Pakistan's economy has always remained import-based and aid-assisted. It is overwhelmingly import-based because our manufacturers have continued to feel financially more comfortable in low value-added exports. The burgeoning gap between flagging export proceeds and steeply rising import payments is by compulsion covered with foreign aid which is actually loan. And the swelling debt which comes attached with strings further worsens the balance of payments (BoP) position because of the soaring burden of debt repayment on the budget, forcing successive governments to incur ever more condition-ridden debt.
And we need aid and more aid and that too attached because our big businesses, landed aristocracy and professionals have consistently refused to pay taxes on their incomes, making it next to impossible for successive governments to balance the budget without internal and external borrowings. Most of the foreign loans though at times come carrying highly concessional rates and occasionally in the shape of outright grants; to our misfortune, however, it has been observed that the attached conditions work towards siphoning back 99 cents to one donor out of each aid dollar in the shape of costly imports of goods and services from donor country including compulsory use of donor's shipping services.
One could get a good idea about our export potential by taking a quick glance at the lists of our main exports and imports. Both lists are depressing. There appears to be no way we can reduce our dependence on the items listed on the import side, unless of course we stumble upon big oil and gas discoveries. And there seems to be no way we can expand the list of our exports or make our manufacturers invest in higher value-added exports. And continued adherence to this depressing foreign trade regime has finally submerged our economy under an impossible burden of debt with imminent default looming large all the time.
What is the way out of this ever tightening debt trap? Continue living with such a depressing foreign trade regime and suffer the imminent consequences or try looking for ways to break the shackles of this regime?
Let us take a look at our comparative advantages: 1) We are an agricultural country; 2) We are a market of about 200 million people; 3) Pakistan is located at the crossings of trade routes from Casablanca in Africa to Kashgar in West China's Xinjiang Uyghur autonomous region and from Thailand in Southeast Asia to Turkey beyond the Middle East; 4) China and Pakistan are all set to build a 2,000-kilometre economic corridor connecting Kashgar in China to the south-western Pakistani port of Gwadar with road and rail. And one cannot also rule out the possibility -- in a couple of years -- of overland transit trade route through Pakistan linking India with Afghanistan and beyond. These advantages can be exploited to the maximum if we become a warehouse/trans-shipment economy rather than continue to hanker for an industrial economy, which we have been trying all these years to achieve but without any success.
This would require a well-thought-out trade policy that would allow almost free-of-duty entry of raw materials, intermediaries and equipment in knock-down condition to be warehoused in Pakistan and then forwarded to next/final destinations after the required value addition. Such a regime would also require letting the rupee appreciate/depreciate on its own without any artificial crutches. Such a policy would also attract foreign direct investment in avenues in which it would be more economical for the investors to fabricate items inside Pakistan for local consumption and also to re-export them. This will also facilitate the transfer of technology and training of skilled manpower. Transfer of appropriate technologies would also open the way for Pakistan maturing from being an agricultural country to becoming a leading high quality processed-food exporter.
The reason why we have continued to fail in establishing a social-welfare oriented economy in the country despite proclaiming that that is what we are engaged in doing year after year, is because Pakistan has continued to remain a security state since its inception. There is no way a security state would become a social-welfare state just by wishing it to be so. We need to re-think our economic strategies and come up with an economic vision that would ensure our security and at the same time enable the national economy to generate enough 'Roti, Kapra and Makan'(RKM) for all.
Of course many would derisively reject the mantra of RKM which is associated with the late ZA Bhutto and his PPP. But the fact is, it is no lightweight mantra. Within it is embedded what today is called social capitalism. Bhutto was not an economic visionary. In fact, his nationalisation policy is considered by many a huge disaster. But the economic assets that he successfully built during his short rule of four years cannot be matched by any regime since, either military or civilian, except to some extent that of Field Marshal Ayub Khan, that preceded him. Bhutto's daughter Benazir Bhutto, too, was no economic visionary; but one could always detect attempts by her to make the best use of Pakistan's strategic location as a hub of regional commercial activity. She was vehemently opposed on grounds of security. But today we are just about to become a trans-shipment economy because China wants to shorten its reach to world markets from 45 to 12 days. And with Chinese shipments traversing Pakistan round the clock, we can now afford to allow transit trade facility to India without any security reservations.
A book by Thomas Piketty (Capital in the Twenty-First Century, 2014) has discussed the kind of inequality that our successive budgets have generated in great detail and offered solutions to avert it. He argues that the rate of capital return has been persistently greater than the rate of economic growth, and that this has caused wealth inequality to widen. He shows that inequality is not an accident but rather a feature of capitalism that can be reversed only through state intervention. He argues that unless capitalism is reformed, the very democratic order will be threatened.
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