Pakistan’s deepening crisis

Pakistan’s crisis is deepening by the day. First and foremost, it’s the economy stupid! Pakistan has throughout its history been critically dependent on aid dollops from international and bilateral lenders to keep afloat.

The country’s joining the US-led west soon after Independence ensured it would keep being propped up as a necessary adjunct of the Cold War. That Cold War is long over, and the current Cold War (the US-led west against Russia and China) does not offer anywhere near the largesse of the past.

It is understandable why each economic downturn or crisis induces a return to the IMF (International Monetary Fund). Without the lender of last resort’s imprimatur, the international markets look askance at our efforts to raise funds through floating bonds, etc.

By now, given our chequered record of agreeing to the IMF’s terms and then abandoning them when one or two tranches have been received, there is not only considerable scepticism in the IMF about our promises and commitments, even our friendly ‘bailout’ countries such as Saudi Arabia and the UAE are waiting for the outcome of our interaction with the IMF before offering relief on old debts or indeed new loans.

The exception in this regard is China, but its contributions to our economy largely rest in CPEC (China Pakistan Economic Corridor) and direct investment, neither of which support our chronic current account balance deficit or our foreign exchange reserves, critical for imports. It is the restriction of imports by the Pakistan Democratic Movement (PDM) government that is leading to industries shutting down left, right and centre for lack of raw materials and spare parts. Hardly an inspiring scenario.

The PDM government has lost an enormous amount of political capital after coming into power last year. Their pleas that they inherited an economic mess from the previous Pakistan Tehreek-e-Insaf (PTI) government led by Imran Khan are increasingly falling on deaf ears, given the travails of the public facing unprecedented inflation.

Foodstuffs, including the staple wheat flour, are increasingly beyond the reach of ordinary mortals, compounded by distribution roadblocks of controlled price wheat and flour.

The economic development model adopted by Pakistan in the early 1950s consisted of the state setting up industries and then gifting them to favourites at low prices. What was created as a result was not an entrepreneurial class as understood commonly, but a rentier bourgeoisie, especially in the major industry textiles, which to this day cannot compete internationally and is therefore addicted to concessions from the state.

If the historical trajectory of the development of industry worldwide is taken account of, mass consumer goods industry should have been followed by the setting up of capital goods industry in order to move towards being able to fulfil the need for plant and machinery internally. Far from this, Pakistan is still, 75 years on, critically dependent on imports not only for raw materials, but also indispensable plant and machinery. One index of the creation of a capital goods industry is the amount of steel and iron a country produces. Just mentioning this reminds of the fate of the shut Pakistan Steel Mills, the largest and potentially most important steel unit.

In other developing countries, especially India, heavy capital goods industry was set up in the public sector since private capital was reluctant to invest in a sector requiring heavy investment, and offering relatively low, long gestation returns. The logic of private capital is maximisation of profit, not national needs or concerns. Our flawed experiment of nationalisation of industry (with the exception of textiles) under Zulfikar Ali Bhutto was followed since 1977 by the mantra of privatisation. Arguably that has proved a disaster, favouring the real estate sector and starting the process of deindustrialisation that still has us in its grip. Reflect on the fact that not one big industry has been set up in the 46 years since 1977.

What Pakistan needs is to revisit the assumptions of our (now neoliberal) economic development framework in the light of the fruits it has yielded. Our exports are around a third of our imports. Industry as at present constituted cannot function without the bulk (around 90 percent) of these imports since we are wholly dependent on imported raw material and spare parts. Our mentionable export surpluses (apart from textiles) are few and far between.

Our energy import dependence is crippling. What should seriously be considered in the light of these facts is an industrial policy of ‘walking on two legs’. That implies import substitution to the extent possible by setting up manufacturing enterprises that can at least reduce our dependence on imported spare parts and even capital goods (plant and machinery). At the same time, export-oriented industry needs to be expanded to reduce our trade and current account deficits.

Agriculture too needs a rethink. The famed ‘bread basket’ of the Subcontinent before Partition is today critically dependent on food imports. The much touted ‘green revolution’ of the 1960s rested on the base of capitalist farming, incrementally using machinery for cultivation. But this inevitably had the consequence of throwing tenants off the land in favour of ‘self-cultivation’, thereby adding to the army of the landless rural workers.

A concomitant and hoped for increase in agricultural production has failed to arrive. Rather than relying on this failed capitalist agriculture strategy, we should seriously consider redistribution of lands from the large (feudal) landowners to small holders who would be then expected to practice intensive cultivation. This would increase agricultural production and serve the ends of equity.

Is this all pie-in-the-sky? Am I just dreaming? If so, worse may follow.

Copyright Business Recorder, 2023