Improve, Modernize, And Diversify Pakistan’s Engines Of Growth. There’s No Other Way We Can Progress
Whatever way you try to understand it, Pakistan’s economy is a boom-bust economy. You add some fuel, push the throttle, the engine starts moving, picks up some acceleration, and sooner than later it starts heating up. It goes out of steam and sputters. You need to let it cool down and then wait for someone to provide a little more fuel or give it a push for restart. It meets the same fate after a while, and the story repeats itself. Why does it happen?
There are many analytical works which try to understand this phenomenon, and almost every research earmarks factors which make this boom-bust happen. Some arguments are painfully interesting.
For example, Pakistan’s investment conundrum is unique. The country gets increased supply of investment and official development assistance when the regional security situation requires it. If something is happening on its western borders, then the country can expect some economic and financial injection into its economic veins.
Likewise, there is a huge body of evidence that the country is a classic case of growth without development since it does everything except promoting conditions for human development to run along the path of sustained development. A part of such analyses also focuses on insufficient human capital formation to leverage productivity gains, and add to managerial competence needed for a complex and robust economic change.
Another body of research points towards weaknesses of economic and political governance and institutions which ultimately lead the economy into a pessimistic scene. During 1990s and the first decade of this century, most of the reforms tried to address these questions. The panacea was found in liberalization, stabilization, and privatization.
It is popularly known as Washington Consensus approaches to economic reforms. Such structural adjustments were known to have many economic and social side effects, but these were pushed forward since these were “shock therapies” administered to an ailing body.
However, despite such wide-ranging reforms towards liberalization of trade, industrial, financial, and investment regimes, despite privatization of public sector businesses, and despite stabilization through reduction of budget deficit, Pakistan’s economy is yet again in a difficult situation as it was in 2007-08 or before. It is again waiting for some messianic “package” from somewhere to sponsor a bailout.
The debate about various factors which impede our economic growth either being detrimental such as security situation, or simply not being effective and such as ineffective economic governance and political instability, is lengthy yet interesting.
However, what conclusions one draws from such debates are that Pakistan’s economic crisis is not superficial to say the least. It is deeper, structural, and multifaceted. What is at stake is the future of its population – their livelihoods, jobs, businesses, quality of life, social and personal security, and along with other things, already weak access to factors of human development such as health and education opportunities.
The challenges are enormous and greater must be realization and resolve to fight them out with full force. Ultimately, Pakistan needs growth with stability, inclusive and responsive economic governance, and emphasis on human development to leverage its trade and industry through science and technology.
For such economic intervention and change, the country needs high quality policy coordination amongst fiscal and monetary policies and support of social policies, especially those designed for social protection.
Last but not least, despite overcoming the challenge of inflation, declining economic output, and an almost evergreen balance of payment crisis, Pakistan needs to understand the importance of industrial policy which must be designed to improve, modernize, and diversify its engines of growth.
The country desperately needs to modernize its industrial and agriculture sectors with the application of modern technology along with facilitating agents of real economic change. These change agents are called firms run by resilient and hardworking entrepreneurs.
During the last many years, Pakistan has been heavily burdened with a stand-offish state which is not even supportive of business. Some even call it a predatory state which kills businesses and innovations through various means such as taxation structures, city development and commercial land allocation policies, and near absence of speedy formal commercial dispute resolution systems.
Although Pakistan has seen growth in the services sector, it hasn’t been able to champion the economic potential of high-end services such as health, education, and accounting. It has gained somehow on retail trade related services. However, it is insufficient to bring longer term economic change, and create enough jobs needed for social and economic stability.
If the debate can be summed up somewhere on the desired policy regime, it is this: Pakistan needs a well-coordinated industrial policy to address majority of its economic woes.
The author is associated with the IMPACT Research International www.impact.org.pk