Pakistan's Growing Economic Fragility |
Economic fragility in Pakistan reached a critical stage following the US–Israel attack on Iran on 28 February. It is not only the drastic escalation in oil prices but also the surge in the trade gap which tends to enhance the fragility of Pakistan’s economy. In terms of per capita income, economic growth rate, dwindling exports and low foreign exchange reserves, Pakistan is in dire straits.
According to the details, Pakistan’s economic fragility is reflected in its GDP growth rate, which is merely 3.1%, its HDI rank (out of 193), which is 168, per capita income of 1,812 US dollars, a poverty rate of 28.9%, an adult literacy rate of 60%, 25.2 million out-of-school children, and an unemployment rate for ages 15–24 of 12.8%.
These figures are the lowest in South Asia and correspond to the failure of governing elites to mitigate economic fragility. As mentioned earlier, Pakistan’s trade gap is more than 10 billion dollars, with diminishing exports and unimpressive foreign exchange reserves, with the State Bank holding only 16.5 billion dollars.
Following the war in the Persian Gulf and West Asia, its implications for Pakistan’s economy are severe. The sharp increase of Rs. 55 per litre in the price of oil and a 20% increase in the price of gas will lead to an escalation in inflation and the prices of essential commodities.
The rise in the cost of electricity and transportation will augment the plight of 250 million people in Pakistan.
When a country is economically fragile and, in almost 80 years of its existence, is unable to enhance the level of economic and social development, it means it has failed to ameliorate the quality of life of its people.
This includes providing access to clean and safe drinking water, better housing, and improved educational and health facilities. The bulk of the federal budget is used either to pay for external debt or to meet defence expenditures.
Hardly 20% of the amount is left to run the country’s administration and provide a share to provinces under the 18th Amendment. There is no money left to meet developmental expenditures, which results in excessive internal and external borrowing.
Growing dependence on the International Monetary Fund (IMF), World Bank, Asian Development Bank, and other multilateral aid-giving agencies, along with friendly countries, raises critical questions about the sovereignty of Pakistan.
There is no shortcut to extricating Pakistan from economic fragility unless the obstacles to achieving self-reliance and economic vibrancy are resolved
There is no shortcut to extricating Pakistan from economic fragility unless the obstacles to achieving self-reliance and economic vibrancy are resolved
When a country is economically fragile and dependent, it cannot ensure political stability, good governance, rule of law, or effectively deal with issues of violence and terrorism, particularly in the restive provinces of Balochistan and KPK.
Viewing Pakistan’s growing economic predicament, one can expect further escalation of anger and antagonism among the youth, flight of capital, and brain drain.
The war in the Persian Gulf and West Asia will further add to the economic woes of Pakistan. Placing the burden of the fallout of war on 250 million people will further strain the already tight economic capacity of the lower and middle classes.
A low tax-to-GDP ratio, rampant corruption, and nepotism also matter in dealing with unbearable economic challenges, namely the growing gap between income and expenditure, leading to excessive internal and external borrowing.
Earlier, oil-producing Arab countries and China used to bail out Pakistan from economic crises, but the war in the region tends to have a negative impact on the capacity of friendly countries to render such help.
Given the situation, what are the options for the governing elites of Pakistan to deal with issues which pose a great threat to the country’s economy and its survival? Will the austerity measures announced by the government help in dealing with economic fragility?
What will be the economic, political, and foreign policy implications of war in the Gulf and West Asia on Pakistan, and to what extent can the domino effect of war on 250 million people of this country be effectively neutralised?
One needs to analyse the fragility of Pakistan’s economy from three dimensions.
First, the political will, determination, capacity, and capability of those who are running the state in dealing with the growing economic challenges mentioned above.
In retrospect, one needs to examine how Pakistan has failed in the past to deal with economic crises and has followed the same pattern of not giving priority to enhancing its GDP, per capita income, exports, and foreign exchange reserves.
As the fifth-largest country in terms of demography, Pakistan is grappling with a population explosion, and its policymakers remain oblivious to taking firm measures to generate adequate resources to meet the requirements of 250 million people.
This is particularly relevant in terms of health, medical, educational, and employment needs.
When those who matter are not ready to go beyond their comfort zones and instead pass the economic burden on to the common people, the present and future of Pakistan cannot be different from its past.
An elitist culture and a growing gap between rich and poor can only add to the existing economic predicament.
Second, unless there is ownership, political will, commitment, and determination among those who wield power, there cannot be light at the end of the tunnel.
When electricity, gas, and petroleum prices are beyond the reach of the common person, how can one expect Pakistan to meet its internal and external challenges?
The only space one can see in Pakistan’s economy is in the form of remittances, which amount to around 30 billion dollars a year.
However, this is not a permanent source of income and is under serious threat due to the war in the Gulf and West Asia.
Unless plausible efforts are made to increase Pakistan’s exports to 100 billion dollars within three years, raise per capita income to 3,000 dollars within two years, and increase foreign exchange reserves to 100 billion dollars within three years, Pakistan cannot overcome its economic vulnerability and fragility.
As a result of its failure to put the economy back on track, Pakistan has not been able to deal with issues of political stability, bad governance, corruption, nepotism, youth frustration, violence, and terrorism.
Had the priority of those wielding power been to transform Pakistan from a poor and underdeveloped country into a welfare state, things would have been better.
Finally, there is no shortcut to extricating Pakistan from economic fragility unless the obstacles to achieving self-reliance and economic vibrancy are resolved.
One must bear in mind the fact that nations are not built through mere rhetoric; they are transformed from fragile states into strong ones only when leadership is committed, hardworking, honest, intelligent, and efficient.
Cosmetic measures and rhetoric alone cannot bring real progress.
Pakistan’s predicament is not the lack of material and mineral resources but the absence of human resources capable of playing a leadership role in transforming the country into a sovereign state that is not dependent on foreign sources for its economic survival.
The present phase of crisis emanating from the war in the Gulf is both an opportunity and a challenge.