In the post-colonial model, many countries have been using their geopolitical positioning as a tool for short-term economic gains. For decades, Pakistan has also been a regular beneficiary of aid and other concessional dollar flows during the time of the Cold War and later on the so-called war on terror in Afghanistan.
These transactional flows have not only resulted in perpetually volatile cycles of economic growth but have eroded the policy-making capacity of the state toward achieving a competitive and sustainable economy that is resilient to external and internal shocks. The policy mindset continues to look towards handouts, bailouts, and market access as a reward for its geostrategic services rendered to richer countries.
Moving beyond aid and correcting structural fault lines
Faced with twin deficits, economic recession, falling value of rupee and the impact of a devastating flood, Pakistan has reached out to “friendly countries” for placing deposits to bridge the unsustainable current account gaps.
As a result, short-term deposits of over $10 billion were received from Saudi Arabia, China and the UAE. Rather than focusing on correcting the structural fault lines, these deposits were celebrated as a huge success for populist politics.
In reality, these deposits have given little respite to dwindling foreign exchange reserves and have added to Pakistan’s foreign currency debt. With over $15 billion bi-lateral deposits, Pakistan’s economic managers are now struggling to roll-over of the existing ones and procurement of some more money on similar terms. The friendly countries have also linked the placement of funds with IMF oversight, giving more powers to the lender of the last resort.
It is time for Pakistan to take cognizance of the changing world where the US-led forces have left Afghanistan high and dry and the focus has moved toward the Ukraine conflict and the US-China cold war. There never was and there is no other solution for Pakistan’s economic managers other than going through a painful adjustment and reforming the economy in a manner that addresses its structural fault lines.
Moving beyond aid and focusing on growth policy
To put it simply, the country requires a growth policy that fixes the power sector distortions, supports export competitiveness, creates jobs for the youth, and abandons crony practices of patronage, protection, and subsidizing economic inefficiencies. There is plenty of liquidity available in the region looking for credible economic propositions. This poses serious questions on the capability of politicians and bureaucrats to steer the country towards a direction that can leverage its comparative advantage in agriculture, IT, value-added textile, and light engineering sectors.
It is pertinent to note that the revival of global growth from the current recession will be driven by economies like China, India, Indonesia, and East Asia. Pakistan must take advantage of its neighborhood to reduce the cost of doing business, improve trade and gain export competitiveness. There is a huge demand for English-speaking young IT professionals in countries like Japan and China.
Moving beyond aid and developing economic diplomacy model
A policy shift from the traditional industrial mix towards a knowledge economy is what will give a positive signal to the regional markets to look at Pakistan as a valuable economic partner in future growth. Thus, it is critical to develop a model of economic diplomacy that attracts capital and emerging technologies to address the lagging production and productivity issues.
Looking forward, it is crucial for the political leadership to delegate powers and create professional space for strengthening a few key institutions like the Board of Investment, Privatization Commission and FBR, etc. These institutions should have a competent oversight system by both market professionals and parliamentarians.
This system must be given independence from any political interference and work on a system of outcome-based monitoring. We have witnessed that Vietnam, Cambodia, Malaysia, and Bangladesh have managed to achieve impressive results in the past two decades. So, why can’t Pakistan do the same for millions of young people looking for a dignified future.
