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Economic dilemma

Published Jan 23, 2017 02:31am


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THE latest available Pakistan Standard of Living Measurement Survey asked households to compare their economic situation in 2014-15 with the previous year. Thirty-seven per cent of the households reported, their economic situation as ‘worse’ or ‘much worse’, 44pc reported ‘no change’; only 19pc reported ‘better’ or ‘much better’. If even half the perceptions are true, the situation is worrisome.

The people’s economic situation improves with growth of the economy and the wide dispersal of the benefits of this growth. Pakistan’s economy is in dire need of a boost. But without addressing structural issues, ad hoc policy measures such as export packages, cutting interest rates and a public expenditure boom will have limited success.

The World Economic Forum computes the Global Competitiveness Index annually. The GCI for 2014-15 has been computed for 138 countries using 120 indicators. The index accounts for a large number of variables that directly or indirectly influence an economy’s long-term potential. Pakistan’s ranking on various elements of the GCI highlights the structural issues the economy faces.

Structural issues must be sorted out for economic growth.

The policy of cutting the interest rate assumes that lower rates will induce businessmen to borrow more and therefore produce more. However, banks lend only if they can recover their money. What if a borrower enjoying the means to pay back refuses to do so? The banks expect the courts to come to their rescue. With Pakistan ranking 103rd on the ‘efficiency of legal framework’, can we expect that the legal framework will deliver? Disappointed with its performance, banks erected barriers to access to finance. No wonder Pakistan ranks 95th on ease of access to finance.

Much of the credit to private businesses goes to the manufacturing sector, which contributes just 21pc to GDP. The services sector contributing about 60pc to GDP borrows much less. Why? We at PIDE surveyed 300 small retailers in Rawalpindi for a study on entrepreneurship. The survey reveals that 37pc of retailers do not have a bank account and the majority has less than 10 years of schooling. Should we expect those who do not even maintain a bank account to be able to negotiate a bank loan? It is the literacy level of the entrepreneurs that limits their demand for bank loans and hence investment options.

The government may itself invest in the economy in a big way or subsidised different inputs. Will such a fiscal stimulus boost growth? Yes, but only if public money is actually put to the intended use. Pakistan ranks 102nd on ‘wastefulness of government expenditures’ — can we expect the entire sum to be put to the intended use? Our 135th position in ‘efficient use of talent’ and 95th in the ‘relationship between pay and productivity’ categories makes effective utilisation even more suspect. Finally, ranking 117 out of 167 on the corruption perception index computed by Transparency International, it appears that part of the money may end up in the likes of Swiss banks. Clearly, fiscal stimulus is unlikely to be very effective.

No developed economy relies entirely on its own talent. It is their capacity to attract talent from abroad that has made developed economies what they are. We rank 110th on the ‘capacity to attract talent’ — can we hope to attract the talent required to grow economically? Pakistan ranks 126th when it comes to reliability of police services — entrepreneurs have to hire private security services to guard their income and assets. This increases cost and decreases competitiveness.

Countries that grow fast make sufficient use of technology. Pakistan ranks 114th on technological readiness — our use of technology remains well below what characterises high-growth economies.

No entrepreneur can handle unlimited work himself. It is the delegation of tasks that generates greater output. Pakistan ranks 115th on the willingness to delegate — are we delegating enough to make us grow fast?

Slashing interest rates and a public expenditure boom can boost economic activity. To realise this potential, structural issues such as efficiency of the legal framework, the state of law and order, the quantity and quality of schooling, the capacity and efficiency of public employees, leakages of money from government, technological readiness and willingness to delegate, etc must be addressed.

Addressing structural issues calls for a long-term perspective. However, the vision of politicians extends only to the next election, ie a maximum of five years. Reason: a road project begun today will be operational in a few years and therefore yield votes. But a child enrolled in grade one today will only be in the sixth grade five years later. This conflict between political objectives and the economy’s long-term needs is a dilemma we need to resolve. The solution lies in having intuitions that curb myopic policies.

The writer is a researcher at the Pakistan Institute of Development Economics.

Twitter: @khawaja_idrees

Published in Dawn, January 23rd, 2017

The views expressed by this writer and commenters below do not necessarily reflect the views and policies of the Dawn Media Group.

Comments (14) Closed

Khaled Jan 23, 2017 08:29am

It is definitely 'worrisome', but why the politicians and people running the government, so insensitive? What are there priorities?

MNH Jan 23, 2017 09:15am

All know all. Who is to bell the cat?

Shahnawaz Jan 23, 2017 09:57am

I have read your article here in our Pakistan there is some Islamic problems to open Acount in the banks just like saving account we just say it profit on our store of money in the bank so it is called in islam (sood) and any Muslim can't accept it And in our Pakistan peoples are very poor or middle class so when they earn any loan from the bank or any shop keeper they are not the state on pay the same loan to return bank or shop keeper So I tried many peoples here but they didnot return their loans to me which is without any interest So I sugges the govt that they should make banks provide loan without any interest Here many banks provide loans just like Asia bank safco bank micro finance sachal sami many more but they provide loan on first time only 10,000 but they recover 12,500 So what kind of business we can start on 10,000

Fudayl Zubaid Ahmad Jan 23, 2017 11:13am

Nice article, but whether the living standard has improved or not, is a matter of perception. The real indicator of changes in living standards would be through purchase of durable assets by households. But having said that, perceptions have to be be evaluated too.

Salman Ahmed Shaikh Jan 23, 2017 11:30am

Excellent article. Very well summed up. This shows we need an academic understanding to make sense of policies and make better ones.

Fahad Jan 23, 2017 11:51am

I have read the complete article expecting to see some form of in-depth analysis to the economic and structural problems that our nation faces but I was denied that painful pleasure. I hope next time you'll be able to focus more on your economic research, comparison, analysis (as a PIDE researcher) and opinion rather than give us the who's who of failed nation top 10.I respect your work, and you might have intense research skills, but as a fellow economist i think we need to find solutions for the problems we list down rather than become the flag bearer for cynicism in an already suffering nation. Thank You All the Best sir!

miraj uddin Jan 23, 2017 01:41pm

Articulated Sir!

IZhar Jan 23, 2017 04:41pm

A well written article. But why we need a developed Pakistan? We are not developing nation, rather under developing nation, lets not compare ourselves with others; rather set our priorities and work for them with Focus. What we should focus on 1) providing clean drinking water to all 2)quality free education to 100% up to Metric level 3) Low cost Quality health facilities through government hospitals 4) law and order system (Police) and 5) availability of free justice (Courts). I believe the development will pave its way by itself.

Asma Tanoli Jan 23, 2017 05:44pm

Very well-written. These are the areas where the government has to concentrate rather than just building roads. Our Minister for reforms is not interested in any reforms. If all the Ministers were to show just three areas where they have done any reforms, we would not be where we are.

Asad Jan 23, 2017 05:52pm

Structural reforms are key. Reading Pakistan history that spans around 69 years, we can conclude that the 'opportunity cost' of myopic political objectives is our 'present political economic & social' situation. It must be emphasized that along with Institutions we need to choose better/competent leaders. An authentic 'Enlightenment' across political, economic and sociological spheres of life is prerequisite for positive change and betterment.

BAXAR Jan 23, 2017 06:12pm

Nations develop when they eliminate the "need" of wealth for common man. The need of wealth is created because genuine needs are expensive. People don't need to be wealthy for food, dress and housing. But health, education and transport pushes you to get wealthy, and automatically corrupt. If the state works to provide these 3 services, it eliminates 90% of wealth seekers. The remaining 10% can easily be handled. Reduced corruption means increased development. Look at the most developed nations, the same pattern will appear. But of course you need to work for it.

China-Beijing Jan 24, 2017 03:27am


Don't be so harsh. Pointing out problems and presenting solutions are BOTH important, and pointing out problems is even more important, because that's the very first step in problem solving.

Idrees Jan 24, 2017 09:40pm


Than you for feedback. The article ends with a solution: have institutions that myopic policies. Secondly, this article has to be done in 800 words and to make it understandable for non-economists it has to kept jargon free.

Idrees Jan 24, 2017 11:06pm


Solution is mentioned in last paragraph: have institutions that curb myopic policies. Moreover this article has to be done in 800 words and to make it understandable for non-economist reader it has to be kept jargon free.