CLUSTER OF ECONOMIC PROBLEMS
PROF. SAEED AHMAD SIDDIQUI
Oct 8 - 14, 2012
In 21st. century, Economy has turned into religion; all other affairs have become less important than the economic affairs. It travels through the veins of the state as blood, the force of human problem, the base of wars and the reason to rule by the governments. Despite the fact that Pakistan owns the best canal system of the world, advantageous geo-strategic location and the treasure of untapped natural resources, the economy of the country is becoming the victim of ever increasing poverty and has reached to the edge of sinking. The nation, in spite of chronic poverty and external pressures occupied the position of nuclear power which proves that Pakistan can show the miracles if country could find patriotic and dynamic leadership.
As far as the present scenario, the economy of Pakistan is moving on the downward spiral. The rate of inflation is 25% (food inflation 50), foreign exchange reserves are depleting and there is every possibility that the government, regarding its debts, would soon be declared 'defaulter'. Rapid increase especially in the price of food items have hit Pakistan hard and foreign investors like multi-national engineering company Siemens Pakistan have begun to withdraw their capital from Pakistan.
Government has shown no concern with the activities of terror activists which is nothing but to extend helping hand to them. Terrorism in Pakistan is an important cause of regional instability. As consequence of ineffective governance and incapability to address the economic problems, agitation against the government can reach to the dangerous point.
There are various reasons of economic crisis in Pakistan:
1. SUICIDAL ATTACKS: Suicidal attacks in urban areas of Pakistan are causing spreading fear amongst the people, alarming fall in investments, flight of foreign capital from the country and specially Dubai Stock Exchange crash. Statistics proves the truth that the foreign investment was $ 700,63.5 million in 2007 which decreased in 2008 to $329 million only. If the scenario of the attacks remains unchanged, foreign investments will go down further.
2. LACK OF GOVERNMENT INTEREST: Another important reason of economic crisis is that the present government of Pakistan is not taking interest at all in solving the current economic issues claiming all the time 'all is well'. Though some halfhearted positive steps were taken like controlling load shedding, Banazeer Income Support Program, Distribution of land in Sindh and tight tariff system against import of luxuries. Unfortunately, expected results could not be achieved.
3. FOOD PROBLEM: As a result of increasing prices of oil, seeds, fertilizers, water and insecticides agricultural production is decreasing. Credit facilities are not provided to small farmers therefore, their chronic poverty is not permitting them to improve and increase productivity and production. Power shortage, rapid population growth, poor governance in food management and government failure in stopping smuggling of food grains to Afghanistan have created food shortage in Pakistan. Iran and central Asia accumulated big food stocks due to American war and world food crisis encouraged food smuggling causing shortage of food in Pakistan. Food shortage in Pakistan has also been created due to less attention of the government towards dairy and live stock. All these causes led towards food crisis in Pakistan.
4. OIL PRICES: Energy crisis is also a serious challenge for Pakistan due to increasing oil prices because of ever increasing demand for oil due to growing economies of India and China. Curtail in oil export by Iran, Invasion of Iraq, limited supply of oil by OPEC and refusal by Saudi Arabia to increase supply of oil also gripped Pakistan in energy crisis.
5. WORLD FOOD CRISIS: World food crisis has also been an economic problem for Pakistan. World food crisis is the result of explosion in world population, increase in high food consuming middle class in India and China, less production in India, earth quack in China and increase in world prices of oil.
6. ADVERSE BALANCE OF PAYMENTS: Deceleration in manufacturing sector is another economic issue. Private investment in manufacturing sector of Pakistan has been discouraged because of energy crisis, incidents of terrorism and discouragement of private investment due to increase in rate of interest by SBP. Energy crisis has caused the closer of 75 industrial units in Karachi and 85 units in Faisalabad. Consequently, exports have been decreased with increase of imports leading to increase in degree of adversity in the balance of payments.
7. POOR TAX SYSTEM: Another economic issue is the defective tax system in which tax factually is paid by salaried people. The large sectors, using corruption techniques, find safe way not to pay tax. Huge amount of stolen tax is parked every year in foreign banks. Government of Pakistan is not ignorant of this issue buy hesitant to address it due to unknown reasons.
8. FISCAL DEFICIT: Fiscal deficit is 6.5 of GDP while it was targeted at 4%. The target could not be achieved due to seepage in revenues, low tax collection and heavy subsidy on oil. The government borrowed from SBP because of increase in development expenditure and fall in external financing flow increasing money circulation. All these factors have been the cause of persistent deficit budget.
9. UNILATERAL GROWTH AND CHINA FACTOR: Previous government, encouraging service sector, did not encourage boost in production. Consequent to this, employment opportunities decreased increasing gravity of unemployment problem in Pakistan.
10. MISCELLANEOUS ISSUES: IMF loans are impeding process of development and burden on the masses. Dominant volume of illiterate and untrained labor causes less production. Increasing population at the rate of 1.9% is swallowing the indigenous resources of the country. Defence budget is made at the cost of development. Regional differences, stopping the extension of gas pipe line, have made the use of Gawadar Port limited.
SOLUTIONS TO THE PROBLEMS: The junk of economic problems, being faced by Pakistan, can be resolved through following measure:
1. Practice of easy borrowing by the government from SBP should be stopped.
2. The government should show seriousness in adopting consistent short and long term policies.
3. Priority should be given to agriculture, water, health and education.
4. Provinces should levy and enhance tax on income from agriculture.
5. High excise duty on unnecessary consumption items should be levied so that foreign exchange reserves may be saved.
6. State land should be distributed amongst landless and household tenants so that the agricultural production may be increased. Credit facilities should be provided to poor farmers. Small farmers should be provided small loans so that they may be the equity holders in corporate enterprises like milk, livestock, fisheries, processed food etc.
7. Independent Federal Bureau should be established under a professional head which should report directly to the parliament not the government.
8. The logistic cost within the country should be reduced.
9. The problem of deteriorating power shortage should immediately be addressed through short-term energy program capable to provide standard energy at reasonable price.
10. As small and medium farmers have a lot of potentials to enhance per hectare productivity and employment therefore, their growth should be increased.
11. Workers skill is the factor that provides competitive edge to over firms in the international markets therefore, programs are needed for upgrading the skills.
12. Key rural infra-structure based on water, roads and electricity should be expanded, be modernized and maintained properly.
13. Resources should be decentralized and provinces should be left free to decide their priorities themselves.
14. The suitable measures should be taken to bridge or reduce the gap of economic disparity between developed and less developed areas. The government of Baluchistan should be provided with the resources for implementing its own strategy. The same strategy may be adopted for Khybar Pakhtoon Khua.
15. Investing in Pakistan should be encouraged by developing infra-structure and giving reasonable incentives to access to the South-Asian market.