Ever since the Covid-19 pandemic gripped the entire world, we have witnessed major economic damage to the global economy. According to economists, major economies were predicted to lose a minimum of 2.9% of their GDP during the past year, which was later amended to a 4.5% GDP loss.
Talking about Pakistan, the economic journey hasn’t been an easy one, either pre or post-pandemic. To give a better picture of what economical and financial hurdles the country has been going through since the past many years, we hear it from Mir Muhammad Ali Khan – a renowned economist and investment banker. Recently, he gave an interview to private media where he shared some important aspects of Pakistan’s economy – the challenges that we have already faced and what lies ahead of us.
Getting To The Root Cause
One of the major problems that we as a nation collectively face is the fact that we do not tend to get to the root cause of an issue. When it comes to the dire situation of Pakistan’s economy, it didn’t just happen overnight, or over a few years. The problems began 73 years ago, that have just multiplied for the next many decades.
If we take a look at the economies of developed or developing countries, we can see that even if a country goes through ups and downs during its economic journey over a certain time span, there are short periods of sustainable economic growth something that Pakistan hasn’t witnessed.
Pakistan started off with a GDP of around $4.8bn at the time of its independence in 1947 and reached as high as $330bn. Looking at these numbers, it can be said that for a 220 million population, Pakistan should easily have been a trillion-dollar economy, but why hasn’t that happened yet?
One of the most alarming reasons for the bad performance indicators in our economy is the fact that majority of businesses try to evade tax through various techniques. If you go to purchase something, most of the times you might not get the receipt for your bill – one of the most common ways used to evade tax. When goods and services are sold in this manner, the cash flow isn’t recorded in the economy and hence a huge portion remains undocumented.
Resistance to Digitization
In this tech-savvy era, the country still shows a lot of resistance to the modern-day digitization and automation techniques to record sales and purchases within the economy.
What saved Pakistan during the Coronavirus Pandemic?
Contrary to the expectations of a lot of experts a year ago, Pakistan economy did manage to stay afloat ever since the Covid-19 pandemic hit the country. You might wonder how that happened Well, there are possible reasons for that.
Lowering the Interest Rate
The State Bank of Pakistan (SBP) lowered the interest rates from 13.25% to 7% that affected a few highly-leveraged sectors of the economy such as cement and construction industries, stock markets, etc.
However, this doesn’t solve the problem from a bigger perspective. As a matter of fact, Pakistan is a cash-based society. A number of small businesses do not get small business loans, so amending the monetary policy doesn’t really leave a long-term positive impact.
Tax Relief for Construction Sector
Construction industry is one of the major industries for any country and can be labeled as the backbone of the country. Talking about Pakistan, there are around 37 other industries that are directly linked to the construction sector.
The Prime Minister of Pakistan announced a tax relief package for construction sector real estate that helped the construction business to sustain the financial hit due to the pandemic.
A Glimpse Into The Real Estate Sector of Pakistan
According to Mr. Khan, ‘Happy people make better economies’. Without a doubt, this statement stands true in terms of a common man being more productive and contributing more to the economy if his emotional health is well taken care of. This means that he should feel secure about what he can achieve within his given set of parameters.
One of the most concerning facts about the real estate sector in Pakistan is that there is no mechanism of mortgage, as it is in a number of other developed and developing countries. Even with great overall liquidity for the banks, there is only less than 2% of mortgage that actually takes place.
For a common man, it is almost impossible to own a house as land prices are constantly going up and the income levels pretty much aren’t. Major reason for this is that there are no foreclosure laws, something that has been passed by the Supreme Court recently.
Economic Plan Measure By Politician’s Tenure
Mr. Khan mentioned one of his macroeconomics teacher back in the day, who once said, ‘A new President who inherits a bad economy should never fix in the first two years.’
This is an underlying fact particularly for developing nations like Pakistan, as the economic law of diminishing returns come into play when a big economic problem is rushed towards a resolution too soon.
Unfortunately, the economic steps or strategies that are brought into effect are directly proportional to the tenure of a sitting President or Prime Minister of the country. When a new Government is formed, the politician has to bring out results within 5 years, in order to secure his political strength for the next elections.
This mindset has backfired the economy of the country since the past many decades, as there are numerous economic KPIs that require a lot more than 5 years for effective processing and execution.
Pakistan Economy in a Nutshell
Taking into consideration the past performances of Pakistan’s economy, yes there have been some bad decision- making that has cost us and is still costing us in a lot of different ways that impacts each and every citizen.
Having said that, it does not and should not mean that the past should define the future of an economy. 10-year digitization and automation plans should be the way forward, with regular performance reviews in each governmental department.
Effective laws, transparency in processes, judicial reforms, merit-based hiring and accountability is how nations can be trained to be better performers for the good of their own, and eventually, the entire economy.