Economy of Pakistan: Challenges and Recommendations - Essay Example

? Economy of Pakistan: Challenges and Recommendations Demographics of Pakistan Pakistan is situated in South Asia sharing its border with Afghanistan to its northwest, Iran on the west, India on the east, and China in the north. The total area of Pakistan is 880,940 square km (340,133 square miles) (F. K. Khan). As on July 2012, the population of Pakistan was about 190 million.  Pakistan is basically an agricultural economy and its major crops are cotton, wheat, rice, sugar cane, rapeseed, and sesame etc. Pakistan does not have a well-developed industrial sector but some of the important industries are Cotton Textile, Woolen Textile, Cement, Sugar factories, Fertilizers, Leather, and paper industries (F. K. Khan). Political History of Pakistan Pakistan came into being on 14 August 1947, with two parts. West Pakistan constituted NWFP, Punjab, Baluchistan and Sindh, whereas East Pakistan constituted of East Bengal. The founder of the nation, Mohammad Ali Jinnah, was the first Governor General. Pakistan was declared as the Islamic Republic of Pakistan (official name) with the adoption of parliamentary democratic system of government in 1956 when the first constitution was promulgated. From 1956-1965, the political situation remained unstable with the country’s first Martial Law enforced in 1958. In 1965, Pakistan and India engaged in war over the Kashmir dispute for the first time (Afzal). Pakistan and India fought again in 1971, which resulted in East Pakistan declaring itself as an independent nation to be called Bangladesh. Zulfiqar Ali Bhutto formed Pakistan People’s Party and became President of Pakistan and a new Pakistan Constitution was formed in 1973. 1n 1977, Gen. Muhammad Zia-ul Haq promulgated Marshall Law and became the president and Z.A Bhutto was hanged. From 1985, when the Marshall Law was lifted to 1999 Pakistan saw two political leaders become prime ministers alternatively twice. Military Rule was one again established in 1999, and the Army General Musharraf declared himself President in 2001. In 2008, Musharraf stepped down and democracy was restored (H. Khan). Economic History of Pakistan Soon after independence Pakistan’s economy went into recession. The economy suffered in the 1950’s due to weak industrial base and lack of private organizations. By 1960’s, the economy started recovering but in 1970’s the economy fell again due to separation of East Pakistan. It took 12 years to recover from the second recession but that too was short lived. The reason behind this is the corruption and communal unrest (Jaffrelot). In 1998, economic sanctions by the West as Pakistan conducted its first nuclear test also affected the economy. During the time, when General Pervez Musharraf assumed his power he devoted his team to manage the economic crises. During this period, there was considerable progress in achieving macro-economic stability. There was a positive GDP growth rate, fiscal deficits improved, external debts, revenues, exports, and foreign exchange reserves all showed improvement. However, poverty and unemployment increased. The overall picture that emerges from a dispassionate examination of these indicators is that the country made significant economic achievements but had a disappointing record of social development (S. Khan). After 2008, Musharraf resigned a new Government led by Asif Ali Zardari was established. The GDP growth, which had been 5.0 % dropped to just 0.4 % (2008-09). By October 2008, the inflation reached the highest level of 25 percent. The oil and other commodities prices showed an unprecedented increase. In addition to this, the natural climate in 2010 and 2011 also added to the economic suffering. Extreme power shortages were causing huge losses. Even though, the growth rate of the economy was 6%, there were the worst crises in public enterprises, energy sufferings, and economic mismanagement during these years (United Nations) Current Economy Pakistan’s growth in gross domestic product (GDP) decreased to 3.6% in the fiscal year 2013, which was 4.4% in year 2012. By June 2013, the new government, which was formed quickly, took measures to restore economic sustainability and increased growth for its 5-year term period. It addressed to deal with the energy crises, increasing investment and trade, improving infrastructure by ceding its functions to the private organizations. The government took a 3-year loan worth $6.7 billion for a program to address low foreign exchange reserves and fiscal imbalances. This programs aims to strengthen the revenue base, which was weak and addressing the loss-making public enterprises (Wasti). Challenges Shortage of Electricity and natural gas is causing a problem in meeting the energy requirement of vital industries, which hamper the production hand exports of the country. The present demand is about 20,000 MW/day the generation is only about 14,000 - 16,000 MW/day. The government also provides a huge amount of subsidies to customers, which needs to be readdressed (Kazmi). There has been revenue deficit implying that the government is borrowing without creating repayment capacity. The import bill is increasing due to huge imports of oil and petroleum products because of higher prices and decrease in Pakistan rupee value against the dollar. The foreign exchange results are declining for which external assistance has been taken increasing debt servicing (Wasti). The poor law and order situation, growth in population and lack of technology adds to the reduction of agricultural and industrial output having an impact on the exports. Frequent floods in monsoon seasons and earthquakes are one of the factors along with corruption in Government agencies for the destruction of infra-structure and loss of agricultural crops. In order to cover this loss the work on infrastructure is needed to see that cash flows and government’s guarantees are met (Zaidi). Public Debt: By the end of March 2013 Pakistan’s public debt reached $ 136billion, which was 59.5% of the GDP compared with 59.8% of the same period last year. External Debt and Liabilities (EDL) stock was recorded at US$ 60.9 billion by end-March 2013. Foreign debts were acquired for development expenditure. There were not sufficient funds, so domestic debt increased to 64.5% of domestic borrowings by the end of March 2013. This caused a major problem for repayment and additional debts from IMF were arranged to repay the debts (Zahid). Reasons of Economic Failure: Pakistan’s economy has been facing a downfall due to lack of foreign investment, political instability in the country, law and order, security issues and also corruption. Moreover, there is a lack of vision of the government to introduce plans, which can focus on controlling population, promoting agricultural and industries. The losses pertained in government run corporations like Pakistan International Airlines, Pakistan Railways and Pakistan Steel Mills are significant examples of economic failure. Another main reason has been the impact of war on terrorism due to which economy suffered and there has been a decline in the performance economic growth. Pakistan supports Easterly’s argument that incentives are a necessary part for growth in any sector The government of Pakistan has provided investment protection, repatriation of dividends and tax exemptions to attract the foreign investors in; energy, IT, telecommunication and manufacturing etc. but these have not been able to meet the required participation due to law and order situation in the country (N. A. Khan; Mahmood). Action Recommended to Government of Pakistan The population growth of the country needs to be controlled on priority basis by providing education and health assistance through lady health workers at a village level. The law and order situation has to be improved by disciplinary and administrative action both by negotiation and army operation to build confidence in businessman and investors. (Mazhar) The agriculture sector should be modernized by use of tractors, tube-wells and using good quality seeds to increase the production yield. Advancement in technology is needed for industrial setup and other growth opportunities. The export commodities should be diversified to include value added products in textile, surgical, sports and other electronic equipment. The government should take measure to re-construct the infrastructure destroyed due to floods and earthquakes. The government should adopt policies for dis-investment and privatization of corporations run on a commercial basis. In energy sectors, the subsidies provided in electricity billings need to be reduced and electricity rates need to be made reasonable. Furthermore, efforts should be made to control the leakages in terms of theft and inefficiencies in generation and transmission loss. They should take remedies to ensure collection of power bills. New Dams should be built in this connection. The government has taken the initiative to build Diama Badshah Dam to generate hydra power by 5,000MW at much cheaper rate (International Monetary Fund). As required for fiscal reforms, the government needs to take action for reducing current balance difference by increasing revenues by implementing tax reforms, enhancing tax payer’s base and controlling government expenditure. To demonstrate the seriousness, the government needs to encourage foreign investment flows in Pakistan (International Monetary Fund; Kukreja) Roles of Multi-national Companies The multinational companies should bring more investments to increase production and provide technical training to the local people of Pakistan. USA, Canada and European Markets should be open to provide access to Pakistani products in their markets. The investment and participation in the consumer market through introducing franchise products in the country will provide employment opportunities to the country as well as profit to the investor (N. A. Khan). Expectation and hope Pakistan is rich in agricultural and mineral resources. It constitutes population of skilled workers, which needs to be utilized effectively, in order to improve the current economic state. It is expected if the government adopts the measures recommended in the report particularly increasing energy output, there is a potential to enhance the industrial, agriculture production and GDP growth of the country. Consequently, exports will be increased many folds and bring foreign exchange. Moreover, by adopting fiscal measures by increasing revenue of the government, the trade deficit will reduce. Improvement in education and health sector, along with control in population growth will reduce the poverty level and economic base will get strengthened (Cohen). Works Cited Afzal, M. Rafique. Pakistan: History and Politics 1947-1971. Lahore: OUP Pakistan, 2001. Print. Cohen, Stephen P. The Future of Pakistan. Harrisonburg: Brookings Institution Press, 2011. Print. International Monetary Fund. Pakistan Poverty Reduction Strategy Paper. Washington DC: International Monetary Fund, 2010. Print. Jaffrelot, Christophe. A History of Pakistan and Its Origins. London: Anthern Press, 2004. Print. Kazmi, Shabbir H. "Pakistan’s Energy Crisis." The Diplomat (2012). Print. Khan, Fazle Karim. A Geography of Pakistan. Lahore: Oxford University Press, 1991. Print. Khan, Hamid. Constitutional and Political History of Pakistan. Lahore: Oxford University Press, 2009. Print. Khan, Niaz Ahmed. Islamic Economic Revolution of the Century. Bloomington: Author House, 2011. Print. Khan, Shahrukh. Pakistan under Musharraf. Islamabad: Vangaurd, 2004. Print. Kukreja, Veena. Pakistan: Democracy, Development and Security Issues. New Delhi: SAGE, 2005. Print. Mahmood, Sohail. Good Governance Reform Agenda in Pakistan: Current Challenges. New York: Nova Publishers, 2007. Print. Mazhar, Nargis. Population, Labour force. Economic Survey. Islamabad: Government of Pakistan, 2012. Print. United Nations. Information Economy Report 2009: Trends and Outlook in Turbulent Times. United Nations Publications, 2009. Print. Wasti, Ejaz. Economic Survey of Pakistan. Islamabad: Government of Pakistan, 2012-2013. Print. Zahid, Omer. Economic Survey of Pakistan 2012-2013. Islamabad: Government of Pakistan, 2013. Print. Zaidi, S. Akbar. Issues in Pakistan's economy. Islamabad: Osford University Press, 2005. Print. Read More