic prosperity and stability in the near future? The answers to these and other questions unfortunately compel us to seriously rethink our national priorities and economic direction. Political instability coupled with an economic meltdown is adversely impacting the foundations of our survival as nation-states in the future.
Our national pride and independence primarily hinge upon the level of economic growth and prosperity. A country like India which got independence from us in 1947 has already joined the club of trillion-dollar economies and is pursuing the target of becoming a 5 trillion economy by 2028-29. Bangladesh, which became an independent country in 1971 has surpassed us in the process of wealth creation as the total Gross Domestic Product (GDP) of Bangladesh is $411 billion, compared to Pakistan’s GDP of $347 billion.
The economy of Pakistan is confronted with several structural issues the gravity of which poses serious risks for the smooth and effective running of our economy as they have a direct bearing on its overall economic performance. The ability of our government to effectively provide public goods and services, to support an environment that can generate jobs and growth, reduce poverty, address market failures, and engage people in the process of decision-making need to be strengthened. The various economic challenges of Pakistan could broadly be categorized into areas of macroeconomic stability, governance, and trust between the public and private sectors and the citizenry at large. The GDP growth in the country is the result of effective interaction between these areas. However, governance is a lynchpin and critical factor that could meaningfully contribute to shaping an economy because the impact of effective governance also contributes to the improvement of overall macroeconomic stability and public trust in a country’s institutions.
Good governance is a precondition for economic growth and development as it can lead to the improvement in public sector efficiency and effectiveness as well as trust from its citizens. Governance is considered “how power is exercised in the management of a country’s economic and social resources for development”. Good governance is all about institutional rule of law, transparency, accountability, equity, predictability, participation, collective well-being, and openness. Our public and private economic and administrative institutions are operating in a very challenging environment in which the emerging “destructive technologies” have redefined the ethos of our work. Stereotyped and old-fashioned working procedures and practices are becoming irrelevant. This is an age in which both quick professional decision-making and efficient implementation play a key role in promoting economic growth in Pakistan. Our government institutions must learn to reform their systems so that they can address the issues of the business community and public at large in a just, equitable, and transparent manner. We have seen that our institutional compliance regime to law, rules, and controls has been quite weak which created a lot of distortions, discontent, and inequities in our system. Even the decision-making and implementation processes of our infrastructure development, economic, financial, and social sectors institutions remained flawed and at times they could not protect the interest of the common man effectively. The lopsided decision-making and inefficient implementation have adversely affected the pace of our economic growth. Our public expenditure management regime also failed to generate the desired fiscal control which is a must for the economic development of the country.
The economic challenges facing Pakistan are too large to be tackled by public institutions. All stakeholders like the government, civil society, private sector, and others would have to contribute towards the realization of economic prosperity in Pakistan. The private sector plays its role as the engine of growth, revenue generation, poverty reduction, and job creation. It is the responsibility of the government to create and ensure a conducive environment that could enable the private sector to gear up the development process in different sectors of the economy. The role that the private sector plays in development is also broadening from the conventional approach of supporting economic development to more “inclusive and elaborate public-private partnerships”.
The conventional role of the private sector is now not limited to financing and investment, but the inclusion of Information Technology in the development process has expanded to contributions like innovative capacities, skilled human resources, and technical know-how. There is a variety of ways through which government creates an enabling and conducive business environment for the private sector the list may include on the one hand financial, tax and commerce (export-import) and other policy and regulatory interventions and on the other hand, developing physical infrastructure and establish efficient government systems and controls to achieve the strategic national objectives of macroeconomic stability, fiscal discipline, and economic growth. Success and attainment of all these government objectives are directly linked to good governance, meaning thereby, how transparently, fairly, effectively, and equitably the government policies and programs have been planned, formulated, and implemented. We have heard the outcry of the taxpayers regarding regressive tax regimes and many other sectors like agriculture and manufacturing and services about deficient or short-sighted policies serving the interests of particular vested interest groups in the country. The over-regulated regime in Pakistan has also taken its toll on economic activity which has discouraged prospective and potential investors.
Corruption proved to be a daunting challenge not only for our effective governance but has also eroded the public trust and efficiency of our work culture. In addition, “corruption increases transaction costs as well as disruption of contracts and property rights”. We also need to look at our economic growth issues from a political perspective because our decision-making institutions like parliament, Cabinet, ECC, and ECNEC are predominantly represented by the elite classes coming from agricultural, industrial, and commercial sectors, therefore, “politically-connected economic elites have established monopolies e.g. in fuel, transport, food and construction sectors forcing or intimidating smaller players”.
Recently in Pakistan, we witnessed huge scams in sectors like sugar, wheat, petroleum, real estate and public procurements, etc where tons of public funds were siphoned off and the main reasons for this were imprudent public policies and flawed decision-making, and weak oversight by ECC and Cabinet. More the patronage of vested political interest, the higher would-be distortions in the economy which would shy away the public investment from productive sectors resulting in a “lack of trust between government and private sector”. Inefficiencies and hurdles in our legal system have also contributed to discouraging investors and foreign firms to invest in Pakistan which affects our economic growth.
To gear up the pace of economic growth in the country a robust reform agenda is needed that should redesign and overhaul our institutional functioning by eliminating old and archaic systems, rules, and procedures to provide flexibility to public officials in the discharge of their functions through IT solutions. The size of the government has to be rationalized and the present system of pension needs to be replaced by creating pension funds to reduce government liability on this account.
The state should not be engaged directly in running commercial and business activities and a pragmatic plan would have to be worked out either to privatize or disinvest shareholding along with transfer of management of the loss-making state-owned enterprises. The state’s role as a Regulator should be enhanced and made more effective through increased monitoring, guidance, and corrective measures. The pace of our economic growth resulting in poverty reduction, job creation, boosting productivity levels, and bringing benefits across society could be possible while rebalancing our economy towards more productive and emerging sectors like IT and Services. Rule of law and accountability of both public and private sectors needs to be improved while strengthening regulators and oversight bodies for better transparency and accountability in the country.
Our chronic budget and current account deficit issues need to be tackled by tightening fiscal discipline and boosting our foreign exchange earnings through increasing value-added exports and attracting more foreign direct investment and remittances. There is a need to revamp and strengthen our agricultural and industrial sectors with the use of better technologies and modern practices. A fundamental shift in our taxation system from a regressive tax regime towards a progressive system would go a long way in the generation of revenue. To protect the poor and underprivileged segments of society social safety nets are strengthened and expanded. Economic growth demands an efficient, transparent, and responsive governance system that could provide the private sector and the general public an assurance that a level playing field is available to everyone to be able to reap the fruits of progress. Pakistan needs at least 7% annual GDP growth for the next five years to come out of our present economic quagmire and for this political stability and consistency in policies is a basic prerequisite.