Import substitution is a racket, says Miftah Ismail

Published March 6, 2022
Panellists speak at a discussion on ‘Pakistan’s Economic Journey: Expecting Miracles’ at the 13th Karachi Literature Festival on Saturday.—Photo by Fahim Siddiqi/White Star
Panellists speak at a discussion on ‘Pakistan’s Economic Journey: Expecting Miracles’ at the 13th Karachi Literature Festival on Saturday.—Photo by Fahim Siddiqi/White Star

KARACHI: Former finance minister Miftah Ismail said on Saturday import substitution is a racket that Pakistani businesses run to enrich themselves at the cost of public funds.

Taking part in a panel discussion at the 13th Karachi Literature Festival, the PML-N general secretary said the government provides businesses with subsidised loans every year in the name of job creation and replacing imports with domestic production.

But cheap financing for expansion leads to higher imports, wider current account deficit and more devaluation. By the time the industrial capacity is added to the system, the resulting minimum-wage jobs are worth even less as the devaluation has already eaten into the purchasing power of ordinary workers, he said.

Participating in the discussion, former chief of the Federal Board of Revenue Shabbar Zaidi said Paki­stan is an “experiment” by imperial forces that failed in 1971 when its eastern wing became Bangladesh.

Shabbar Zaidi laments lack of ‘indigenous thinking’ on economic, social policy fronts

The renowned chartered accountant said the origin of all fundamental economic flaws is the absence of “indigenous thinking” in policymaking. “Who told you to set up car plants?” he asked, rhetorically, about the current account deficit that resurfaced in 2019-20 partly because of auto-related imports.

“We’ve rarely devised any economic or social policy based on indigenous thinking. We suffer from a slave mentality,” he said.

Mr Zaidi called for depoliticising economic planning, saying that such decisions must not be made for political reasons. Economic seclusion comes at a heavy price as regional trade is necessary for growth, he said. In terms of civilisation, he noted, Pakistan was part of India, not Iran or Afghanistan.

“Pakistan cannot live off of geopolitical bhatta geeri [extortion] in the name of Seato, Cento, Afghan war, war-on-terror or Russian-Ukraine war,” he said.

Responding to Mr Zaidi’s view about separating development from politics, economist Dr Kaiser Bengali said every economic decision has a “distributional impact” with real-time consequences for the general public. “Development is an inherently political process.”

He said the state built economic assets like dams, highways, factories and power stations until 1977 as economic development was its top priority. “Then we turned into a security state obsessed with waging wars inside and outside of Pakistan,” he said.

The annual development budget grew 21 per cent a year during the 1970s. It dropped to merely 2.7pc a year in the 1980s. At the same time, the annual increase in the defence budget went up from 2pc a year in the 1970s to 9pc a year in the 1980s. “We’re technically a bankrupt state... we borrow only to repay loans,” he said.

Saying that the country has a very small number of rich people, Dr Bengali said the government can’t keep on increasing indirect tax collection. “The only solution is reducing the non-combat defence expenditure.”

Published in Dawn, March 6th, 2022

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