Pakistan economy explained 2018-2019

Pakistan economy explained 2018-2019

To understand Pakistan’s current economic crisis, a short historical analysis is necessary. Here is the analysis of Pakistan economy. The crisis was not sudden but had been building over many years, and only temporarily delayed through loans from the IMF taken by the PPP-govt in 2008, PMLN-govt in 2013, and a similar approach is being adopted by the new PTI-govt in 2018.

Firstly, the crisis is exemplified by extremely low foreign exchange reserves, which as of today stand at US$ 8.48 Billion. This came about as a result of a consistently widening ‘Trade Deficit’ and the corollary Negative ‘Balance of Payments’ since 2002.

Secondly, the crisis is not one of External Debt, but the lack of reserves to settle the payments. Pakistan’s Debt-to-GDP ratio (DGR) is well within acceptable standards. For example, Japan’s DGR is 253 per cent of the US’ DGR is 105 per cent, while Pakistan’s DGR is 70 per cent. However, Pakistan lacks the economic viability to effectively stabilize the ratio or have the reserves to settle payments of interest and loans.

Thirdly, the Pakistan economy growth witnessed has been consumer-led, which has encouraged citizens to spend more on products and services, many of which have to be imported. At the same time, Pakistan’s industrial, agricultural and service exports could not develop as much as they should have. This has been due to structural issues in the economy, which so far no government has been able to fix, as well as due to externalities such as political turmoil, terrorism, crude oil prices and natural disasters.

Lastly, the tax net in Pakistan remains extremely small, which translates into lesser government revenues, leading to the need for borrowing money to supplement yearly budgets and development projects.

Pakistan economy

Pakistan economy explained

To bring long-term stability and sustainability, Pakistan’s new PTI-led government will have to look deeper into issues, rather than implementing temporary relief measures like the previous governments.

Pakistan’s import bill in 2016 stood at $48 Billion, of which $39 Billion were non-petroleum/mineral expenditures.

A significant amount of these imports were products which are categorized as “non-essential”.

Pakistani consumers have developed an obsession with consumer electronics, certain dietary items and tea, all of which have to be imported. Just these categories cumulatively formed about 10 per cent of the $39 Billion. –
Pakistan imports such a high amount of tea that it is now ranked among Kenya’s top 5 export destinations, from which 97 percent of tea is sourced.

These ‘non-essential’ expenditures continue to grow, and can possibly even worsen Pakistan’s negative Balance of Payments.

Pakistan economy crisis will not lessen if the government does not implement policies to discourage ‘non-essential’ imports in the short-term, while also implementing Import-substitution strategies. As a developing country, Pakistan’s expenses are much greater than it can afford.

Pakistan will use $17 Billion (or 26 percent of all import expense) on the import of “Mineral resources” in 2018 — which mostly include Refined Petroleum (60 percent), Unrefined Crude Oil (20 percent) and Petroleum Gas (11 percent). The vast majority if this comes from the UAE, making it Pakistan’s 2nd biggest Import partner.

Pakistan economy

The import of “Black Gold” remains the biggest single-category burden on Pakistan economy, as Governments remain unable to provide effective Public Transport to discourage use of petrol and diesel in motor vehicles. At the same time, the few Mass Transit projects which have been actualized have become victims of government corruption and political partisanship.

Unlike other countries, which have expanded Rail links to reduce Diesel use for inland freight transport, Pakistan has actually moved away from it, causing cthe the onsiderable hike in goods prices as well as more demand for Oil.

Pakistan also produces the biggest proportion of its electricity through Thermal Power Plants, which use Petroleum Gas and Furnace oil. While building Large-scale Hydropower projects remains controversial, no sizable investment has been seen in renewable energy either.

Pakistan’s daily consumption of oil in 2017 stood at 584,000 barrels per day (bbl./d). At peak production, Pakistan’s cumulative refinery output is 690,000 bbl./d, but due to aging technology, inefficiencies, delay in payments, and other hindrances, Pakistan imports the majority of its refined petroleum from abroad.

For comparison, India imports a similarly large amount of Oil, but Two-thirds of this is Crude Oil, allowing it to refine it domestically at its own Refineries and lessen the overall financial burden.

Three new refineries are under-construction which may allow Pakistan to process more Crude Oil locally. But in the long-term, investments in Renewable Energy and Public Transport projects will be necessary to sustain the import of Oil while also reducing its impact on the country’s economic health.

It is wise to remember that Pakistan’s founding father Mohammad Ali Jinnah said, “There are two powers in the world; one is the sword and the other is the pen. There are great competition and rivalry between the two. There is a third power stronger than both, that of the women.”

In 2015, McKinsey Global Institute released “The Power of Parity” report, which calculated that Pakistan’s GDP could touch $450 Billion if the number of women in the Labor Force is the same as the number of men.

Currently, for every 4 people employed, approximately only 1 is a woman, with the female proportion of the Labor Force being less than 25 per cent.

While traditional values play a role in this huge economic loss, another major factor is that working conditions in Pakistan remain unsafe for women. The Aurat Foundation reported that 80-90 per cent of women has felt harassed on Public transport, which prevents many from pursuing jobs away from homes or those which are not in office settings.

The Aurat Foundation also reported stark figures of cases of violence against women. Each year 10,000+ cases are registered of rape, kidnapping, murder, and domestic violence. That is 28 cases per day.

Incidentally, due to the proactive role of Women Parliamentarians several small but appreciable improvements have been made. This has only been possible as Women MNAs consistently out-performed their Male colleagues according to PILDAT scorecards for Parliamentarians.

For comparison, Malaysia and Bangladesh, both also Muslim-majority states, have seen very high levels of economic growth, which has been correlated to increases in Female Labor Force Participation. It stands at 51 per cent in Malaysia and 33 per cent in Bangladesh.

The huge female workforce which remains unused in driving Pakistan’s economic growth or contributes much less than it can play a key role in bringing Pakistan’s economic indicators forward and in sustaining economic growth.

~Surkhi

Pakistan economy

We will be happy to hear your thoughts

Leave a reply