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Cover Story

Where to Go?

Pakistan’s political and economic crises are not the result of any particular event in the recent past; it is the accumulated result of the actions taken, especially after 2000.

By Syed Shabbar Zaidi | April 2023


Muslims of the Indian sub-continent got an independent state in 1947. Since then they have been dealing with one primary question: where to go? Or what were the objectives of the newly-formed state in areas which for centuries remained part of one unit called the Indian subcontinent. The party leading the movement, the All India Muslim League, never had any concrete and comprehensive economic plan for the independent Muslim state. The Indian National Congress, on the other hand, had one in the form of ‘Karachi Plan’.

The leadership in that party, including the chief, belonged to the legal community and not a single person in the initial team had any educational or professional background in economics and finance. Thus, the first finance in charge was adopted from the bureaucracy. This umbilical defect has not been corrected in the last 75 years and even today when the country is in serious economic chaos the elite as well the masses do not attribute it to the lack of economic planning.

Pakistan’s political and economic crises in 2023 are not the result of any particular event in the recent past; it is the accumulated result of the actions taken in the past, especially after 2000. The biggest politico-economic event in the history of Pakistan is the separation of the Eastern wing in 1971. There are thousands of pages describing the politico-military answers and excuses for the happening of that event, however, nobody is ready to analyse if there was any economic policy error that alienated our brothers on the Eastern side of the United Pakistan. In short, rightly or wrongly, they were not happy with the economic policy adopted by the state dominated by the people from the Western side. Same is the case again in 2023. There is a serious fear of the unknown including an inevitable default, but as a nation there is no action being taken except more and more blame games. The only action undertaken is that more loans are being begged, further mortgaging the future of our generations to come.

Finance and Economics, unlike many other subjects, relate to the future events. A day that has passed becomes irrelevant and with each new day, there is a need for food, medicine, education, housing, security and transport. All these ‘worldly’ things are essential, more equally like faith, for a human being, be him a Muslim or non-Muslim. Every society is required to provide the same to its citizens on a daily basis. The state cannot absolve of its obligation by transferring the blame to the people that they are not law-abiding, etc. This requires economic planning and a role of the state. If the state fails in doing so then it becomes a rule of the jungle where might is always right as is now happening in Pakistan.

It is unfortunate that the state of Pakistan is gradually failing in all its obligations. Amongst other negative aspects of this situation, the biggest question that starts creeping in societies like ours is that when the state is unable to fulfil its five primary obligations, namely food, health, housing, security and transport, then why should people finance the apparatus of the state by taxes? This dilemma has started appearing in the country and as a state the country is not able to generate reasonable taxes by way of direct taxes. Around 70 per cent taxes are collected by way of indirect taxes which further aggravates the situation. High incidence of indirect taxes and low base of direct taxes is the best empirical evidence of a failing state.

No state can remain isolated or disengaged with its neighbours for a long period of time. In the similar vein, no state can live on foreign aid and borrowing for all times to come. Pakistan as a state has been doing the same since its inception. It has strained relations with at least two major neighbours for the last 75 years whereas the other remaining neighbour state Iran is in a camp other than Saudi Arabia, which is our main lender of last resort. In other words, we are not comfortable from all three sides of our borders. It is for this reason we have been spending around 4 per cent of our Gross Domestic Product (GDP) on defence, which is not sustainable for a vulnerable country like Pakistan.

Govt. vows no compromise on nukes amid IMF deal delay: Shehbaz Sharif

“It is emphasised that Pakistan’s nuclear and missile programme is a national asset, which is guarded by the state. The complete programme is totally secure, foolproof and under no stress or pressure what-soever...misleading speculations about Pakistan’s nuclear and missile programme are unfortunate...
The stringent, foolproof and multi-layered security safe-guards, duly testified by the International Atomic Energy Agency, are in place. Our nuclear programme represents the unwa-vering consensus of the nation and is for deterrence.”

(Dawn, March 17, 2023)

Pakistan with a constant high expenditure on defence and limited tax base has been resorting to local and foreign borrowings indiscriminately for the last 75 years. Now in 2023 the country has reached a stage where both local and foreign debt is not serviceable. There may be further borrowing to save us from the foreign currency default, however, that action will further aggravate the already precarious position. This raises the two questions in March 2023: What is ahead? And where to go?

The whole nation is waiting for an irrelevant document called the Staff Level Agreement with the International Monetary Fund (IMF) for resumption of the IMF program and the instalment Pakistan has to receive under that program. It is irrelevant for the reason that it does not provide cure and remedy for the ills the country is suffering from. The IMF is not a cure for any economic problem for any country. It is an institution, like a hospital where ailing economies are placed by the international community. Once an ailing person is taken to hospital then the patient has to follow the protocol of the hospital which may include a strict diet, no recreation, special dress, etc. These are called IMF conditionalities, which are always painful but inevitable.

Once a person is admitted to the IMF hospital, three kinds of remedies are undertaken. It may be chemotherapy, surgery or transfer to ‘hospice’ for incurable patients. When there is chemotherapy there will be side effects that may be serious like baldness, etc. In its 75-year history, Pakistan has been a patient admitted to this hospital twenty three times, but there has not been a cure. This implies the fact that either the patient has not taken necessary steps for his complete cure, or the hospital or doctors are incapable. Both the possibilities are there. However, in the present world there is only one hospital for this disease and whether we like it or not there is no other place to go for a cure.

In 2023, Pakistan has reached a stage where corrections have become inevitable. It can be this or that way. There is nothing unknown in the world of Economics and Finance. These subjects are based on facts not illusions and perceptions. The report attached with the Sixth Review of the IMF is not very encouraging when the same is reviewed in relation to projected and expected foreign direct investment. Pakistan has been shown afloat on the basis of an expected FDI of $55 billion in the following four years from 2024 to 2028. This is not expected if the present political and economic situation continues. The equation that will emerge will not save Pakistan economically with the illusionary and unrealistic security paradigm. There is no danger to anyone from a ‘weak’ neighbour like ours. Our real deterrent is nuclear. However, it will be foolish, unrealistic and inhuman if someone considers that nuclear or its derivative will ever be used or allowed to be utilised by any country including Pakistan, by a larger international community and the people of Pakistan. Peace and dialogue is the only answer with concerted efforts on the neglected subject of economics and well-being of common men. Thus, there is only one option which is obvious: peace.

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