Pakistan’s economic crisis is worsening every month. The current account deficit is expected to soar from the current level of $3.86 billion as import restrictions have been lifted after many months. Food and fuel prices are increasing with the weekly inflation standing at 45.4 percent while the currency depreciates. The reserves are historically at their lowest.
A significant number of people view changing the government as a potential solution to Pakistan’s economic crisis, with some asserting that the PTI is best equipped to revive the economy, while others believe that the PDM would be better suited to address the situation. However, it is crucial to question whether there exists a single, all-encompassing policy that can effectively extricate Pakistan from its current state of economic turmoil.
The fact of the matter is that there are no such policies – neither in Pakistan nor anywhere else in the world – that can instantaneously resurrect a nation’s economy especially when they are mere extensions of a neoliberal economic model that prioritizes the interests of the wealthy elite over the needs of the common people. In order to comprehend the present state of Pakistan’s economy, it is imperative to conduct an in-depth analysis of several key factors. These include an examination of the reasons behind the recent escalation of Pakistan’s current account deficit, an exploration into the loss of investor confidence in the market, and a thorough assessment of the destination of investment.
For a few years, Pakistan has seen a drastic increase in land prices, the reason being a flux of people investing in real estate. Real estate can be defined as a sector with the lowest transparency, artificial growth, and an overpriced area – but at the same time, the most profitable and easiest way of investment. Investors who have put their money into the real estate sector may have perceived it to be a secure and lucrative investment opportunity in Pakistan. However, it is important to note that such investments are considered to be unproductive from an economic standpoint, and only serve to benefit the individual investor. This is due to the fact that the capital that could have been allocated towards establishing a domestic industry, which would produce a locally sourced commodity and ultimately reduce the country’s dependence on imported goods, has instead been diverted towards purchasing land.
Data from State Bank shows that Pakistan received $2.45 billion and $2.61bn per month in remittances in 2021 and 2022, respectively. It also shows that 45-50 percent of this amount had been invested in the real estate market.
The speculative market has caused a boom in land investment. People follow their peer group which relies on speculations on land prices. Due to this owning a house has become a dream for many. It has become almost impossible for a person who is earning an average or above average salary to buy land for his use. Owning a house has become a luxury now as high-end societies have become a symbol of elitism which has created a class difference within a few kilometers.
It is funny how Pakistan calls itself an agricultural country but at the same time, we are building gated housing schemes on agricultural land.
According to the data released by the Pakistan Bureau of Statistics, the textile sector has witnessed an 14.8% decline in exports. As 60% of the total export of Pakistan is textiles. Due to recent flooding, more than 45% of the cotton crop is destroyed which has caused a shortage in the cotton factories. The decline in the textile sector might not sound like a big deal but the textile sector has the highest number of employees as compared to other industries and a huge number of workers are women. All skillful workforce will be forced to find other jobs if the textile sector does not revive.
Conversely, the automobile industry in Pakistan is also experiencing a downturn, with prominent companies such as Honda Atlas, Indus Motor Company Limited, and Pak Suzuki Motor Company being compelled to halt production due to the ongoing economic crisis. This widespread closure of key industries has resulted in an unprecedented surge in the rate of unemployment throughout the country.
In their quest for immediate institutional reforms and structural transformations, the present government has set its sights on securing the International Monetary Fund’s (IMF) upcoming tranche of $1.1 billion. Paradoxically, the IMF has publicly declared that Pakistan must overcome a “trust deficit.” In this vein, the IMF has urged Pakistan to secure pledges of external financing from allied nations in order to address the country’s balance of payment gap for the current fiscal year, which concludes in June. Subsequently, Saudi Arabia extended support to Pakistan and committed to assisting the IMF.
Instead of considering the IMF loan a victory as touted by the coalition government, we should not forget the loan will be disbursed with inhumane conditions. Increase in taxes, reduction in subsidies, the exchange rate will be market-based. Even in these catastrophic economic conditions, the IMF will impose these inhumane conditions because we stand no other option. The public health sector is also facing a lot of challenges where people are unable to buy medicines as the prices have increased to an unaffordable cost.
I believe that after securing this IMF loan Pakistan will face a very deadly economic catastrophe. The growth rate is constantly decreasing, it will be at an all-time low, and poverty will rise to a level that will be uncontrollable, from a few to hundreds, and then thousands of factories and small-scale businesses will shut down.
Pakistan needs a drastic shift in its policies and what we emphasize is that Pakistan has to shift to a Geo-economics strategy and engage India as a trade partner. Trade with India will help bring down the costs of fruits and vegetables considerably. Pakistan will tide over till economic and structural reforms are done.
Rather than funneling remittances into unproductive investment sectors, the government should focus on establishing domestic industries that create sustainable jobs and foster economic growth. Furthermore, the government must regulate the banking industry, which has been known to exploit the working class through exorbitant interest rates – the highest in Asia. This exploitative system disproportionately benefits the wealthy, while the working class is left struggling to make ends meet.
Only a complete overhaul of economic, structural, and institutional structures can bring Pakistan out of this situation because no mainstream political party has a viable policy at this point.