Unemployment in Pakistan is soaring. About 6.65 million people are estimated to be unemployed in the fiscal year 2020-2021. Inflation is skyrocketing. The rate of inflation stood at 10.74 percent in 2020. Debts are ballooning. They have peaked to 87.2 percent of GDP in 2020. Budget deficit is widening. In 2020, it stood at 8.1 percent of the GDP. Imports are increasing and exports are shrinking so that Pakistan’s trade deficit has widened by up to 32 percent in December 2020. Foreign reserves are depleting and the per capita income has dwindled down to a meagre USD 1,284.7. In a nutshell, the entire economy is in the doldrums.
The obvious question in this situation is how to bring back the economy on the right track? Some realistic approaches have to be adopted while keeping in view the successes of other developing countries.
Firstly, Pakistan has to diversify its export base. Unfortunately, we are still relying on conventional exports like cotton, textile and food products. These account for up to 70 of our exports. Contrast this with Bangladesh, India and South Korea, who have diversified their export bases to services and industrial products, resulting in an improved growth rate in these countries.
Secondly, we have to invest in human capital and in research and development (R&D). Currently, Pakistan is spending very little on R&D, as compared with the other countries of the region, with the result that our labour productivity is extremely low while our costs are much higher than our regional competitors.
Thirdly, Pakistan is not tapping the potential of its female labour. The female labour participation in Thailand is 59 percent while in Pakistan, it is only 18 percent. Greater involvement of women in the labour force will drive economic growth. A recent study by the International Monetary Fund (IMF) estimated that Pakistan can increase its GDP by 30 percent by closing the gender gap.
Moreover, the elite capture of the economy is quite troublesome and needs to be dismantled. A progressive tax net should be established. Subsidies and other economic benefits should be provided on the basis of performance, and not of lobbying and pressure groups. Apart from this, the energy cost of Pakistan is extremely high and, according to an estimate, it is hampering the growth of the economy by 2 percent. A market-based energy strategy needs to be introduced, under which the government only plays its role as a facilitator and regulator. Furthermore, the tourism sector has a tremendous potential to boost the country’s economy. Pakistan can learn lessons in this regard from Switzerland, Nepal and some European countries in which the major share of their GDP comes from tourism.
There is also an urgent need to increase the saving-to-GDP rate above the threshold value of 20 percent. Presently, this ratio is only 14 percent. On the other hand, the debt-to-GDP ratio is extremely high and needs to be brought to a sustainable level urgently. This can be done by accruing revenues and expanding the tax base. In addition, fiscal deficit and current account deficit should be brought down. There is a need for vibrant policies to be adopted according to local needs. Simply copycatting developed countries will not help the economy.
Judicial reforms will also prove fruitful in GDP growth because at present there are no viable financial laws. Foreign and domestic investors have no assurance that their investment will be safe. Moreover, there is no need for the state to run enterprises. These need to be given to the private sector. The ease of doing businesses is another area which needs improvement. We can begin in this regard by reducing the red-tape which attends all kinds of activities associated with doing business in Pakistan.
By taking these steps earnestly, the country can truly tap its potential of high growth. There’s no reason why Pakistan can’t compete with its regional competitors if diligent and honest work is put into improving the various shortcomings that Pakistan currently suffers from.