Economic Crisis in Pakistan

In 21st century economy is taken as ‘Religion’. It is the blood in the veins of nation
state, vitality in the human muscles, base for brutal wars and a reason for
governments to rule. The motherland has painfully experienced rising poverty and
sinking economy; despite world’s best canal system, profitable geostrategic location,
and unexplored resources. The nation, who earned nuclear position despite miseable
poverty and sever foreign pressure, can do wonders, if provided with dedicated
leadership.

Present Scenario:

Pakistan’s economy is in a downward spiral. Inflation is at 25percent (food inflation

50%), foreign reserves are falling, and the government is in danger of defaulting on
its foreign debt. A spike in global food prices has hit Pakistanis especially hard, and
the global financial crisis only threatens to exacerbate Pakistan’s economic woes.
Pakistan is watching foreign investors flee.

Weak governance has contributed to growing militancy in Pakistan, economic

troubles, and regional instability. As in the past, the possibility remains that
Pakistan’s military could conduct a coup if it perceives the government as inept. Or
Pakistanis may rise up in protest due to the government’s inability to deal with
economic issues.

Pakistan economy is under its terrible crisis due to following REASONS

Ø One of the immediate causes is Political instability due to Musharaf’s position as
president, delay in restoring judiciary and resultantly withdrawal of PML (N) from the
alliance leaving behind ‘dead’ ministry of finance. In contrast the present
government is not showing strong will to cope with the situation. Though some
Positive Measures. To end Load Shedding till 14th August, 2009, Benazir income
Scheme programme, Distribution of Land in Sindh, tight Tariff System against luxury
items

Ø Suicide attacks in the industrial cities-fear among people, disinvestment and

maximum outflow of capital, especially in Dubai stock exchange crash.

Foreign investment in 2007 was $ 700,63.5 million but in 2008 only $329 million.

Ø Soaring oil prices due to increased demand from growing economics of China
and India, Iraq crisis, Iran holding its oil export, devaluation of Dollar after Iraq
invasion and limited supply by OPEC, refusal of Saudi Arabia to enhance its oil
supply. More population to use energy from to $ 134/ barrel in 2008.

Ø Food crisis oil prices, low agriculture yield due to heavy cost of production
(seeds, pesticides, water and fertilizers), unavailability of small loans to small
farmers, power shortage, fast increasing of population, poor governance in managing
the food and to stop its smuggling to Afghanistan. Central Asia and Iran which stored
big food stocks due to American war. World Food Crisis encouraged its smuggling.
Less attention by the governments to live stock, dairy stock, increased circulation of
paper currency. Big share of ‘Middle Man’.
Ø World Food Crisis: population explosion, emergence of middle class with more
food consumption in India and China. Low yield in India. Earthquake in China,
increase in world oil prices.

Ø ENERGY CRISIS:

Ø Inflation means price hike, huge gar between demand and supply, too many
rupees chasing too few things. More supply of Money due to; AID after 9/11. Foreign
Remittances due to over seas Pakistanis, growth in banking sector and investment in
real estate. Poor supply of goods, food items due to low yield. Inflation due to rise in
oil prices, food, removal of food subsidy, devaluation of Rupee, higher import price,
Government borrowing from State Bank Rs . 544 billion. Resultantly increase in
wage-price. Delay in monetary tightening by the State Bank. Government claims
25% while actual is 32% while food inflation is 45%

Ø Deceleration of growth in manufacturing: energy crisis. Terrorist incidents.

High interest rates by SBP discouraged Private investment. High imports and low
exports. 75 industrial units in Karachi and 85 in Faisalabad were closed due to
energy crisis.

Ø Fiscal deficit: 6.5% of GDP, target was 4%. Due to slippage in revenue and
expenditure- Dismal Growth; lower Tax collection. Heavy subsidy on oil effected
current expenditure, increased in development expenditure. Decline external
financing flows, so the government borrowed from SBP which caused monetary
expansion, continuous Defense Budget.

Poor tax system:

Only salaried persons pay regular tax, while the major sectors find safe path through
corruption. Agriculture tax cannot be imposed due to feudal in policy making.

Unilateral growth:

Production was not encouraged by the previous government, rather Pakistan was
made a consumer society, services sector was enhanced which created less jobs.

China factor:

Cheaper Chinese products destroyed our industry thus created unemployment, more
burdens on economy.

Illiterate labor: is less productive

Defence budget at the expense of economic development

Regional conflicts has marred the gas pipelines and usage of Gwadar.

Overpopulation at the rate of 1.9% is swallowing the resources

IMF loans hinder development and put burden on the masses.

 Positive Indicators:

Services sector expansion at 8.2%. Highest Sugarcane production 63.9% million.

Construction field, per capital income $ 1085.

Statistic:

GDP growth rate 5.8% investment declined to 21.6% of GDP. National savings to
13.9% of GDP.

Pragamatic Solutions:
· political commitment to formulate short term and long term policies with
consistency

· Levy of an excise duty on non-essential consumer goods to save foreign reserves

· Development of the agricultural income tax by the provinces

· Give priority to agriculture, water, power, health and education.

· Limiting the extent of govt borrowing from the State Bank of Pakistan

· Establish an independent Federal Bureau of Statistics headed by a professional that

directly reports to the Parliament and not to the govt.

· Establish independent panel of experts to engage in the consultative process in the

design, implementation and monitoring of donor supported projects critical to the
medium-term economic recovery. This will ensure transparency, rig our and
relevance.

· Given the multiple dimensions of uncertainty in the global, national and household
economy, it is essential that the highest priority for protection to the poor where
uncertainty can lead to irreversible damage-in the shape of high morbidity and
mortality, decline in the nutritional status of children and women, and withdrawal
from schools.

· An over-arching principle should be maximum leveraging of scarce public resources

by exploring all potential avenues for private partnership in the public development
program.

· A core structure weakness of the economy highlighted by the current crisis is the
lack of international competitiveness that retards an export-led growth strategy.

· Govt’s role in providing marketing information and producing to international needs

to be revamped.

· Within country logistics costs should be reduced.

· Worker skills are critical to give our firms a competitive edge in international
markets; programs for skill upgrading need to be modernized.

· The current debilitating power shortages have to be redressed quickly and a well
through medium term energy plan need to be in place that provides reasonably
priced and good quality power to industry.

· Given our natural comparative advantage in agriculture, i.e. the world’s largest
contiguous canal irrigation system, diversity of agro-climatic zones, good soil
conditions and cheap labor with a centuries old farming traditions, poor crop yields
and absence of high value added agricultural exports, is a glaring example of
unfulfilled promise.

· Maintenance, modernization and expansion of key rural infrastructure spanning

water, roads and electricity are in urgent need of policy and institutional reforms.

· Accelerating the growth of small and medium farms where there is considerable
potential for increasing yield per acre and employment generation

To reduce regional inequalities by actively targeting less-developed areas of the

country. The Balochistan govt must be provided the resources to implement its
strategy. In addition, similar strategies need to be developed for NWFP.

Greater decentralization of resources and setting of development priorities by the

provinces themselves.

Encourage investment by China in Pakistan through development of infrastructure

and appropriate

incentives to tap South Asian markets.

Increase and modernize land trade routes, including investment in infrastructure and
allowing each others trucks and containers to carry cargo to market destinations.

Pakistan’s institutional and economic structure continues to constrains its ability to

achieve long-term poverty reduction and inclusive economic growth; and sustain an
unequal distribution of income and opportunities for its male and female citizenry.
Therefore to provide equitable market access for the poor and enable them to
contribute to GDP growth through sustainable livelihood.

Poverty reduction;

· Access over productive assets to provided to the poor.

Distribution of state land to landless and tenant households that support production
and provide extension services. Provision of credit to the poor, particularly small
farmers, to become equity holders in mainstream corporate enterprises and fields
such as milk, livestock, marine fisheries, processed food and even industries like
telecommunications, apparel and software.

During President Clinton’s visit to Pakistan in March 2000- he said, ‘This era does not
reward people who struggle in vain to redraw borders with blood. It belongs to those
in the region who look beyond borders, for partners and for commerce and trade’.

Conclusion:

Pakistan is surrounded by numerous internal and external threats of gigantic

magnitude. Our mother land is the achievement of millions of sacrifices. Therefore, it
is prime duty of every individual, the society, and the state to uphold the
constructive norms in order to get honor in the community of nations. Pakistan is not
a poor country, but a poorly managed country; only a sincere leadership with real
commitments can turn this hell into heaven. Need is for restoring confidence of
people who have potential to achieve all the colors of rainbow. The present ongoing
occupation of neighboring brother countries by the world’s only super power,
America, signifies that a disorganized Pakistan may fell prey to its aggression. Only
energetic people, a dedicated leadership with strong military muscles, improved
economy and dynamic society face