This article draws from my conversations and interviews with leading Pakistani economists and financial experts during the months of February and March 2024 – after the 8th February elections and ahead of the 24th IMF review.
Economist Haroon Sharif criticizes the political parties for merely making promises in their manifestoes; his claim is that none of the mainstream political parties have any actual economic plan. Overall, Pakistan has maintained a transactional approach towards economic matters, rather than pursuing any reforms in trade policy or enhancing regional trade liberalization. The current economic structure cannot generate economic opportunities for 250 million people. To alter this structure, Sharif suggested that we need to change the framework, which can only happen with a policy shift, not with the current transactional approach.
Former Finance Minister Dr. Salman Shah believes that international financial institutions like the IMF and World Bank, as well as Pakistan’s financial institutions, are responsible for this crisis. Additionally, successive governments, particularly the bureaucracy, are accountable for the poor design of the economy, which has inadvertently adopted an inward-looking attitude. Consequently, Pakistan lacks an export-oriented economy. We do not produce high-quality goods and services to cater to the international market.
The current economic structure cannot generate economic opportunities for 250 million people.
Among many other factors, our agricultural and industrial production lags behind the rest of the world, mainly due to the high energy cost – primarily electricity. In this regard, the Pakistan People’s Party played a vital role under Z.A. Bhutto in the 1970s by nationalizing industry, thus placing national production in the hands of the bureaucracy. Then, in the 1990s, under Benazir Bhutto's leadership introduced the IPPs and opposed the construction of dams. Consequently, we have nothing significant to export, and our imports have contributed to an increase in foreign debts. This cannot be remedied without taking drastic measures, including reducing the size of the government and transitioning to wider use of hydroelectric power.
This scenario begs the question – while our former economic managers knew all these things, why couldn’t they do much while at the steering wheel? Some ensuing revelations attempt to answer the question.
Dr. Pasha points out that three segments of society are the benefactors of the current economic system in Pakistan: agricultural landlords, real estate dealers, and big retailers. According to Dr. Pasha's research, only 1% of the landlords 'own 22% of the best and the nicest area in Pakistan ... the net income of this class is 1500 billion rupees… and they pay only 2 billion in tax.’ When he attempted to impose tax on individuals from these classes, he faced harassment. ‘The state has been captured by the elite,’ he laments.
Dr. Pasha insists on levying property tax and wealth tax, which was removed by Ishaq Dar when he became the finance minister in 1996. This gave a free hand to those who wanted to invest in buying plot files – exempting them from tax on the capital gains from property value over time. However, ‘especially for the elite, the capital gain tax is exempt.’
In Dr. Hasnain Javed's view, politicians, bureaucrats, property dealers, and retailers have coalesced into a cabal, prioritizing their own interests over the welfare of the common populace.
Similarly, the former Chairman of the Federal Board of Revenue (FBR), Shabbar Zaidi, revealed in his interview that out of nearly 2.5 million retailers, barely 200 thousand pay taxes. When he pressed hard on this matter during his time as Chairman FBR, he was assaulted by traders at the Sindh Governor House in Karachi. Zaidi bemoans that tax collectors cannot enter Lahore’s Hall Road or Azam Cloth Market. The retailers and traders expel officials from their markets. They act as goons. Retailers never deposit GST into the state treasury. This issue can be tackled by introducing a track and trace system. However, it must be outsourced for successful implementation – ensuring that the FBR stays out of it. The FBR has over 15 thousand redundant employees, and its officers are unwilling to deliver, which has paralyzed the system. Moreover, Zaidi reveals that black money is invested in either property files or gold. Approximately thirty-eight tons of gold are smuggled into Pakistan every year via sea routes, most of which is bought to hide black money.
Our regular commentator on economic and political affairs, Dr. Hasnain Javed, appears to have relinquished hope in the political leadership of the nation. In his view, politicians, bureaucrats, property dealers, and retailers have coalesced into a cabal, prioritizing their own interests over the welfare of the common populace. Those occupying seats in both parliament and government demonstrate neither an inclination nor the capability to address the economic challenges facing the country. They staunchly resist the entry of competent individuals based on merit. As a fervent advocate of meritocracy, Dr. Javed tirelessly implores for leadership from outside the current system to intervene and implement drastic, unconventional measures to rectify the economy.
In his extensive interview, Dr. Qaiser Bengali claims that in Pakistan, we have compromised national interest in favour of personal interest. He concludes that the main problems Pakistan faces are not economic, but criminally wrong decisions. Over the last 40 years, we have developed an economy where people prefer investing in the stock market, real estate, or imports. All these sectors are non-productive and contribute nothing to developing the national economy.
Despite their intellectual differences on policy matters, one thing is clear from the collective approach of these economists and financial experts – Pakistan’s economy operates without any direction or a concrete plan for the future.
Dr. Nadeem ul Haq, the Vice-Chancellor of the Pakistan Institute of Development Economics, adopts a rather harsh tone while commenting on the state of economic affairs in the country. From his opinions, one can infer that it is not merely a question of economics anymore. He holds the civil service structure and the attitude of the bureaucracy responsible for the disaster of Pakistan’s economic and financial institutions. ‘You dismantle Lord Macaulay’s imperialistic civil service structure, then see how this country gets on the road to progress,’ Dr. Haq says.
Despite their intellectual differences on policy matters, one thing is clear from the collective approach of these economists and financial experts – Pakistan’s economy operates without any direction or a concrete plan for the future. Economic planning ignores the needs of 60% of the population of Pakistan who are below the age of 22. To eliminate Pakistan's trade deficit, it needs to improve its quality of production, enabling Pakistani goods to enter a competitive international market.
For this to happen, two steps are imperative – improving the quality and capability of our human resources and creating an enabling environment for doing business. To achieve these, Pakistan needs to rethink and redesign its education policy, particularly in higher education, and eliminate red tape and bureaucratic hurdles.
One may also conclude from these interviews that the real problem lies outside the economic and financial framework. We are dealing with a dire economic situation, where our top economic managers have been assaulted, harassed, and intimidated. We are contending with a class of individuals who have held the country’s political economy hostage to protect their personal interests. It is a matter of ill-intentions and criminal attitudes among the elite – property developers, large retailers and businessmen, landlords, politicians, and members of the bureaucracy.
Therefore, the problem cannot be solved by mere intellectual exercises. In other words, our current malaise marks the end of economics in Pakistan; simple economic measures cannot resolve the issue. Instead, it requires handling with an iron fist, akin to dealing with criminals and thugs.