Debt-servicing has become the largest item of expenditure in the national budget and most of the loans that Pakistan is receiving help only to repay the old ones.
There is, therefore, a persistent demand in Pakistan to get rid of aid because it not only shackles the economy, it also puts a heavy premium on the freedom of action in the foreign affairs of the country.
It, however, cannot be denied that foreign aid has played a crucial role in the economic development of Pakistan, particularly in the expansion of industrial sector. Being a poor country, Pakistan could not accumulate surplus capital through mobilization of domestic resources. There were, therefore, heavy shortages of capital for investment purposes and to finance the import of essential industrial raw material, capital goods and machinery. The need of the industrial sector have been met by getting foreign assistance.
Foreign aid includes loans, credits and grants. The ratio of these foreign resources to one another depends upon the nature of political relationship between the donor and recipient country. Loans as compared to grants, carry high interest rates which lead to the accumulation of debts. During the last 30 years, Pakistan has accumulated an enormously large foreign debt without having developed the socio-economic infrastructure necessary to sustain a growth process which can help the country to reduce its dependence on foreign aid.
In another area, i.e. foreign trade, Pakistan is unable to finance its import bill through the mobilization of domestic resources or through earning foreign exchange on exports. It is because our imports far exceed our exports. Under these circumstances, Pakistan has no other option but to need foreign aid in the form of medium or long term loans because such an inflow of external financial resources help narrowing down both a saving-investment gap and an import-export imbalance.
Unfortunately, Pakistan cannot establish heavy industries due to financial constraints. Small industries cannot prosper in the absence of heavy industries, because heavy industry is the primary consumer of products of small industries. Medium size industries in Pakistan are faced with tough competition in the world market. All the developing countries of the world are processing only medium size industries due to lack of financial resources and it causes tough competition.
Besides, Pakistan’s exports are highly concentrated in few items/groups namely cotton, fish, leather, rice, synthetic textiles, wool, carpets and sports goods. Cotton group alone contributed an average 60.3 per cent to total exports. A poor cotton crop can seriously affect total export proceeds as it has been observed several times during the decade.
The government has taken a number of steps to expand exports. With a view to encouraging the exports, the government has provided a number of export incentives to the industrial sector; but in spite of these incentives, the exports are not picking up due to a number of factors. These include low productivity of the work force, lack of physical infrastructure and an environment marked by political instability.
The promotion of foreign investment for exports in technology based industries where Pakistan lagged needs to be aggressively pursued. A much-targeted approach. both in terms of industries and countries of origin may be helpful. Specifically, Pakistan needs to look to East Asian countries like Korea which have had enormous success in developing new exports but are now facing rising wages and are interested in establishing production bases abroad.
It is not possible for public sector to these objectives and goals without active participation of private sector. Fortunately, there is a clear consensus within the government that the private sector is pivotal for development because the state sector is seriously over extended financially, has become increasingly inefficient, and cannot provide effective leadership for modernizing the economy. While increased public investment in physical infrastructure and human capital will be needed, it is private sector investment (both domestic and foreign) which will be the engine of growth.
In short term to medium term, the private and public sector need to work jointly on defining and agreeing on policy goals and strategies in areas such as export development, modernization of agriculture and industry, skills development, legal and regulatory framework, an effective and elastic tax system and development of financial sector and capital markets.
The common ingredient of the higher growth is the innovations and new technology. It is obvious that dynamic researches are required for innovations. If we want to achieve the higher growth targets, we will have to create the links between the research organizations and industries. The technological innovations and new ideas in the field of economics have always played the significant role in the world economies. It happened in Germany, it is the secret of US economic growth, and it is the policy of Japanese economy. The industrial growth with the utilization of domestic labour and raw material is the common path of development. Similarly, the innovation is a path of industrial development. What is selling in the world trade market is ‘technology’. The share of technological innovations in the global trade is 72 per cent whereas in the case of Pakistan, high technology exports as a percentage of manufacture exports is only 3 per cent. It would be worthwhile to mention here high technology exports as a percentage of manufactures exports in respect of a few countries:
Japan: 39 pc, Israel: 30 pc, USA: 44 pc, Germany: 25 pc, UK: 40 pc, India: 10 pc, Pakistan: 3 pc.
Under these circumstances, it is extremely difficult for Pakistan to get its due share in the global trade market without technological advancement.
We all know that South Korea followed Pakistan’s development plan, succeeded in building industrial infrastructure and appeared on the world economic map as Asian Tiger. It is perhaps high time we follow economic role model of South Korea which is as under:
(a) establishment of large trading companies; (b) import substitutions; (c) fiscal and credit policy; (d) liaison between public and private sectors; (e) industrial concentration; (f) large national projects; (g) reliance on multinational corporations for technological imports.
I am positive that Pakistan has capacity and capability to enter the world trade market in a big way. We have already wasted much time and cannot do any more. The government should go all out to create the links between the research organizations and industries to achieve the higher growth targets. Besides, the government should make every possible effort to attract the multinational companies to invest in agriculture, oil and gas, small and medium enterprises, and IT sectors with a view to increasing production.