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Dr Rajendra Prasad, the first President of India, in his book ‘India Divided’, that he penned in 1945 stated that the areas of ‘North Western India’ are expected to face serious economic crises in an isolated position unless there is a complete socio-economic structure revamp of society of that area. He further stated that these societies have historically flourished on spoils of wars or invasions.

Our ancestors disagreed with Dr Rajendra Prasad and separated from other parts of the subcontinent. We their present generation were supposed to at least see what he was actually saying.

Unfortunately, however, we wasted as many as 75 years under the illusion that we have been endowed with a very prosperous region where we can live a luxurious life entangling us in misdemeanors and misadventures on the military and political sides.

At present, state’s sovereign default appears inevitable unless we change. People blame the political system, military, judiciary and other factors for this state of affairs.

In my view, however, all these reasons are secondary in nature. There has been a problem in the economic structure of the country since its very inception, which intensified after the 2000s.

This import-led consumption oriented society with minimal expenditure on real development of infrastructure is leading to a natural collapse as no country can afford to live on loans and grants forever, especially when such loans and grants are used to pay for day to day expenses and pensions.

Now the time has come for (a) understanding the gravity of the challenge and (b) deciding the future course as now the reins are neither in the hands of Islamabad nor in Rawalpindi’s.

They lie with the policymakers/lenders in Washington who appear to have lost trust in our inherent desire to change our habits. Pakistan, unlike the general perception, is not faced with governance issues; it is, in fact, faced with a primary sustainability issue that existed since independence, which worsened after 1971 and now in 2022 has reached its peak.

In simple accounting terms, the books are not balanced and while the nation is not ready to accept the foreseeable problems. They believe in notions that ‘in the presence of the IMF (International Monetary Fund) a country cannot default’, ‘a nuclear power cannot default’, and ‘this is not the first time’.

The purpose of this statement is not to create despondency in society. These statements are being made to have a ‘reality check’, which is essential for any corrective action.

In the following paragraphs I will like to explain the primary reasons for this situation which I was foreseeing for the last twenty years or so. In all my speeches from 1995 onwards my constant argument was that ‘Pakistan has to adopt the Korean model of economics not the Dubai model’.

People were not ready to accept, however, there is one very cruel truth which is present in every case. At the end the books have to be balanced and the external account being in US dollars cannot be stuffed with new currency notes.

Exorbitant imports not matched by exports constitute the only and only reason for the country’s present economic woes. In simple terms, ‘living beyond means’ in every sense of the word. In the years to come it is almost certain that our honeymoon is going to be over and this society would have to substantially change its habits, cultural norms, practices and ways of living if the country is to be taken out of the looming sovereign default.

A study of Pakistan’s imports is very revealing. From 1960 to 1973, our imports were of less than USD 1 billion. This means that before the separation of our left wing (East Pakistan) we were doing reasonably well on our import side. From 1973 to 2002, the gap between exports and imports began to widen as the import bill gradually reached USD 11 billion in 2002. This was unsustainable.

However, instead of correcting this imbalance we continued proceeding in this direction with the result that the import bill for ‘goods’ other than services reached USD 63 billion in the last year of the PML (N)) government in 2018 (services imports were another 8 to 9 billion USD). This is an almost 600 % percent increase over a period of 20 years [2002-2022].

Whatever we presume, conceive or project, the country had become insolvent and bankrupt in 2018. The sovereign default was only postponed through support from the IMF and rollover of foreign debts. In other words, the die was cast in 2018.

At that time a new government was brought to power to test a new model without realising that the problem is with the vehicle not the driver. The vehicle needed a complete overhaul with new engines of export and import substitution.

This exercise was in my view being done, albeit slowly, when the reins have again been given to old drivers without the much-needed change of engine and consequently we are back on the road to disaster. It is therefore imperative that the primary issues as discussed below are addressed first before any further experimentation.

Whilst dealing with the import bill it is equally important to see the status of exports. These were equal to USD 1 billion till 1973 and in 2002 these were to the tune of USD 9 billion. The maximum exports we recorded was of USD 30 billion in 2013 (around 32 billion in 2022).

This shows that exports increased by around 300% while imports registered the 600% growth. This gap is widening; it leads to a completely unmanageable current account position for Pakistan. In this situation only ‘miracles’ can save us from a sovereign default unless we really correct our waywardness.

The question before us is to identify the major items we import. The first item is energy (POL products, crude oil and LNG). In short, if the present problems of Pakistan economy are to be summarized in two words then it would be ‘Energy Economics’. It is estimated that with these increased prices of petroleum and products the bill for this item will exceed USD 25 billion.

This is a sum that Pakistan cannot afford but we are spending without considering that with every passing day we are coming closer to the danger zone. With respect to energy imports, Pakistan is almost similar to Sri Lanka in the sense that over 70 to 80 percent of energy requirements are met through imports whether they are crude or refined oil or gas for transportation, heating or for generating electricity.

Pakistan will have a requirement of around 28,000 MW electricity during the peak season and cannot afford to produce if around 65 percent of production is to be made by importing fuel. According to US government statistics, Pakistan’s energy mix is 64% fossil fuels, 27% hydropower and 9% other renewables and nuclear power. This is simply unworkable.

The question before the nation is not load-shedding, or the cost of energy price for the people. On the national level, the issue is that the country can no longer afford to pay the energy bill of over USD 27 billion. This is a simple equation.

The second problem which has exacerbated this issue is IPPs (Independent Power Producers). IPPs import fuel to generate power. They are provided an assured revenue stream that covers an adequate return on the significant project capital investment in USD (17 percent return).

This is no less than national suicide. The immediate solution for the country is to reduce the consumption of energy and make efforts for the conservation of electricity and gas.

We, as a nation, do not use daylight for our work. Almost all the business activities in the markets start at 1 pm in the afternoon and continue late till midnight.

The question which every lender or independent reviewer of our economy is expected to ask is, whether a nation with these habits has the right to survive. We have not built any big dam since 1973. Some of the policy mistakes which have led to this situation are summarized as under:

  1. In the last seventy five years we have not been able to make a dual track railway from Karachi to Peshawar. Even if there is such a track there is no railway for transporting containers in an efficient manner.

Thus all the major transport activity is done through road, which is expensive from an energy view point. Any country with this geographical structure cannot exist without a proper railway where 50 percent of our export-oriented sector are located almost 1,000 miles away from the port;

  1. There is effectively no public transport facility in any major city, including Lahore. MRT is a very nominal entry. Whole public transport operates on fuel in an inefficient manner;

  2. Gas is used as feed stock to make urea and supplied through pipelines for heating and cooking to nook and corner of the country, say including hill stations such as Murree, which is around 5,000 feet above the sea level;

  3. There is constant free import of vehicles above 1500CC without realizing the fact that fuel for such vehicles is not affordable for the country;

  4. Power plants are located on political grounds such as the location of a coal-powered power plant in Sahiwal, a place around 1000km from the port from where the imported coal arrives.

We should fight to identify the financial corruption made during the last 75 years; however, at the end of the day, it appears that most of the accused will be acquitted by the courts because of weak prosecution.

Economic policymakers are to be blamed for this intellectual corruption; however, our ‘intellectuals’ and academia are equally responsible for not properly and strongly presenting to people the intellectual corruption committed on the economic policy side that has devastated the economy.

Copyright Business Recorder, 2022


Comments are closed.

Dabeer Razvi Jul 06, 2022 12:00pm
Agreed. Sad state of affairs. We can only pray that we wake up to the reality and Mend our ways.
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Yasir K Jul 06, 2022 12:50pm
From the state of affairs it seems we are a nation that would prefer to sink with our eyes closed oblivious to the sirens running around
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Mumtaz khan Jul 06, 2022 01:34pm
The flaw being pointed out in the article is the economic structure of the country since its inception … which can be corrected … .what actually matters is the flaw in the political structure of the country …. a system of the corrupt the corrupt ..for the corrupt ..called Pakistan democracy
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sajid Jul 06, 2022 01:50pm
easier said than done. you yourself ran away from your post instead of brining reforms.
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Salman Jul 07, 2022 12:18am
Political structure of the country can't be ignored. Real estate sector is non productive entity which overwhelming consume power which is already scarce and expensive. Instead production via installing industry, creating jobs and export is only viable solution. Last not the least nations on combat & survival mode can not sustain longer that is its major budget spending is on defense.
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KASHIF Jul 07, 2022 12:31am
All those who say we need to increase the volume of exports.. they dont consider poor product quality and higher prices of our products in international market.. we dont have competitive advantage over other countries.. a few industries are doing little export just based on govt. provided subsidies.. which infact is a curse for the economy.. this is why a few ppl or families are engaged in some businesses only and enjoying subsidies.. there is no diversification if industrial sector..
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KASHIF Jul 07, 2022 12:38am
@Mumtaz khan , there is no democracy at all.. some appointments by establishment only.. weaker govt structure and weaker political setup is in favor of establishment.. they cannot afford collapse of this system where there will be shift of power neither they want to make the current system stronger.. this is just an illusion for them and the days are here where this system will fall... global warming and climate change is disturbing agriculture.. sooner there will be days we could not meet our food needs and wont have enough foreign reserves to import food staples as well.. those days will be the deciding... hunger create revolutions...
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Saeed Chinoy Jul 07, 2022 10:10am
I have some comments: The malaise in our economy is due to: 1. Refusal to have land reforms , unlike India and so perpetuating a medieval feudal Order which js not a progress social Order but an obsolete one. 2. No tax on agriculture favouring certain probinces to the detriment of Pakistan as a whole. So no land reforms and a tax Free holiday for one sector of Pakistan surely to the detriment of the others? 3. A huge army, primarily from one Province with land , of which there a finite quantity,been given to Generals and high ranking Officers on retirement. 4. Purchase of necessarily large amounts of arms and ammunition which is a depreciating asset with no Capital gain or dividends. 5. Is the necessity of such a large, draining military budget to protect against hostile neighbours a foreign policy failure? The answer could be a Union of South Asia, like the Union of Europe, so aggresdive military expendure in reduced and put into a SATO Like NATO? The savings could be invested in education, Health and poverty alleviation? 6. Finally the comments made on IPPs needs to recognise every governments abject failure to provide Power to fuel economic and industrial development? One Rupee worth of Power supplied to a lathe machine for example turns over material with labour valued at four Rupees and the absence of that one Rupee of Power denies economic growth. Has snyone bothered to calculate the loss to the economy without the IPPs contribution to Power the economy? Too many Questions and never any answers?
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Adil Mansoor Jul 07, 2022 01:30pm
Very correct analysis sir and just perfect solution.. but who listens sir . This regime has no mind to apply
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Sallu Jul 07, 2022 02:23pm
@sajid, he didn't run away but the mafia of traders and industrialists did not spare him
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Yasin Ansari Jul 07, 2022 07:38pm
Almost agreed. I see my motherland as a sinking titanic and my compatriots are being said to play music by those who are at the helm of the political affairs so that we can avoid terror and panic.
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Ch K A Nye Jul 07, 2022 08:25pm
@sajid,... Standard response from someone who has absolutely nothing constructive to say. Stop playing the blame game.
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Ch K A Nye Jul 07, 2022 08:27pm
@Sallu, don't forget the bureaucracy... They made it very difficult for him to do his job.
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Asad Khursheed Jul 08, 2022 10:24am
AOA sir, Hope you are good. We all know we can only survive if we opt simple basic actions. But then where is gap , a society having such a widened economic gaps having a "DC" moving in 4x4 vehicle. Do you think are we serious to solve our issues ? Now we start feeling hopeless , it seems people in power want us to live whole live on "life saving" equipment.
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Hassan Jul 08, 2022 12:36pm
What about the $3.6 billion annual spend on importing edible fats /palm oil? The almost $1 billion importing tea, coffee & creamers? $250 million on sugar? $100 million on cocoa, chocolate & tobacco? Can we live without super sweet tea and coffee? Without dishes floating in oil? And without smoking? We have a cultural problem of eating our way into debt. These imports are totally unnecessary, we have local sugar, butter & oil, we just need to reduce how much we put into our dishes. Cutting these would SAVE $5 BILLION in an instant, and probably reduce that shocking amount of diabetes, hypertension and heart attacks in Pakistan. Is any politician brave enough to address these?
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Mushtaq Jul 08, 2022 08:36pm
@sajid, Here we go, blame game again. No one can speak truth in Pakistan without getting blamed it seems This man did not run the country or even had the right to make drastic changes to fix things. He did not blame anyone in person.
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Mushtaq Jul 08, 2022 08:38pm
@Adil Mansoor , None of them do sir. It is politics as usual with all. They all want to get elected and do whatever it takes to do so.
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Kaashif Jul 09, 2022 03:11pm
@Hassan, this is the best, most succinct summary of our problem I have read. It's a cultural problem that could be addressed by the rulers by blocking the import of oil, but it won't win votes of you make Pakistanis reduce the amount of oil in their unnecessary unhealthy oily food.
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Amin Jul 09, 2022 04:54pm
Point raised are fundamental change, which are based on Corrupt Mafias, if two things are done in KARACHI alone can save lot of Gasoline and pollution , Better water supply through Pipe lines not through Water Tanker and Better Public Transport system like over head Railcars,and other measures like separate bicycle lanes.
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Ahmad Riza Siddiqi Jul 09, 2022 06:54pm
Thanks for your valuable advice. In the present scenario course correction seems impossible. New elections are required to be won on one point agenda of energy.
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Seth sarwar Jul 10, 2022 06:56pm
Wonderful article. Every one can understand the problems of pakistan. The nation has to be taken in confidence and loop holes plugged why the media is sleeping, let’s start agitating on imports starting with big cars etc etc.
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Hussain Naqvi Jul 10, 2022 11:29pm
AslamoAlikum, first i want to thanks Business Recorder for publishing this article. Mr. Shabbar Zaidi is one of geniuses in the field of finance in Pakistan. The top most authorities in Pakistan reads business recorder. My question is why they are not following the advise of all the senior financial consultants, seniors economists of our country ?
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M. Javed Khalid Jul 12, 2022 12:24pm
I am a 1971Chemical Engineering graduate. I have been yelling since 90's to stop importing oil for power generation, stop burning gas for heating, use it as a replacement of oil, don't waste water by throwing into India Ocean rather use it for power and irrigation. I have been living among deaf and dumbs. And am still living among the same crowd.
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