- Saturday, 18 February 2017 16:10
Export or Bust
by Dr. Salman Shah
As the year slips by Pakistan's public debt has exceeded 22 trillion rupees with external liabilities crossing the $74 billion mark. Add to this amount, the projected external borrowings for the China Pakistan Economic Corridor (CPEC), along with the looming massive energy bills in foreign exchange needed to service the state guaranteed payments for independent coal power projects, the true picture of Pakistan's escalating debt liabilities emerges.
Its timely servicing would surely and severely test Pakistan's ability to repay. This would trigger a severe balance of payment crisis in a possibly harsh external environment in the future. To avoid this unpleasant situation, the message of the IMF is simple 'Export or bust'.
In its comments on the CPEC, the IMF has reiterated the earlier call by Christine Lagarde for a comprehensive reform program for igniting growth, exports and private investment. However, with the culmination of the IMF programme, the changings of the guard at GHQ and at the Supreme Court, the government has thrown caution to the wind, abandoned the notion of reforms and is already going into election mode.
With a slowdown in exports and public revenues not measuring up to expectations, most of the cabinet is instead overtly focused on politicking and defending the Sharif family over its legal and political woes, there is hardly any time for thinking about reforms let alone displaying any appetite for reform.
The World Bank is projecting South Asia as the next great export powerhouse of the world. The immense rise of wages and ages in China and East Asia has opened a window of opportunity for South Asia with its teeming young population and rapid urbanisation trends. It could well be the next hunting ground and home for global investment, manufacturing and trading. But South Asia will have to undergo a sharp transformational phase to become hospitable to the rigorous standards of international business. While India has recently made major strides in this respect Pakistan is a laggard even by South Asian standards.
Thanks to the operation Zarb-e-Azb we have gained a handle on eliminating terrorism from our midst but are still beset by extremism that is inherently hostile to openness and international integration.
On the economic front, Pakistan is the least competitive country in South Asia. We score at the bottom of most global rankings of human development, education, health, infrastructure, transparency, competitiveness, ease of doing business, governance, economic freedom and liveability rankings. To become the next export power house the challenge for the government and the leadership will be to leap frog from being the worst to being the best in these rankings.
Many countries have made this transformation but it needs single minded focus, brains and brawns to achieve the breakthrough; attributes which are conspicuous by their absence in our present leadership and society. The main focus of the leadership is on surviving the Panama onslaught, consolidating grip on all levers of power and winning the next election through hook or by crook, a situation least conducive for launching a major across-the-board and urgently-needed reform program for national improvement.
Pakistan has the basic credentials to be a future global manufacturing hub. It possesses a large young population that is fuelling rapid urbanisation spawning a dozen or more cities with population exceeding a million, with at least two megacities, one in the south and one in the north. It has an ideal location that connects the SCO, ECO, GCC and SAARC,a wider region ripe to be the engine of growth in the 21st century. It has a diaspora committed to financing Pakistan through its remittances and knowhow, and an agriculture base that can potentially generate the resources for Pakistan's urban development and modernisation. But Pakistan is being left behind due to its Third World economic governance and fossilised political parties structure, that is proving to be incapable of transforming Pakistan.
With the connectivity infrastructure being constructed under the CPEC Pakistan indeed has the opportunity to become the manufacturing and trading lynchpin of the region but this requires management skills that we demonstrably lack.
We have a golden opportunity to integrate into larger regional and global markets, create jobs, reduce poverty, and boost prosperity in a region wrecked by war. In away CPEC is an economic dividend at the end of the War on Terror comparable to the economic dividend that East Asia got after the Vietnam War.
It is our turn to pursue the opportunities thrown up by peace in our region. Apart from developing the regional connectivity infrastructure Pakistanis have to also switch over from a medieval mindset to an internationalist mindset required of a global economic corridor. We have to walk the talk of global value chains, improving productivity, creating dynamic and modern private firms, industry clusters, special economic zones and retailing and tourism paradises. Sky is the limit but are we ready for it?
Take the case of agriculture. We are endowed with land, water, people and weather resources that can be combined to make Pakistan the food-market of the world. With these resources and setting for ourselves the benchmark of say Australian agriculture productivity, our annual agriculture GDP could be $300 billion versus the current level of $50 billion.
Achieving such results are not only possible but are critically needed, if we have to sustainably and indigenously fund the development of Pakistan as a regional economic corridor and manufacturing hub. Agriculture has to generate the export and financial surpluses to fund our modernisation without creating the debt burden that we are currently accumulating at an unprecedented pace. Thus we have to invest in agriculture infrastructure of water, research and management before it can, in turn fund our urbanisation and modernisation. The knowhow is available but we are not organised or motivated for an agricultural revolution.
We also know that in order to become the next export powerhouse similar to East Asia, Pakistan's competitiveness has to reach the level of Malaysia, the human development has to reach the levels of China, the governance and competence levels have to reach the levels of South Korea and the transparency has to reach the levels of Singapore.
Given our current state of politics these levels look almost impossible to achieve yet are doable given appropriate leadership. Our current cabinet is not known for its economic acumen or prowess. It is a motley lot of electables who are falling over each other to please their leader and keep the party and the opposition in check through intimidation or largesse. They are not equipped to formulate and implement policies or reforms.
Yet we are experts in establishing commissions of various types and based on the World Bank report will probably institute national commissions on competitiveness, governance and other dimensions of economic management but other than generating voluminous reports implementation will be zilch.
The reason is that our political system of democracy throws up the most ill-equipped, corrupt, visionless and devious leadership that thrives on keeping the nation backward and ignorant. It excels in draining our national resources to entrench themselves in power and build nest eggs abroad for their future generations.
Until the shackles of the Mafioso type control of political parties is broken and the current lot of leadership is retired no political party will emerge to undertake meaningful reforms and put the country on the road of progress. Unfortunately, there is no Lee Kuan Yew, Deng Xiaoping, Mahathir Mohamed or a General Park in our future, a leader and a builder who has the Quaid's vision and moral authority of pursuing national excellence at home and abroad, who can create a national meritocracy, implement unimpeachable accountability and establish a performance-oriented national governance system needed for making Pakistan the next Export Powerhouse of the world. (The writer is a former Finance Minister)
"-Reaping the full potential benefits of CPEC will require forceful pro-growth and export-supporting reforms"-IMF
- Also published in Business Recorder, 2016