Pakistan’s Quest For A New Economic Model

Will the incoming government dare to think differently about the same problems?

Pakistan’s Quest For A New Economic Model

While our national attention remains firmly fixed on the next week’s elections, Pakistan’s caretaker administration is quickly wrapping up a few loose ends. Perhaps the loosest of all is the Sisyphean task of privatising Pakistan International Airlines. Just on Friday, the caretaker administration stated that the process will be complete before next week’s polls, with the privatisation Minister proclaiming that 98% of the job was done. 

While the eagerness to privatise the state-owned white elephant is down to a combination of making the ends met with the IMF deal, as well as showing some economic victory to a desperate and anxious public, it remains a drop in the proverbial ocean. The truth, as always, remains inconvenient: what is really needed is not impulsive and superficial change but rather a well-thought-out structural overhaul, a new economic model. 

While all political parties have made economic progress a key element of their campaigning, they haven’t really suggested how we will emerge from this quagmire. We can’t forget that we still live in a country that was almost a year ago saved by the bell from defaulting, when other countries who were apparently doing better than us economically couldn’t do so: namely Sri Lanka, Ukraine, Venezuela, Greece, and Ecuador. Yes, we did narrowly escape but for how long can we continue the last-minute gimmicks that require us to pull a rabbit out of hat – be it getting out default temporarily or getting removed from the FATF list? 

A few reality checks first: We are a country that is facing multiple challenges with rising inflation, slow economic growth, diminishing foreign reserves, currency depreciation, food insecurity constricting external financing conditions, and escalating external debt. We are a country that is experiencing a youth demographic advantage but is not investing enough in them to cash out its dividends.  We have almost 2 million new individuals entering the job market every year and not enough dignified jobs being produced – unfortunately leading to brain drain. We have a budding informal industry – the Jadu ka Chirag (Magic Lamp) – that kept the economy afloat during COVID times in addition to commendable work done by the government. Needless to mention the magic lamp doesn’t do much good to the overall economy as the money keeps on floating but remains unaccounted for in taxes or in the formal system.

The amalgamation of these challenges reveals the bitter reality that Pakistan’s current economic model is undoubtedly ineffective – or at best is obsolete – requiring a new approach. We really don’t have much choice. We need to make some difficult decisions, but we need to make them fast, yet have solid planning and long-term sustainability logic attached to it. 

With the upcoming elections, an opportunity for fresh start arises. The looming question is that which economic model will pave the way for sustainable growth and prosperity for it? Is it State-led interventionist approach that focuses on government taking the lead in economic planning or ownership of enterprises, controlling production through subsidising or managing market competition? Or the market-led approach that denotes an open economy where the market operates without constraints with state having limited or no role, aligning with the principles of neoliberalism.

Pakistan has sequentially adopted both approaches; however, a definitive solution for the economy remains elusive so far.

State-led policies, for instance, have shown both successes and drawbacks, as evidenced in Pakistan’s experience. Pakistan adopted nationalist economic policy, particularly during the 1970s. That approach revealed both its virtues and shortcomings.

On the positive side, a widespread improvement was experienced in agriculture sector, with the subsidy, credit and price policies all supporting development, particularly for the small and medium scale farmers. Even the banking sector underwent a revolution and shifted from class banking to mass banking, extending its outreach to rural areas as well. 

On the negative side, the nationalisation of agro-industrial units, proved to be a disaster for economically and politically as it resulted in a flight of capital and entrepreneurs to other countries, and reduced private sector investment. The unplanned policies reflected short-sightedness resulting in a number of challenges faced by the nationalised State-Owned Enterprises (SOEs) such as inadequate planning, mismanagement and overstaffing, inappropriate and costly investments, and high debt and fiscal loses. 

Why didn’t this work for us? After all, states like Dubai and Singapore have served as examples of successful state-led modernist approaches, fostering progression and global integration. However, critics have argued that this approach disregards local knowledge and assumed homogeneity in third-world markets, leading to flawed development plans. Simply put, what works for one state, doesn’t necessary works for all.

The link between economic growth and democratic state development has also been challenged, with democratisation often preceding economic growth. Perhaps we need to learn from these countries and understand why this approach worked for them and not for countries like ours.

However, Pakistan didn’t shy away from jumping the bandwagon, as it soon adopted the neoliberal agenda, particularly as it got popular around the world. In Pakistan’s case, the market-led approach  has been implemented through distinct phases: briefly in 1960s, 1988-1999, 2000-2008, and 2009 to date. The current drive towards privatisation schemes (including PIA) is also rooted in this approach, as many states have believed in its potential to increase private sector investments, reduce administrative burdens and economic inefficiencies, distribute ownership, and generate revenue for the state.

Countries like Canada, Britain, France, Japan, Malaysia and Türkiye amongst other have cases of successful privatisation. Sri Lankan Telecom is an exemplary privatisation effort managed by the Japanese. 

Once again however, Pakistan yielded a mixed result containing both: a few successes and many pitfalls of privatisation. For instance, the focus on fiscal austerity and tight monetary policies under the structural adjustment programmes, raised concerns about their impact on public spending, welfare and employment.

Similarly, rapid switch to trade liberalization and focus on imports mostly led to dollar and resource outflows hampering the growth of domestic industries and increasing poverty. A detailed study, by the Asian Development Bank on post-privatisation units in Pakistan revealed only 16 out 79 exhibited improved performance, challenging the notion that privatisation leads to efficiency. Does it?

Yes, privatisation has its benefits, but privatisation of SOEs requires caution and planning, something that unfortunately has not been Pakistan’s forte. We are a passionate people who tend to embrace the latest trends without giving much heed to whether those trends are suitable for us “desi people” – or perhaps considering whether and if we can style them to make the effort worthwhile.

The premature privatisation without adequate economic analysis and planning in Pakistan revealed the dark side of this policy – that the private sector may not always guarantee efficiency, particularly when profit seeking takes precedence over social responsibility. This is not to say privatisation has not and cannot work in Pakistan, but to emphasise that there is a need for nuanced, context specific approach that prioritises economic analysis to understand the needs of each sector, institutional strengthening for monitoring and transparency, long-term sustainability and social welfare over mere ideological fervour to adopt privatisation.

The inadequacies of both models stem from their generalization and blind implementation without considering the specific conditions of individual countries. Perhaps there is no clear winner between the state-led and market-oriented approach to national development for Pakistan. The question arises “Why”? Are there gaps in planning or implementation? Or are these approaches just not meant for a country like Pakistan? 

The looming question then converts to: Is there an economic model, somewhere out there, that will pave the way for sustainable growth and prosperity in Pakistan? Perhaps yes. Though the answer is not a black and white one – more of grey. The grey is - there is a need for more customized approach, accounting for Pakistan’s background, resources, and internal and external conditions. It is time to rethink and re-strategise the model. The will of the state governance to make these much needed structural adjustments, even with short term pains, is critical. Conducting a non-partisan exhaustive historical performance analysis on “What Worked” “What Didn’t Work” and “Why” can be the first course of action by the newly elected government. 

This analysis may help us in discerning the most suitable and viable economic model for Pakistan for devising effective forward-looking national development strategy. There is a need for exploration of customised policies that distribute leadership roles strategically among development actors - state and market. 

However, will the incoming government dare to think differently or not – remains to be seen. Till then, the PIA privatization initiative we only hope is stemming out of well thought out decision and will be little more than an eyewash.

Meeran Jamal is a development economist working in the development sector for the past 10 years. The views are the writer’s own and do not reflect any other organisation’s position.