Enough has been said, written and read about the problems in the country. The blueprints are elementary in developmental economics textbooks. It doesn’t require rocket science knowledge to uplift a debt-stricken country with a GDP per capita of $1,700 to a more respectable $3,000 per capita.
While the economic solutions are plenty and multi-pronged but require political will and resolve. Hence, the much-needed economic turnaround has been delayed repeatedly. Policymakers — politicians and bureaucracy — have been catering to their self-interests, playing to the gallery and are bereft of novel economic ideas. Someone has to communicate that 1980s policies of basic infrastructure needs would not set the platform for high growth in the 2020s. There are several elephants in the room.
Firstly, the gas and energy sector. Power generation needs to avoid imported fuel at all costs. Import bill fluctuation, stemming from volatile oil and LNG prices, creates an unsustainable balance of payment crises for Pakistan. The focus needs to entirely shift towards low variable costs generators, such as nuclear, hydel, Thar coal, solar and wind. Indigenous Thar reserves are a mega powerhouse and a success story with tremendous economies of scale and deceleration of input costs.
Similarly, hydel with water storage is the need of yesterday. Many Pakistanis are already using cylinders for gas. People in the lowest income strata should be sold gas at cost and compensated with monetary compensation through Ehsaas or Benazir Income Support Programme.
This isn’t the 1980s (US funds for Afghanistan), 2002 (War on terror) or 2015-17 (oil prices crash) for Pakistan to expect external help
Secondly, hand over the electricity and gas distribution to the provinces and private sector (please). There is no (genuine) incentive for the discos to improve their performance, i.e. theft, recovery, line losses and smart metering. These employees have no significant monetary incentive to rampant corruption. Illegal kundas and kharchi concepts have paralysed the efficient system altogether.
In addition to incompetence, political patronage is a key ingredient to malfunctioning, leading to a heavy burden on the federal exchequer. Discos should be privatised and listed on the Pakistan Stock Exchange with employee stock ownership plans. Profits should be shared for the social development of the district, city and province.
Thirdly, energy exploration must be expedited on a war footing basis. The last decade has seen Pakistan’s production decrease from 4 billion cubic feet per day (bcfd) to approximately 3bcfd, while unconstrained demand is nearly north of 6-7bcfd. The top energy exploration companies have been trapped in circular debt due to the government’s unwillingness to recover costs — let the market function — and have been ignored with the advent of ever-mobile imported RLNG.
Even the latter has been stuck in limbo with no new RLNG import terminals set up due to the unavailability of pipeline capacity, which in turn is contingent upon Suis or geopolitically sensitive Russia-Pak North-South pipeline. The country is blessed with massive recoverable gas reserves, but those require constant exploration activities and cash-rich balance sheets of energy conglomerates.
Exports of $30bn are not enough to finance the country’s food and energy bills, let alone pay for machinery and raw materials
Fourthly, perennial ignorance and indifference towards the export sector have crippled the country’s ability to finance imports, constantly relying on overseas Pakistanis to support 230m people back home. Unsustainable energy policies — price and availability — coupled with constant currency volatility have kept the country’s export potential capped.
At 7 per cent of GDP, $30bn yearly exports are not enough to finance the country’s food and energy bills, let alone pay for machinery, raw material and intermediate goods. Admittedly, as a cheap labour-intensive economy, IT exports are a viable solution with the ability to scale 10x in less than five years.
Unfortunately, most top IT houses decry the skillset in the country as the country has failed to produce educational powerhouses enough to produce quality 50,000 graduates per year. Instead of constructing buildings and giving laptops, we need a systematic overhaul of the education sector to empower Pakistanis — especially women — with exportable skillsets.
Fifth, an adequate and fair taxation system is required that taxes the rich and relieves the poor. Pakistan’s lower to the middle class has been unequally shouldering the burden of the colossal failure of the tax collector to go for the rich. Sacred cows such as real estate, agriculture and traders can not be tinkered with owing to political interferences of powers that be.
Resultantly, the already squeezed middle class finds ways to apply for jobs abroad and migrate. Perhaps that’s what policymakers want — let skilled and unskilled labour go abroad and send dollars back.
All politicians — especially the economic managers — need to take an oath and give personal guarantees that an annual primary surplus of 1-2pc will be maintained for 10 years, failure to do so would render their leaders disqualified.
For the country to escape its self-inflicted Bermuda island that has swallowed the otherwise sustainable vehicles, pillars of the state need to get out of winter slumber blankets and see the economic frustration among the masses before it is too late to escape. Remember, this isn’t the 1980s (US funds for Afghanistan), 2002 (War on terror) and 2015-17 (oil prices crash). We are on our own. No more hand-holding. The hard work begins.
The writer is an independent economic analyst
Published in Dawn, The Business and Finance Weekly, January 23rd, 2023