The wrong state of affairs

It wouldn’t be wrong to say that the issues with the Pakistan’s economy are deep rooted, while controllers of the economy have only been opting for the cheap fixes to solving the problems existing at the base level and the consequences are evident. Although there are couple of reasons that lead us to the verge of collapse time and again and yet we fail to learn from the past as we turn a blind eye to the elements that make the foundations shake.

The country failed to make firm policies on public sector enterprises that are increasing debt at dangerously higher levels and we are completely clueless of what to do with it. Rent-seeking is on the rise and assets are quite undervalued.

Although these factors, along with others are equally stressful, one issue at a time takes all the limelight, currently it’s the soaring import bills and foreign exchange reserves touching a new low every other day. Here, let us take a look at what dragged us to this level.

It’s ironic that despite being bestowed with many natural resources, manufacturing base of Pakistan has always remained weak and surprisingly no genuine efforts have ever been made to save the shrinking sector. There is a fatal weakness of the country to serve nation’s demands through imports. Instead of finding ways to control our dependency on imports, we keep looking out for the options that can make imports cheaper, only to make ourselves a little less guilty. It goes back to the times when Pakistan and China went into bilateral trade.

As the imports seemed cheaper, Pakistan imported in bulks from China, completely ignorant of the fact that how destructive it is for the domestic manufacturing base of the country. In 2006, both the countries signed Free Trade Agreement to reduce barriers for trade and facilitate stronger ties.

These agreements have either proven to be flawed or may have the bargain issues that the imports became so cheap for Pakistan that in spite of protection policies, manufacturing base continued to get affected which led to complete evaporation of our own industries, ultimately leading to significant loss in employment opportunities for the Pakistani labor force. The ghost of unemployment continues to haunt us as almost 60% of Pakistan’s total population is youth and the available unemployment opportunities seem a handful.

The dread of devaluation of Pakistani currency has led SBP (State Bank of Pakistan) to constantly inject dollars to keep money overvalued in a bid to keep the imports cheaper and make Pakistani exports comparatively expensive for importers while failing to ignore the fact that there will be a devil to pay in terms of eroding foreign exchange reserves and creating deindustrialization on massive scale. The fallacy around dollar being a pill to every disease while ignoring all other sinking indicators is one of the main culprits behind the prevailing situation.

It is about time we understood that this approach is highly problematic as the consequences we face are horrifying. It must be noted that foreign exchange reserves of a healthy economy are driven by exports, investments, remittances, etc.; however, we need a reality check here that Pakistani exports are quite uncompetitive and generates lesser amount compared to the remittances sent by the overseas Pakistanis.

However, provided its inability to generate enough foreign reserves through exports, Pakistan seems to have developed a penchant for keeping its currency overvalued through artificial means.

Let’s understand how to avoid makeshift arrangements through a few cases. Pakistan is heavily dependent on CKD imports as the cars are assembled locally that also contributes to an increased import bill.

Although, imposition of restrictions has been observed during the past year, it was leading to a significant decrease in cars’ production in the country, failing to serve the demand. In this scenario, a wise strategy is to make policies on exporting locally manufactured/ assembled cars. The same strategy holds for every domestically produced/ assembled goods that are dependent on imported raw material so that every industry could nullify its own import bill along with the provision of tax incentives to such industries.

Not just that, exporting a value-added product will give us a chance to earn additional foreign currencies, definitely meager but light gains make a heavy purse.

Another common activity we witness is Pakistan importing crude and refined oil both to meet its need without considering the consequences.

Buying crude oil is a necessity for Pakistan but refined is a burden. The country has the margin to import crude oil at cheap rates, refine it at its own refinery facilities and utilize it, giving a chance to idle industries to breathe again and create employment opportunities for many along with slashing the already soaring import bill. Pakistan has just signed a deal of importing crude oil from Russia, and we can only hope that the trade deal will be utilized efficiently instead of leading to us even deeper pits.

History shows that whenever we try to save ourselves from one trough, we fall in another; in other words, saving a penny from one lesser import encourages us to spend on another one, bringing us back to square one. The need is to align policies on rationing of least needed import goods so that the saved foreign currency could be used to feed our manufacturing base which has been the victim of ignorance since forever.

The idea is to rethink and make amendments in our policies by identifying the misplaced puzzle piece. The building of the system will continue to collapse unless the base isn’t set firm and the missing bricks aren’t placed strategically. Exceeding imports bills, plummeting foreign exchange reserves and rising unemployment are creating ruckus and our government still clueless about what’s going wrong indicate towards a warning ahead of time.

However, unknotting one problem will help in detangling a series of chronic issues Pakistan is dealing with. Strategy in a nutshell is not to splurge on unnecessary imports that will allow us to strengthen our manufacturing industry. This would generate a plethora of employment opportunities along with giving a boost to other declining indicators, ultimately saving from the curse of default that hangs over the country like a sword of Damocles.

Copyright Business Recorder, 2023