Here’s Why Pakistan’s Pattern Of Economic Growth Is Unsustainable
Pakistan witnessed a -0.4 per cent GDP in the fiscal year 2019-20. The Covid situation has only exacerbated the perennial economic chaos that the country has been witnessing for the past seven decades. Huge fiscal and trade deficits follow a period of artificial economic growth after which the country has to seek bail-outs from international financial institutions which come with their own set of policy compulsions.
Institutional inefficiency, rent-seeking elites, skewed land distribution patterns and limited resource base have plagued Pakistan’s economy for the past seven decades.
Acemoglu, in his book Why Nations Fail? argues that the countries having efficient institutions have high per capita incomes as compared to the ones in which institutions are of extractive nature. Francis Fukuyama also posits the idea that countries having an impartial bureaucratic structure have greater chances of achieving sustained economic growth.
Pakistan inherited a colonial state structure with military being the most powerful and organised institution followed by bureaucracy. There was no leader who could fill in the shoes of Quaid-e-Azam Jinnah. The land owning elite of the upper Indus delta occupied important positions in the setup of the new country. Previously, these elites supported the colonizers and now, they were lending their shoulder to block any attempt at shifting the locus of power to the people.
The military-bureaucracy complex blocked every move that attempted to shift power from their hands. The first constituent assembly was dissolved by Ghulam Muhammad days before it went onto enact the first constitution of the country. The political economy of the newly established state was unstable. Seven Prime Ministers were shown the door and this tumultuous process culminated with the imposition of first martial law in 1958.
Ayub Khan’s economic vision created great disparities in the Pakistani society. A handful of friends enjoyed state patronage in the form of protectionism, import tariffs and subsidies. The domestic market was opened for these industrialists without any competition from the outside world. Resultantly, the handful of industrialist amassed great sums of wealth.
The period (1960-73) witnessed high GDP growth (6.3 pc annually). The absence of redistributive policies widened the gap between the haves and haves not which culminated with the separation of East Pakistan.
Then came the Bhutto government harping on the idea of Islamic socialism. In a span of two years the government nationalised most of the industries. As a result, the resource base of the state increased and it distributed them among its supporters. The state institutions were destroyed through politically motivated recruitment. The private investor was discouraged consequently the naïve industrial base eroded with the onset of nationalisation.
Although Bhutto’s government tried to initiate land reforms, but the skewed distribution land patterns were not abolished. The big landlords use land to seek economic and political clout through its skewed distribution. The small farmers having no access to interest free credit and adequate water to irrigate their fields are at the mercy of these big landlords.
The per acre yield of the crop is decreasing due to large landholdings. It has robbed Pakistan of its food security. The recent decision by the government to import 270,000 million tons of wheat is a case in point.
Manufacturing sector is the backbone of any country. The export led growth of Southeast Asian nations is a visible manifestation of this idea. The export sector is mostly based on low cost goods like textiles and sports goods which do not earn adequate foreign exchange for the country. The dearth of technology intensive goods in Pakistan’s export portfolio has made us a consumption based economy. The foreign exchange earned through exports in not enough to pay our import bill. As a result, balance of payment crisis remains a perennial threat to our economy. The industries are not willing to invest in automation and incorporate modern technologies into their supply chains which have made it difficult for them to compete in the international market.
The patron client relationship with the US has also hurt Pakistan economic prospects. Unlike India, which built economic ties with regional and international powers, Pakistan mostly developed the relationship based on short term agendas. Zia’s regime provided arsenal to the American forces to fight the Soviet Union in Afghanistan but as soon as the fight was over, the American government disbanded Pakistan. The artificial growth that was achieved due to huge influx of dollars soon vanished. Similarly, the Coalition Support Fund (CSF) during the Musharraf regime helped Pakistan to sustain a growth rate of above 6 pc during the first decade of 21st century. But the artificial edifice of growth soon collapsed as Americans started to withdraw these dollars.
The internal institutions were not developed to steer Pakistan out of these periods and again we started looking for a patron in the form of China Pakistan Economic Corridor (CPEC). The debt portfolio of CPEC increased our import bill. The export base could not sustain these massive imports and again we were knocking at the IMF doors in 2019.
These boom and bust cycles will continue to dwarf Pakistan’s growth prospects unless any government is willing to initiate meaningful institutional and constitutional reforms. Political gimmickry and populist ideas of Riyasat-e-Medina serve no value unless backed by informed decision making.