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Economy: 75 Years of Malaise and Still Continuing

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Economy: 75 Years of Malaise and Still Continuing
Economy

Economy: 75 Years of Malaise and Still Continuing

In August1947, the Subcontinent was carved and split into two independent states of Pakistan and India. Both gained independence from over 90 years of British rule. Upon gaining independence, in the context of Pakistan, there was no experience at the political level to deal with the challenges of building the economy of a new and then, what appeared to many, as a fledgling state. To add to the woes of the young country’s lack of economic direction, we lost two most important founding fathers; firstly The Quaid, succumbed to his much secretly kept affliction with tuberculosis and later Sahibzada Liaquat Ali Khan, who fell to the bullets of an unknown assassin. This loss happened within the first four years of independence. What followed then was a free fall of both the political environment, culture and the economy.

Political instability of over a decade, did not permit for making a sound economic base. The vulnerability acquired then has and continues to persist. It is reported without evidence that Pakistan then was prosperous enough to lend a few million dollars or two, to the war-ravaged Germany (West). If we were that well off economically, how did things go so wrong. Germany (if the borrowing  story is correct) on our lending made such great strides that its economy today is a powerhouse that the world has to reckon with. Where did we go wrong? Political instability or the lack of economic vision, or a combination of both, has brought us to the mire of economic misdeeds. We had a brilliant genius as our first governor of the State Bank of Pakistan. He passed away very early too, in 1957; his tenure was five years and 40 days.

The entire period between 1947 and 1970 was spent in political and economic experimentations. No government would last long enough to be able to give any attention to the economic planning. Economic wellbeing seems to have not been on the list of priorities of successive governments.

President Ayub Khan, provided a decade of stability and that made us grow our economy. We saw the decade of development, making us an envy of the then newly independent countries, who all wished to emulate our economic model. We were referred to as the brightest star in South Asia. This success was short-lived. The Ayubian model of economy gave rise to unfettered and untrammelled capitalist society with 22 families, this number was revised, by some Western writers to 42 families, that had “absolute control” over 87 per cent of the country’s economic, financial and banking assets. Social resentment against capitalism gave impetus to the infusion of the socialist thought in the society.

Zulfikar Ali Bhutto with his mesmerising rhetoric gained popularity to become the voice of the underprivileged and the downtrodden. In the 1970 elections, his party won no seat in the then East Pakistan, but he had a landslide win in West Pakistan. The only and the last free and fair elections of 1970 resulted in the dismemberment of the country. In this scenario, obviously the economy took a nosedive.

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ZAB, upon assumption of office, indulged in wholesale nationalisation of key industries, including banking and finance. This completely shattered the confidence of the local and overseas investors. Massive flight of capital followed. Even ZAB wasn’t given time to concentrate on the economy. Political machinations of diabolical nature were surrounding his office, unabatedly. He was finally deposed in 1977 and was hung to death, in 1979, in a highly controversial split decision of the superior court. He met a sad end, like Nawabzada, the first prime minister.

The dark era of Zia years still casts its ugly shadow on the social fabric of the country. We got ourselves embroiled in the war against the Soviet Union, post its invasion of Afghanistan. The fall out was disastrous. In return for helping the allies to defeat the Soviet occupation, Pakistan self-destructed its social set up, the drug and gun culture not only emerged but took deep roots, with all of its attending vices. Nature removed Zia from the scene.

Democracy was restored as a namesake. What followed was a game of musical chairs, with the governments coming in and being booted out on a regular basis, through the most generous and liberal use of Article 58(2-b), by the presidents. In late 90s, we were provoked to undertake nuclear detonation. This resulted in the economy taking the bitterest hit. The foreign exchange reserves fell below $500 million and to stamp out the possibility of any generous view on the state of the economy, the foreign currency accounts were frozen. Much damage had been inflicted. Lunacy followed in quick successions. The chief of army staff’s aircraft was denied landing rights at Karachi. Then a coup took place and so began the Musharraf’s era of enlightened moderation. Despite issues of the Taliban, the country progressed well. Foreign investors returned with vigorous interest in the banking and telecom sectors.

Then the US decided to change the world order when it’s twin towers tragically were done to a rubble and ashes, by an act of terrorism. While such destruction is an acceptable everyday sight in Gaza, but to see it happen in Big Apple, was rightfully not acceptable. The mood was to destroy and annihilate the enemy, who to our bad luck, happened to be our immediate neighbour. Anyone who stood as an obstacle to this quest was told in unequivocal terms that their fate would be no different then the caves of Tora Bora.

President Musharraf and his military aides sensibly joined the coalition forces. Later, the prolonged war in Afghanistan cost us dearly in terms of loss of human lives and the gradual collapse of our economy. The foreign policy wasn’t aligned to the emerging economic realities. Corruption that had become a norm with the democratic governments was initially contained in the early years of Musharraf but was back with vengeance, once we returned to democratic dispensation.

Since 2008, in particular, but a habit that had become part of us earlier too, gained sound footings, that of living on borrowed money. There appears to be some form of intoxication at the Q block, about borrowing money from all sources; there is no distinction at that level between borrowing and earning. We spend, so freely, our borrowings that others would not spend their earnings … case in point, Bangladesh has forex reserves in excess of $45 billion and India sits on a cushy $640 billion of foreign exchange reserves. They are wise in not spending their earnings on consumer and luxury goods.

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Towards the middle of the decade of the 2000, our immediate and extended neighbourhood was booming economically. The emerging newly-industrialised countries such as Thailand, Taiwan, Malaysia, Indonesia and later Vietnam, Cambodia and Laos, were taking full advantage of China’s economic growth. Chinese requirements of spares and light industrial goods was being met by these countries. Their exchange earnings were on the rise. China is our traditional friend, yet, instead of taking advantage of the situation, we were, as a nation, busy playing musical chairs in Islamabad, all during the 90s and the following decades. We missed the opportunities to scale our economy to occupy the low end of the value chain in textiles that China was vacating, the south eastern nations filled that gap.

No serious effort was given in terms of building a long-term blue print to create an export-oriented economy. The unbridled growth of the auto industry, did create sufficient employment opportunities but also gave huge profits to the investors and very little to the country, the well-conceived “deletion programme”, which if it had been implemented tooth and nail, would have jump started the growth of the peripheral manufacturing industries; but alas!, over years that policy lies in the limbo of forgotten memories.

The years following the elections of 2008 haven’t given us neither political nor economic stability. In fact, more than ever before we are relying on borrowed money. Literally, we are at the mercy of the International Monetary Fund (IMF), Saudi Arabia, the UAE, Qatar and, of course, China. In our failure to earn foreign exchange through export of goods and services, we haven’t stopped global shopping for consumer goods. Our imports exceed $80 billion, these are paid through exports of roughly $30 billion and inward remittances of overseas (read patriotic) Pakistanis, of $32 billion, resulting in the net deficit of $18 to $20 billion. We go around begging for this deficit.

The tax culture is non-prevalent, as evidenced by the tax-to-GDP ratio, which is a dismal low of 9.2 per cent; further no government has the courage to tax the untaxed sectors of the economy. So for every fiscal deficit the government looks at the hapless salaried class, to pay more taxes. The salaried class too pays unwillingly, because it is a tax deduction at source; given a choice they wouldn’t pay either! They would behave no differently from the retailers, only last week, after imposing tax upon them, the government had to swallow back its decision and completely retracted.

India is also 75 years old. They were fortunate enough to have political stability and have Nehru at the helm for 17 years in continuity. Then subsequently they had forward looking politicians and economists such as Dr Manmohan Singh. India consolidated itself. In total disregard of the international norms, it swallowed up the state of Hyderabad, Junagadh, Sikkim, Bhutan, Nagaland, Arunachal Pardesh and Goa. We lost half of our country in the same span of time.

The lament of how we have deliberately or unintentionally destroyed our country can be endless. Following the fact that we are now 75 years old and experienced, can we behave sensibly and intelligently? We can. Let’s stop imports of all luxury items, stop doesn’t mean imposition of heavy duties, stop means end the imports. Get serious in tax collection without being intimidated. No one can or should be allowed to dictate to the state.

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Despite of so much damage done in the last 75 years, we will wobble, stay afloat and survive, thanks to friends, nay brotherly countries, who lend us money. Little we realise and recognise that there is motive and self-interest at play, be it the brother or the multilateral institution. To be a sound economy all the sectors must grow in unison, one cannot just keep constructing highways, motorways and falsely take that as a sign of economic growth. How can the utter neglect of the education sector, or the absence of focus on attaining food autarky, or for that matter the uncontrollable population growth be explained?

We need to retrieve from the archives of our memories and remove the gathered dust upon the spirit of sacrifice and nationhood. This is our country. We need to build it, no one else will. For future, the people and nations are asked to sacrifice the now and here. Are we prepared? Upon our 100th anniversary of independence, will the print or any media forum carry such lamentations? I pray not.

(The writer is a senior banker and columnist)

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