Self-sufficiency versus loan dependence

As Pakistan steps into critical discussions with the International Monetary Fund (IMF), it’s confronting immense financial pressures while simultaneously holding strategies that could fundamentally change its fortunes: the promise of export-led growth as well as an immense potential in much enhanced agricultural produce.

With a debt-to-GDP ratio that has breached the 70% threshold, Pakistan’s economic journey is overshadowed by the enormity of its debt—60% of it being domestic, bearing the brunt of 85% of the interest payments. This situation paints a vivid picture of the fiscal tightrope the country walks on.**

Yet, why turn to the IMF when an untapped potential lies within? Pakistan’s industrial, agriculture and tech sectors are a beacon of hope, resilience and demonstrate vast capabilities. This scenario presents a compelling case: while Pakistan seeks the IMF’s support, its flourishing textile exports, agriculture sector that can produce surplus and a growing tech sector signify an inherent strength and capacity for economic self-reliance.

This juxtaposition of external financial assistance and the potential for home-grown economic revival underscores a critical question — why rely on the IMF when there’s a path to harnessing export-driven growth towards financial independence?

While Pakistan has got other ways to bring in cash, like remittances from abroad or foreign investments, they’re not going to be the game-changer we need anytime soon. Various studies such as the study by Perez-Saiz, H., Dridi, J., Gursoy, T., & Bari, M. (2019) suggests that remittances do not automatically boost a country’s overall economy as much as we might think. While families receiving this money do end up spending more, this spending doesn’t lead to economic growth. The researchers found that whether these remittances help the economy depends a lot on how different parts of the economy are connected. This means that just getting more remittances doesn’t necessarily make the economy stronger. Moreover, the consensus in academic research is that remittances lead to inflation as they increase aggregate demand via higher household income, resulting in increased consumption.

So, we’re left facing some tough choices. From July to February, Pakistan’s exports are consistently trailing behind imports, painting a picture of a trade imbalance. In February alone, the figures are quite telling: exports stand at a modest $2.57 billion, while imports loom at a hefty $4.28 billion (Source: SBP). This substantial gap signals an urgent call to action for enhancing export capabilities to match or even overtake the towering import figures. Remittances, though stable, do not compensate for this disparity, highlighting the critical need for bolstering Pakistan’s export sector to improve the trade scenario.

But, there’s a silver lining. With the right push and a bit of creativity, exports can be our ticket to turning things around. It’s not just about selling more, but selling smarter, tapping into a world that wants what we have to offer. For example, Pakistan’s high agricultural import bill could be significantly reduced by revamping the agri-sector to produce self-sufficiency and a sizeable exportable surplus, leveraging initiatives like Special Investment Facilitation Council (SIFC) for corporate farming and agro-industry investments.

All is not lost, we’ve got a world of opportunities right at our fingertips. Pakistan needs to align its textile sector with global trends, shifting towards a 70-30% mix of man-made fibers (MMF) and cotton products. Currently, dominated by cotton exports, diversifying into MMF and high-performance apparel—where global trade is focused—could significantly enhance Pakistan’s export basket. Such a move will contribute to economic stability by meeting international market demands more effectively.

The real challenge isn’t finding new things to sell but getting better at selling what we’re already good at, for example textiles, agricultural and tech products. We’ve got to think bigger, reach further, and make sure we’re not just participants but winners in the global market.

For example, there’s been a remarkable upswing in Pakistan Apparel Exports, particularly in 2021, where we see substantial growth across all markets. The EU and the USA stand out with pronounced spikes, suggesting that efforts to broaden the export base are bearing fruit. This robust performance supports the narrative that Pakistan is moving in the right direction by diversifying its textile exports, leaning into products with higher global demand. With the right policies and continued focus on quality and market expansion, Pakistan can not only secure its position in the global market but also further the goals of economic stability and growth.

And here’s the kicker: we can do it. The agriculture sector also has immense scope for improvement through enhanced yields, corporate farming and getting areas such as the Cholistan Desert into productive use. Israel’s successful transformation of the Negev Desert into a flourishing agricultural area provides a blueprint to Pakistan to potentially replicate it in the Cholistan Desert. Adopting similar innovative farming techniques could spur agricultural development, increase food production, boost employment rate and reduce Pakistan’s reliance on foreign debt by boosting the economy through homegrown resources.

Addressing the agricultural productivity gap in Pakistan could be a significant leap toward economic self-sufficiency. The country’s current agricultural yield lags behind that of leading global producers. For instance, Pakistan’s wheat yield is significantly lower than China’s maximum yield, as is the case with rice, maize, sugarcane, and cotton. By closing this yield gap through the adoption of modern farming techniques, better irrigation systems, and superior seeds, Pakistan can substantially increase its economic output which in the ultimate analysis will allow Pakistan to maintain its potential and economic sovereignty while providing employment to its very large workforce.

Consider the wheat production: if Pakistan’s yield per hectare reaches the level of China’s, the output increase could translate to an additional $5.9675 billion. Similar increases across other major crops like rice, maize, sugarcane, and cotton could collectively add up to over $17 billion to the economy. This additional revenue could create an exportable surplus, ensuring food security, and simultaneously addressing the country’s employment issues.

The SIFC and LIMS (Land Information & Management System) are also united on the principle that by utilizing additional lands for such optimized agricultural practices, Pakistan can further boost its economy. An added benefit of $10 billion, in addition to the $17 billion enumerated above, is foreseeable by doing so, enhancing the nation’s export profile.

This kind of agricultural overhaul not only promises to fill existing productivity gaps but also to set a foundation for a more stable and prosperous Pakistan, one where dependency on external debt is greatly reduced, and local resources are fully harnessed for national growth.

Furthermore, one of the initiatives, which is the “1000 Garment Plants” initiative, also aims to double Pakistan’s textile and apparel export capacity from $25 billion to $50 billion by adding 200 garment plants each year for five years. This strategic expansion is expected to revolutionize exports, cater to global market demands, and creating over 1 million jobs, and significantly enhancing Pakistan’s economic landscape and reducing its dependency on foreign aid.

The recent downturn in Pakistan’s textile output, which has hit its lowest point in two decades, illustrates a significant challenge, with the industry experiencing a sharp 35% drop in Large-Scale Manufacturing (LSM) output two years ago.

Despite this setback, the textile sector demonstrated remarkable resilience by subsequently expanding its capacity by 33%. This recovery and unused capacity offer a glimmer of hope amidst the data, pointing to the industry’s ability to rebound.

Although there was a slight decline in textile and apparel exports in the eight months of FY24 compared to FY23, the existence of this unused capacity suggests that the industry is poised for a potential upswing. This capacity to bounce back reinforces the belief that nurturing domestic industries like textiles is crucial for Pakistan’s economic health, potentially more so than relying on unpredictable foreign aid. Harnessing this latent potential to amplify textile production, the nation could enhance its export volume, shrink its trade deficits, and stride towards an economically autonomous future, cutting down its reliance on international financial aid and loans.

One thing to note is that the escalating energy prices have had a significant knock-on effect on Pakistan’s textile industry. As costs rise, local producers find it increasingly difficult to compete on price, leading to a greater reliance on international imports to meet domestic demand. This shift has been detrimental to the foundational sectors of the textile industry such as spinning and weaving, which are struggling to stay afloat. Consequently, many of these essential back-end industries are being forced to shut down, directly impacting Pakistan’s net exports. This decrease in production capacity undermines the country’s ability to export, exacerbating the trade deficit and challenging the nation’s goal of economic self-sufficiency.

Pakistan’s textile sector is not just keeping pace—it’s moving ahead, particularly in the apparel export arena. This industry is undergoing a remarkable transformation, one that is gearing up for substantial export growth and is set to enhance its position in the international market. This positive shift was recently highlighted at a US International Trade Commission public hearing, where Pakistan’s growing competitiveness in the apparel sector was discussed.

The sector’s transformation is marked by the adoption of cutting-edge technologies and a commitment to transparency, aligning with global demands for traceable and sustainable production practices. The recent move towards the establishment of the National Compliance Center (NCC) is the right step in achieving these objectives. The ambitious Net Zero Pakistan Initiative underscores the country’s commitment to sustainability, with leading apparel companies aiming for a carbon-neutral footprint by 2050.

Gains in productivity within Pakistan’s textile sector remain largely untapped but hold significant potential for boosting the economy. Through modernization, such as upgrading technology and processes, the industry could achieve these gains, enhancing efficiency and output quality. Additionally, by shifting focus towards producing higher value-added textile products, Pakistan can elevate its export profile.

To revitalize its economy swiftly and substantially, Pakistan must focus on bolstering sectors like textile, agriculture, and technology exports. The tech sector, in particular, offers a lower-investment, high-return avenue for economic growth. However, its potential is severely hampered by the government’s frequent shutdowns of the internet and social media platforms, crucial for the IT and IT-enabled services (ITeS) industries.

Such disruptions not only hinder the productivity of software exporters and freelancers but also damage the trust of international clients, who prioritize reliability and timely delivery over cost. This mistrust discourages investment and partnership opportunities, pushing potential clients to seek services elsewhere, even at higher costs. As Pakistan houses the world’s second-largest online freelance workforce, ensuring uninterrupted internet access is paramount for not just the IT sector but for the entire economy.

The failure to provide stable connectivity undermines Pakistan’s capacity to reduce its dependency on foreign aid by leveraging its potential for self-sufficiency through IT sector exports, which are currently projected to reach USD 3.5 billion this year.

Pakistan’s history is a testament to its potential for growth, spanning diverse sectors from textiles to technology. Despite challenges such as energy costs, the nation has consistently demonstrated its capacity to rise above obstacles, fueled by its competitive edge in labour costs. The vision for economic resurgence now hinges on a cohesive, export-focused strategy that enjoys unwavering support from the highest echelons of leadership in the new government.

At this pivotal moment, with the complexities of IMF negotiations ahead and the economic landscape in flux, Pakistan’s recent strides in the textile and the recent initiatives being taken in the agriculture sector illuminate the path to sustainable development.

By capitalising on this success, expanding its economic horizons, and enacting meaningful reforms, Pakistan is charting its course towards a prosperous future. It’s a future where economic self-sufficiency is not just an aspiration but a reality, with exports serving as the cornerstone of Pakistan’s economic sovereignty.

Copyright Business Recorder, 2024