Pakistan's Ailing Economy! Will our Wailing Resolve the Problem?

  

How many times do we have to remind ourselves that during the 1960s Pakistan had the fastest growing economy in the whole of Asia, Africa, and Latin America; that the South Koreans borrowed Pakistan’s second five-year plan as a guideline for their own economic development. And would you believe that in 1963 the Ayub Khan-led government gave a $25 million (Compensating for Inflation that would be more than $250 million in 2018.) loan to Germany (West Germany) for a period of 20 years?

 During this period a significant number of Pakistanis had migrated to the UK, the USA and some other European countries. There were a few thousand Pakistani immigrant workers in KSA, Bahrain, and Kuwait, but almost none in the Trucial States (Now UAE). The Trucial States was a British protectorate that existed from 1820 to 1971 before becoming the UAE. All these states were ruled by the British.

 Kuwait was granted independence in 1961. Bahrain became independent in August and Qatar in September 1971. UAE came into existence in December 1971. Ras al-Khaimah joined UAE later, on 10 January 1972. From hindsight, one can see that the colonial powers had set up a string of strategic outposts to control the Asia-Pacific region: Singapore- Taiwan - Hong Kong- the Gulf. The Shah of Iran was touted by these Colonial powers as the “Policeman of the Gulf”.

 Pakistan’s economy during the 1960s was independent of significant remittances from the Gulf States. Pakistan was getting aid from the World Bank for the development of alternate irrigation infrastructure in the wake of the Indus Basin Treaty. Agricultural reforms were put in place by Ayub Khan and a Green Revolution was in the offing. Factories were being established in both East and West Pakistan. US dollar was equivalent to PKR 4.50. This exchange rate remained largely undisturbed during Ayub’s eleven-year rule. 

There is a difference between indulging in blame games and burying our heads in the sand. Hence a balanced analysis of our economy is necessary to frame our future response. 

The 1965 War destabilized Pakistan immensely. It was followed by the choreographed war in 1971 resulting in the dismemberment of Pakistan. In truncated Pakistan, Bhutto emerged as the undisputed leader who would rule this jinxed country with impunity during the next six years. Bhutto, while ruling Pakistan, had tried to impose his socialist agenda on the economy. Acting with a vengeance against the big businesses which had generally opposed him during the 1970 elections,

 Bhutto had nationalized heavy industries and banks. Later on, his wrath would fall even on small businesses like flour mills and cotton ginning factories. Wali Khan, Bhutto’s arch-rival, termed the nationalization as nothing other than handing over the factories to the hopelessly inefficient and corrupt bureaucracy. As a result, huge investments in heavy engineering, chemicals, and other sectors started going down the drain, till nothing was left of the factories but hulks. While Bhutto set about destroying the old enterprises, considered by him as symbols of a decadent era, he also started creating Stalinist projects like the steel mill which, he thought, would be remembered as monuments to his greatness. 

To compensate for the disaster that befell Pakistan’s economy in the wake of nationalization, Bhutto cultivated personal relationships with the Gulf sheiks and redirected the economy on dole-outs from the Gulf States. After Bhutto, Nawaz Sharif contributed no less in turning Pakistan into a rudderless ship. Under his 30 years on again-off again rule Pakistani business houses had shifted their industrial and commercial operations to the Gulf, South East Asia, Europe, and the US. This trend has continued unabated. During the last two decades alone, the bulk of Pakistan’s textile industry has been shifted to Bangladesh and other countries. 

After depleting the country of its industrial assets, the successive political governments have encouraged the emergence of a few cartels which control the entire economy. Presently, the economy is being held hostage to sugar and fertilizer barons, most of them were politicians and retired civil and army bureaucrats. 

The economy of Pakistan, as it stands today, badly needs foreign remittances for its survival. Also, the existing balance of payments cannot support the armed forces to even maintain a semblance of a viable defensive posture. And this is when the army and the air force are fighting the war on terror as well as keeping more than an eye on our eastern border.

Pakistan’s economy today has become so much dependent upon foreign remittances, particularly those from the Gulf States, that the closure of the remittance pipeline will create a grave disaster for the country. Out of the UN reported Diaspora of approximately 76, 00,000 Pakistanis, nearly 40, 00,000 are working in the Gulf. We will never know the actual amount of remittances because a significant portion is sent through money laundering.

 However, according to the UN Department of Economic and Social Affairs, expatriates from all over the world send around $20 billion to Pakistan every year. Nearly half of this amount, i.e. $10 billion, comes from the Gulf. A rough breakdown of the Pakistanis working in the Gulf is given below:

Country                  Expatriates              

  S. Arabia                 1.9 M

UAE                           1.2 M

Qatar                           1,15,000

 Bahrain                       1,12,000 

Kuwait                         1,17,544

 Oman                          2,35000   

 Note: The figures are based on a  2014-15 survey. 

Even before the Corona pandemic, the world economies, particularly of the Gulf States, had started slowing down. State Bank of Pakistan (SBP) announced that remittances fell by nearly 2% during the first seven months (July 2016 to January 2017). The decline was registered with the US, UK, Saudi Arabia, and the United Arab Emirates. 

Overseas financial transfers, reported SBP, would continue to fall as uncertainty prevailed not only in the US but also in the Brexit-marred UK and turmoil-hit members of the Gulf Cooperation Council (GCC). During this period, remittances from Saudi Arabia declined 5.6% to $3.70 billion, United Arab Emirates 1.8% to $2.44 billion, and 1.7% to $1.34 billion from other nations of the GCC. 

The SBP noted that the remittances summed a record $19.9 billion in 2015-16 till June 30. The GCC resident Pakistanis contribute 65% of the country’s overall remittances, with Saudi Arabia and the UAE the top two sources. Pakistan’s over-reliance on remittances from the Gulf has another underside. In August 2016, thousands of jobless Pakistanis were stranded and without food and basic life services in Saudi Arabia after their Saudi employers laid them off. Ostensibly, this was due to the plunge in world oil prices.

Pakistan’s economy will have to be re-engineered if we want to exist, not merely survive, as a strong and self-reliant nation. For this to happen, our over-reliance on foreign remittances will have to be replaced by an economy based on value-added agricultural and industrial exports. If we start today, it will take at least a decade to restructure the economy and establish it on firm foundations. 

Saleem Akhtar Malik 

26 April, 2020