A country’s economy or economic progress is an integrated model based on multiple factors, which complement each other for the overall economic development. Almost all developed countries – from the Asian Tigers to the EU and China – worked on one principle to achieve economic growth and that was to optimise and utilise their resources in the best interest of their nations.
Pakistan is a case in point whose perpetual financial crisis could be described as ‘the metaverse of the paradox of economic development’. There is a historical background of this straitjacketed economic development.
The country’s real potential for development could not be achieved due to multiple factors ranging from its inconsistent economic policies to its never-ending political instability. In the first two decades since 1947 – until the end of the 1960s –the country’s macroeconomic indicators looked impressive, achieving one of the five stages of economic development at the international level. Although this period was marred by political transitions – which resulted in the disintegration of Pakistan in 1971 – economic growth during this period was remarkable. This was the time when the famous 22 families who controlled over 66 percent of the national resources got prominence, which created feelings of interregional and interpersonal inequality and disparity, causing political damage to the very existence of Pakistan.
The economic period of the first martial law administrator, Ayub Khan, marked ‘the green revolution’ and industrialisation in almost all sectors of the economy. It was branded as the lopsided economic growth in the favour of erstwhile West Pakistan, increasing anger among the people of then East Pakistan. But the overall economic growth was about six percent and the industrial sector grew up to the annual average of 10 percent. The country’s export voucher scheme enhanced the exports sector.
Also, the agriculture sector flourished as the country built two dams – Tarbela Dam and Mangla Dam – with a vast network of water distributaries in the form of a canal system, irrigating almost all of West Pakistan except Balochistan, which, at that time, was a sparsely populated, vast barren area. Ayub Khan was ousted through a strong political movement led by Zulfikar Ali Bhutto in the late 1960s, but he handed over the government to General Yahya Khan, who is considered responsible for the fall of Dhaka in 1971.
The country’s economic progress and development were negatively affected during the 1970s when ZA Bhutto got power after the fall of Dhaka in 1971. His nationalisation policy caused a drastic decline in economic growth and the average growth rate slid down to four percent. Economic growth in the public sector considerably slowed down as state-owned enterprises (SOEs) badly suffered from inefficiency and lack of competitiveness.
The whole process was reversed in 1977 when the third martial law administrator assumed power and this was another political transition. The private sector was revived with the help of private investors. Old industrialists were offered their industrial undertakings on favourable terms and conditions. The political dispensation created a sort of polarisation in the nation once again. The country’s economic growth was satisfactory due to multiple factors including the aid from the US for supporting it in the Soviet-Afghan war. And since it was a frontline state in the war, Pakistan got a lot of financial aid from the US and the West.
After the death of General Zia in 1988, the economic growth rate plummeted during the period of a civilian setup. The reasons were obvious. American and Western aid declined – rather stopped – soon after the withdrawal of the Russian forces from Afghanistan, resulting in slow economic growth, as the economy was heavily dependent on the clutches of the economic aid from the US and the Western world. In the 1990s, the much-needed economic reforms showed desirable results, but another political intervention came in when General Musharraf ousted the political government of Mian Nawaz Sharif in October 1999. Initially, the economic growth rate drastically dropped. Later, the 9/11 attacks took place in 2001, which proved to be a bane for Pakistan’s economy. The US and the West again sent financial aid to Pakistan for the ‘war on terror’; this time the fight was against those who were declared ‘freedom fighters’ at the time of the Russian invasion and now called terrorists.
But soon after the end of the Musharraf regime in 2008, the economy suffered another transition from military rule to a civilian setup. It started picking up during the Mian Nawaz Sharif government but his regime had to deal with internal political instability. His government completed its tenure in 2018. The growth rate at that time was around 5.6 percent which was quite impressive in the backdrop of the China-Pakistan Economic Corridor (CPEC). The current economic growth rate is also not as bad as is generally considered by the people worried by the tsunami of price hikes.
The downside of economic progress and growth which is being observed during the Imran Khan government is that the economy has to deal with high inflation and a large amount of debt; debt service payments eat up most of the revenues collected by the Federal Board of Revenue (FBR). The current macroeconomic indicators are not encouraging either. The monetary policy seems inconsistent, and the fiscal policy is unable to respond to real issues, especially after the Covid-19 pandemic. The Pakistani currency is fast depreciating, apparently because of the policies pushed by the International Monetary Fund (IMF) reforms package.
The State Bank of Pakistan’s (SBP’s) high interest rates are discouraging investment in the country; the country is dealing with cost-push inflation owing to the imports of necessary items like oil, food, etc, which are vital for economic growth – this inflation is not triggered by the money supply factor. The current progress of CPEC projects is rather unsatisfactory due to unknown reasons – financial or otherwise. The security situation is also a concerning factor, resulting in the drastic decline of foreign direct investment (FDI).
A billion-dollar question is: how should the country address the economic woes and plight of the poor suffering due to the government’s poor economic policies, which are hindering the country’s economic development? The country has plenty of resources – best weather patterns, cheap labour, and an abundance of minerals and natural resources – but even then, it is facing bad economic conditions due to several factors right from low human development to large population growth, and it is not even close to achieving the Sustainable Development Goals (SDGs).
In the past, Pakistan missed the Millennium Development Goals (MDGs), and it is now destined to miss the SDGs unless it adopts the right economic policies and choices. The ultimate goal of economic development will remain elusive without adopting the right set of economic policy initiatives and getting rid of the debt burden. The country’s straitjacketed economic development needs to be looked at through the lens of the past economic growth cycles.Hassan Baig, "Progress paradoxes," The News. 2022-02-25.
Keywords: Economics , Economic growth , Economic reforms , Economic development , Imports , Exports , Revenue , PM Imran Khan , Gen Ayub Khan , China , Pakistan , CPEC , FBR , FDI