Paradoxes of progress
The economy or economic progress of a country is an integrated pattern based on multiple factors, which complement each other for the overall economic development. Almost all developed countries – from the Asian Tigers to the EU and China – have worked on one principle to achieve economic growth, which is to optimize and use their resources in the best interests of their nations.
Pakistan is an example whose perpetual financial crisis could be described as “the metaverse of the paradox of economic development”. There is a historical background to this economic development in a straitjacket.
The country’s true development potential has not been realized due to multiple factors ranging from its inconsistent economic policies to its endless political instability. During the first two decades since 1947 – until the end of the 1960s – the country’s macroeconomic indicators looked impressive, reaching one of the five stages of economic development at the international level. Although this period was marked by political transitions – culminating in the disintegration of Pakistan in 1971 – economic growth during this period was remarkable. It was the time when the famous 22 families who controlled more than 66% of the national resources rose to prominence, which created feelings of inter-regional and interpersonal inequality and disparity, causing political damage to the very existence from Pakistan.
The economic period of the first martial law administrator, Ayub Khan, marked the “green revolution” and industrialization in almost all sectors of the economy. It was labeled as unbalanced economic growth in favor of the former West Pakistan, increasing the anger of the people of the former East Pakistan. But overall economic growth was around 6% and the industrial sector reached the annual average of 10%. The country’s export voucher program has strengthened the export sector.
Also, the agricultural sector flourished when the country built two dams – Tarbela Dam and Mangla Dam – with an extensive water distribution network in the form of a system of canals, irrigating almost all of Pakistan. west with the exception of Balochistan, which at that time was a vast, sparsely populated arid region. Ayub Khan was ousted by a strong political movement led by Zulfikar Ali Bhutto in the late 1960s, but he handed over the government to General Yahya Khan, who was seen as responsible for the fall of Dhaka in 1971.
The country’s economic progress and development was negatively affected in the 1970s when ZA Bhutto seized power after the fall of Dhaka in 1971. His nationalization policy caused a drastic drop in economic growth and the average growth rate fell to 4%. Economic growth in the public sector has slowed considerably as public enterprises (EPs) have suffered greatly from inefficiency and lack of competitiveness.
The whole process was reversed in 1977 when the third martial law administrator took power and it was another political transition. The private sector has been revived with the help of private investors. Former industrialists are offered their industrial enterprises on favorable terms. The political dispensation has once again created a kind of polarization in the nation. The country’s economic growth was satisfactory due to multiple factors, including the aid of the United States for supporting it in the Soviet-Afghan War. And because it was a frontline state in the war, Pakistan received a lot of financial aid from the United States and the West.
After General Zia’s death in 1988, the economic growth rate dropped during the civilian settlement period. The reasons were obvious. US and Western aid declined – rather stopped – soon after the withdrawal of Russian forces from Afghanistan, resulting in slow economic growth, as the economy was heavily dependent on economic aid from the United States and the Western world. In the 1990s, much-needed economic reforms showed desirable results, but another political intervention came when General Musharraf overthrew the political government of Mian Nawaz Sharif in October 1999. Initially, the rate of economic growth fell by drastically. Later, the September 11 attacks took place in 2001, which proved to be a blight on the Pakistani economy. The United States and the West again sent financial aid to Pakistan for the “war on terror”; this time the fight was against those who were declared “freedom fighters” at the time of the Russian invasion and now called terrorists.
But shortly after the end of Musharraf’s rule in 2008, the economy underwent another transition from military rule to a civilian configuration. This began to pick up again under the government of Mian Nawaz Sharif, but his regime faced internal political instability. His government ended its term in 2018. The growth rate at that time was around 5.6%, which was quite impressive in the context of the China-Pakistan Economic Corridor (CPEC). Nor is the current rate of economic growth as bad as people worried about the tsunami of price increases generally think.
The downside of the economic progress and growth seen under Imran Khan’s government is that the economy has to contend with high inflation and large debt; debt service payments absorb most of the revenue collected by the Federal Board of Revenue (FBR). Current macroeconomic indicators are not encouraging either. Monetary policy seems inconsistent, and fiscal policy is unable to respond to the real issues, especially after the Covid-19 pandemic. The Pakistani currency is depreciating rapidly, apparently due to policies pushed by the International Monetary Fund (IMF) reform package.
High interest rates from the State Bank of Pakistan (SBP) discourage investment in the country; the country faces cost inflation due to imports of necessary items like oil, food, etc., which are vital for economic growth – this inflation is not triggered by the money supply factor . The current progress of CPEC projects is rather unsatisfactory for unknown reasons – financial or otherwise. The security situation is also a worrying factor, leading to the drastic drop in foreign direct investment (FDI).
A billion-dollar question is: how should the country solve the economic problems and the plight of the poor who are suffering due to the poor economic policies of the government, which hinder the economic development of the country? The country has many resources – better weather, cheap labor and an abundance of minerals and natural resources – but even then it faces poor economic conditions due to several factors ranging from low development to high population growth, and it is far from achieving the Sustainable Development Goals (SDGs).
In the past, Pakistan failed to achieve the Millennium Development Goals (MDGs), and it is now destined to miss the SDGs unless it adopts the right policies and economic choices. The ultimate goal of economic development will remain elusive without adopting the right set of economic policy initiatives and eliminating the debt burden. The constrained economic development of the country must be viewed through the prism of past economic growth cycles.
The author is an economist.