Several developing and developed countries are operating their socio-economic development systems through domestic and foreign borrowing. Even the US is the biggest borrower in the world. However, the economies of developing countries in general and that of Pakistan in particular are being financed through heavy borrowing.
From time to time, the government of Pakistan continues to express her wish list stating that they will pursue self-reliance as a policy guideline. However, in real life situation, the ground realities are the very opposite. Federal annual budgets of Pakistan (annual recurring budget and annual development plan) have been in deficit and substantial portion of the Annual Development Plan (ADP) is highly dependent on external assistance, which is of uncertain nature.
Accordingly, the socio-economic development system is vulnerable. If full external assistance is received on yearly basis, the ADP has bright prospects for its execution, failing which it is revised downward and the process of economic development slows down with adverse consequential impact. Moreover, economic sovereignty of a country depends upon raising and exploiting her own resources and financing the same out of their resources except for those technologies which may not be available internally.
Self-reliance has a broad scope. A country is politically self-reliant if it is economically self-reliant. It is economically self - reliant if it is financially self-reliant. However, technological dimension of self-reliance is a difficult job as, unless R&D Institutions are deeply routed in developing countries, the possibility of technological breakthrough is not possible.
The paradox is that technologically ornamented scientists/scholars of developing countries are serving in developed part of the world and, therefore, this trend has also given a setback in achieving technological self-reliance in developing countries. Unless this issue is seriously addressed and monetary and non-monetary incentives are offered in a favourable manner, the dream of self-reliance in any developing country will remain uncrystallized. However, a broader framework of self-reliance has the following four components: (1) Political (2) Economical (3) Sociological (4) Technological. This piece will deal with self-reliance of some major economic fronts. Comprehensive treatment of all components is outside the scope of this piece.
ECONOMIC FOCUS By the grace of God (Allah), Pakistan has a vast scope to harness and exploit economic resources to her advantage. God has blessed fertile soil, hardworking people, sunshine, on-shore, offshore and hidden natural resources, which have yet to be exploited. Unlike Japan where the population of youth is declining, Pakistan can exploit the dividend of young people, who are in plenty.
They need to be ornamented with all types of skills and scientific knowledge so that they become tangible assets to our country and are instrumental for sharing in economic revolution backed-up by intellectual capital. This area requires special attention of the federal and provincial governments of Pakistan and their productive role in this respect would be of great value. On economic front to achieve self-reliance in the economy of Pakistan suggested strategic directions. For this piece, we have selected the following four dimensions: (I) Economy of Pakistan (II) federal budget deficits (III) balance of trade deficits (IV) debt trends.
EACH OF THE ABOVE IS NOW EXPLAINED: A) Agricultural sector: Agricultural sector of Pakistan constitutes four components namely; livestock, crops (major and minor), fisheries and forestry, its share in the GDP of Pakistan is 22%. We need to say goodbye to the concept of "Business as Usual" and make a confident start with "innovation" as our way of life. Guided by this, suggested strategic plan for achieving self-reliance in agriculture is suggested below:
LIVESTOCK: It constitutes about 50% of the total agriculture sector. Its shares in the total GDP of Pakistan is 11%. We need to develop a strategic plan to achieve self-reliance on the following lines:
(a) Financing by commercial banks and Zarai Taraqiati Bank Limited should be largely extended to the development of livestock in Pakistan.
(b) Private sector should be encouraged to play its due role in livestock development in the country.
(c) The successful experience of military in livestock development may be shared and their technology should be transferred to civil sector in livestock area.
The government of Pakistan has announced five-point strategy for development of livestock sector, which should be implemented and its consequential benefits should be quantified and shared. Accordingly, Pakistan will have an opportunity to become self-sufficient in milk, meat and poultry. This will reduce pressure on the balance of trade deficit and enable masses to buy poultry products and meat at an affordable price.
CROPS: Unfortunately, in the last 63 years of our life, we have followed the policy of four major crops in our country namely wheat, rice, cotton and sugarcane. Marginal efforts were made to increase the production of maize as the 5th crop. There is a need to work on the concept of diversification and at least help develop ten (10) major crops in Pakistan so that we may become not only self-reliant, but also have the capacity to absorbs the shock if adverse circumstances hitting us.
The area of cultivation of all crops should be increased. The yield should be substantially raised upward. All inputs should be provided through proper informal approaches of educating the uneducated farmers. There is a tremendous potential in this respect which can be exploited with the kind assistance of agricultural extension department which should work on war-footing and compare the yield along with the performance across the board, if it not on an international basis.
All the research organisations in agriculture should be attached with the universities so that synergy be achieved to the advantage of Pakistan. Currently, the research organisations in agriculture sector and agricultural universities are operating independently without much of co-ordination and sharing of results. Therefore, existing organisational set up is not geared to achieving synergy. The result is that we are facing major problems on production and productivity fronts.
FISHERIES: It is our earnest desire that we may follow a strategy of using fish as our "niche" for development. God has blessed us with a very vast coastal area. We must learn from the Japanese system of catching the fish, canning it and exporting the same. All universities in Pakistan should be directed to produce specialists in fisheries so that there is a revolutionary spirit to ensure substantial development of farm fishing throughout Pakistan. The white meat of the fish is considered much better than red meat. However, unfortunately the contribution of fisheries in agriculture is only 2%, which needs to be increased to around 10% by accepting the foregoing suggestions. This area should receive critical importance to harness the untapped resources to our advantage.
FORESTRY: Incidentally, we have not witnessed any breakthrough in the forestry area, which constitutes only 2% of the agriculture sector. This area requires special attention of the government of Pakistan. It will have healthy environmental impact also if adequate attention is given to this critical area.
MANUFACTURING SECTOR In Pakistan, manufacturing sector constitute 26% of the GDP of Pakistan. It has four constituents namely; industry, minerals, construction and electricity. Everyone is still awaiting > from page ?? the announcement of industrial policy of our country by the democratic government. It is high time that an enlightened and forward-looking industrial policy should be announced with greater emphasis on dove-tailing SMEs to not only ensure economic development, but also promote employment. It will also have positive contribution in business and exports of Pakistan.
It is interesting to note that, while industrial growth of Pakistan on large scale manufacturing front has been volatile, yet the SMEs exhibited inherent strength of registering 7-8% annual growth. Electricity shortages have caused some setback to industrial growth of Pakistan. To our misfortune, Pakistan continued to ignore tapping the untapped 58,000 MW from hydel resources. Hydel dams are the crying need of Pakistan. The construction of Kala Bagh Dam should be given top priority as its feasibility and design are ready and its construction can result into production of 3,600 MW electricity from hydel electricity at an approximate cost of Rs 2 per unit. All provinces should be encouraged to construct small hydel dams, which can also avoid the onslaught of floods, but also produce cheap and affordable electricity from hydel resources.
This breakthrough needs to be immediately achieved so that Pakistan industrial activities become competitive on domestic and international basis.
Mineral development, unfortunately, has not received attention in the past. To our misfortune, the growth of mineral development during 2009-10 has been negative. This trend needs to be reversed by committing time to achieve a breakthrough in mineral development policy of the country. We need to focus on exploiting resources in the area of gold, silver, oil and several other metals which God has gifted us and are the real hidden wealth of the country. Mineral policy announcement has not seen the light of the day as yet.
SERVICES SECTOR The services sector constitutes 52% of the GDP of Pakistan. It has major four components namely: (1) Physical (2) social (3) financial (4) intellectual. A strategic plan is needed to develop services sector which should be exploited to our great advantage.
There is one school of thought in economics, which believes that if the state develops infrastructure, economic development will follow. Accordingly, the government may kindly define her role and rather than getting themselves involved in all kinds of activities, it must focus its attention on the development of infrastructure. We must focus on development of physical infrastructure.
Fortunately, in the communication sector, the cellphone has made a great contribution in connectivity of the people, which is a positive sign as logistics to economic growth. However, construction of dams, broadening of the roads, development of farm to market roads need a very careful attention. This can create job opportunities also and can usher in an era of prosperity in rural sector.
A breakthrough is needed in electricity also, which has been included in manufacturing. Recently, the government of India has attracted considerable funds for physical infrastructure development from Saudi Arabia on Islamic mode of finance. Synergy is needed on our part through getting our foreign policy to work to our advantage in channelizing funds from abroad for infrastructure development. In fact, there is a need for specials corporation to be established for physical infrastructure development in Pakistan. The Indian experience, if shared, can be of greater advantage to us.
Moreover, the social sector of Pakistan requires immediate attention. We need to focus our attention on qualitative aspects for developing national institutions to tie up with the socio-economic development of the country by allocating at least 4% of GDP of our country.
The health area is also of critical nature and screams for its development to serve the common man. In rural areas, the facilities need to be developed. In financial sector, special attention need to be given for development of insurance, which is only contributing 0.94% to the GDP of Pakistan. Insurance culture needs to be cultivated to a breakthrough effort and qualitative measures should be taken to reduce non-performing loans of financial institutions and diverting substantial funds to the SMEs to help reduce poverty, promote employment, boost exports and pave the way for social stability of strengthening the middle class and help the down-trodden. Lot of money is needed to be allocated for strengthening the R&D institutions so that intellectual capital continues to be increased as the 5th component of factors of production.
FEDERAL BUDGET DEFICITS Unfortunately, federal budgets of our country have shown continuous deficits. The hope is that budget deficit for 2010 - 11 will be 4% of the GDP. However, this has yet to crystallise in reality. This as at best is stated as wish list or hope of the future. The European Union believes that 4% budget deficit is a safe limit, but we must work to achieve this target. Table-A shows budget deficits with special focus on federal budget deficit of 2010-11.
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Table A: Federal Budget Deficits
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Rs Billion
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Particulars 2007-08 2008-09 2009-10 2010-11
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NEEDED
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1. Recurring Budget 1,500 1,851 2,155 1,998
2. ADP 423 456 617 767
Total 1,923 2,307 2,772 2,765
Overall Fiscal Deficits 777 680 722 1,377
Shortfall 1,388
2,765
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FINANCING
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External 387
Internal 492
Provincial Financing 509
1,388
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There is a dire need to accelerate the base of domestic resource mobilisation, substantially cut down recurring expenditure of the government so that a balance between needed funds and the financing available is targeted with declining role of external assistance or domestic loans to finance the deficit. A breakthrough strategy is the crying need of today. The government is urged to institutionalise arrangements to work out strategy to streamline matters regarding debt management.
Balance of trade deficit
Except for three years namely; 1947-48, 1950-51 and 1972-73, balance of trade of Pakistan has all along been in the deficit. The five years trends are captured in Table - "B".
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Table: B: BOT: Balance of Trade
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A: Deficits
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Year 2005-06 2006-07 2007-08 2008-09 2009-10
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(p) July-March
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Imports 25 27 35 31 22
Exports 16 17 20 19 14
Deficit 09 10 15 12 08
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B: Needed for self-reliance:
COMMITMENT STRATEGY See way Forward (Section "C")
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Table C: Debt-Trends
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Year Internal External
Rs Trilli Index Rs Trilli Index
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2009-10* 4.50 192 3.67 186
2008-09 3.86 165 3.42 174
2007-08 2.71 116 2.71 138
2006-07 2.61 1.12 2.14 109
2005-06 2.34 100 1.97 100
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*Total Rs 8.17 Trillion
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There is a need to decelerate import and accelerate exports to achieve the objectives of narrowing down, if not eliminating, the balance of trade (BOT). In this respect, twelve-point strategy for tackling the BOT deficit is suggested below:
DEBT TRENDS Unfortunately, we are a debt-ridden society. Our annual recurring budgets and ADPs, by and large, depend on debts. This has punctured the spirit of self-reliance. There is a need to reverse the trend through a will power so that the government should tighten her belt and introduce revolutionary measures on Financial Management front to achieve the much-coveted goal of self-reliance. A strategy in this respect is the crying need of today. The following Table-"C" (P7-14) shows trends of internal and external debts of Pakistan.
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S. No Focus Direction
=====================================================================
1. Priority For Quantum Jump
2. Global Share Programmed Increase
3. Regional Setting SARRC
*SAPTA-On Going
*SAFTA-Started January 01, 06
*Economic Union-2010
*Global Share: 2001-1%
2003-1.07%
2004-1.12
2005-1.18
2006-1.30
2007-1.32
2008-1.37
4. Niche Market Fish, Ready Made Garments
5. Exportable Surplus Single Factor
6. Diversification *Commodities
*Countries
*Ready Made Garments
7. Product Focus *Value Addition
*ISO 9,000, ISO 14,000 & Other Series
*Non-Traditional Items-Fruits,
Fish, Vegetables
8. Approach TQM
9. New Breed of Exporters HRD
10. Export Culture War Footing
11. Institutional Approach EPZs in every Divisional
Headquarter of each province
be established
12. Slogan Exports Increase-way of life
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A Task Force is suggested to be set up to develop a strategy to substantially decrease the debt reliance and put our country on self-sustainability basis.
Way forward
In order to achieve the goal of self-reliance, the following five-point strategy is suggested for consideration by all stakeholders:
Political will: The role of parliament is very critical. It should pass resolution to adopt self-reliance as a way of life in our country. The leaders must demonstrate through their conduct of public life that they are faithful for following the path of self-reliance in their real life. Civil Society should start such movement and mass movement should be initiated for creating awareness relating to adopting self-reliance as a way of our life.
Economic management: The misfortune is that in all economics departments of our country management as a subject is not being taught. While we talk about economic management, the graduates know about economics, but have no idea about management as a discipline. Moreover, we talk about economic strategy. Strategy as a subject is not being taught in economics departments and therefore, there is a need to co-relate economics with management. A suggested matrix in this respect is given below for consideration of adoption.
BUDGET DEFICIT
The golden rule of public finance namely: "Taxation for All" should be implemented. Consequently, all persons whose annual income is above Rs 300,000 must file their income tax return and pay the due income tax. Tax exemptions available under the Second Schedule of the Income Tax Ordinance, 2001 should be tapered off in the short-run and wiped out in the long run.
We must target tax-to-GDP ratio of about 15%-18% rather than stay content with the current dismal rate of 7%-8%. Practical steps, with demonstrated results, should be taken to achieve this goal. Direct tax should be substantially increased by taxing all sources of income including agricultural income. Debt service issue should be tackled properly. At present, this component alone is carrying a burden of 45% on the annual recurring budget of Pakistan.
Loans should be re-negotiated on long-term basis and in future no loans should be taken so that the debt-servicing burden continues to be on steep decline - leaving the surplus of annual recurring budget for financing the Annual Development Plan of Pakistan.
Cost of running the government is too high and it should be substantially cut down and restricted to 20% of the total recurring budget of Pakistan. All avoidable waste should be identified and a permanent commission in the Ministry of Finance should be established to monitor and suggest measures to ensure substantial decrease in the cost of running the government. The defence expenditure may be reviewed in the light of geo-political conditions of Pakistan. A twenty-year "No War Pact" between India and Pakistan under the UN umbrella may be considered so that both countries can divert their defence expenditure to development expenditure. This will reduce tensions and will also enable diversion of funds to reduce poverty. Effective project monitoring should be enforced to ensure completion of projects on time with no cost over-run.
Balance of trade (BoT): Twelve-point strategy already stated above may be given a favourable consideration.
Dependence on debts: A five-year plan to reduce the existing debt needs to be developed with a breakthrough approach.
CONCLUSION It is ardently hoped that all stakeholders, including the government of Pakistan, should give serious attention to the foregoing humble suggestions so that Pakistan is put on the path of self-reliance to ensure economic sovereignty of our country, to achieve prosperity across the board and ensure rising image of our country. The earlier, this is done the better.
(The writer is Professor Emeritus and Founder Principal, Hailey College of Banking & Finance, University of the Punjab, Allama Iqbal Campus, Lahore) (Cell: 0333-4363363) (Email: [email protected])
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