FeaturedNationalVOLUME 19 ISSUE # 2

Time to discard a failed economic model

Despite dole-outs from the IMF and assistance from international financial institutions, Pakistan’s economic woes are nowhere near a solution. Inflation has touched stratospheric heights, while the debt burden keeps on piling up. As a result more and more Pakistanis are sinking below the poverty line. The latest estimate is that about 40 percent Pakistanis have joined the ranks of the desperately poor.

The reasons for our continuous economic decline are many, the chief ones being structural weaknesses and anomalies and the capture of national resources by a small elite, depriving the majority of people of their due economic and social rights. As a result, the perception has been growing of a failing state as the entrenched groups, irrespective of their political affiliations, control the country’s power structure, jealously safeguarding their class and corporate interests.

The tax structure is skewed in favour of the rich and powerful many of whom sit in parliament and influence and manipulate policy making. Powerful lobbies seek and get exemption from the tax net, while the financial burden is placed on the common populace. According to experts, the country’s entire power structure is built in such a way as to serve the corporate interests of powerful ruling classes.

While burdening the masses with more taxes, as part of the IMF’s programme, the government has throughout refrained from broadening the tax net to cover real estate, retail business and big landlords. According to data compiled by the FBR, the salaried people pay 200 per cent more taxes than the combined taxes paid by the country’s exporters and undertaxed retailers. While more taxes have been piled on the salaried classes in the last budget, thousands of retailers have been left out of the tax net because of political reasons. It is interesting to note here that last year a tweet from a political leader forced the then finance minister to withdraw a nominal tax on the retailers. Over the years, political instability has weakened state institutions due to which the country has been unable to embark upon the path to economic reconstruction and progress in order to end financial dependence on multilateral agencies and external donors. An IMF report released last month said that our economy faces “exceptionally high” risks and multifaceted challenges but it failed to stir our economic managers.

What is the pathway to reform? How can the economy be rescued from the impending collapse? The only solution is to gradually reduce our dependence foreign loans and make do with indigenous resources. To cope with a default-like situation, Pakistan must control extravagance and waste and learn to live within its means. Those who say that the country can develop quickly with the help of foreign loans live in a fool’s paradise. The path to salvation is austerity, better economic management and maximum use of national resources.

While the rulers live a luxurious lifestyle, the majority of the population is deprived of basic amenities of life, including clean and safe drinking water, good health and education facilities and public transportation. In 2021, the United Nations Development Programme ranked Pakistan 152 out of 189 countries in terms of human development. Pakistan fared worst in South Asia, falling behind India, Bangladesh and Nepal.

In 2022, Pakistan’s economy grew at a dismal rate of 2 percent and its foreign reserves now stand at about $7 billion, hardly enough to cover even one month of imports. In the light of the past experience, there is an urgent need to discard the present development paradigm and adopt a new model which should place more emphasis on developing human capital, maximising industrialization and exports, plugging loopholes in tax collection and ensuring good governance and rule of law.

Equally important is the need to close the income and wealth gap in the country which is fueling social tension and unrest. Taxpayers’ money should be used for welfare and development of the people, instead of wasting it on open-ended perks and privileges of the civil bureaucracy which have no parallel in the world. According to a recent UNDP report, as much as 18 billion dollars are spent every year on sustaining the royal lifestyle of the ruling classes who have access to free patrol, gas, electricity and other amenities. To add insult to injury, there is no accountability of the misuse of public money. The trajectory of the past 70 years has to be reversed if Pakistan’s slide into the category of failing states has to be stopped.