PTI government has to clean Augean stables

Pakistan’s biggest problem is corruption by various government functionaries in the past, which has brought the resourceful country to the present pass. It is because of ineptness, malfeasance and flawed decisions of various governments that Pakistan faces economic challenges from fiscal deficit to trade deficit to current account deficit, and challenges of unemployment and poverty alleviation. To confront these challenges, there has to be zero-tolerance to corruption. Of course, Pakistan needs massive investment. But Pakistan’s savings rate is 13 per cent of the GDP, which is the lowest ranked in Asia. To achieve 6 per cent growth, investment ratio of savings to GDP should be 18 per cent on the basis of Incremental Capital Output (ICOR) 3:1. But the problem is that inflation hinders the capacity to save, as it erodes the incomes of the people, especially salaried class and fixed income groups.
Therefore, Pakistan has to depend on IFIs and foreign countries. However, the most serious aspect of our dire economic situation is the growing public debt, which is more than 70 per cent of the Gross Domestic Product; and 40 percent of revenue income is allocated for debt-servicing – payment of installments and interest. In fact, Pakistan earns less (in revenue) and spends more; and exports less and imports more, resulting in fiscal deficit, trade deficit and current deficit. It was in this backdrop that the World Bank in its South Asia Economic Focus 2017 report had described Pakistan’s external sector as particularly vulnerable, and that remedial action became more urgent. The report said that immediate action was needed to rectify it through revival of exports and slowing down of imports. But it is a tall order?
Efforts were made from time to time in the past but despite all incentives and measures such as price-mechanism, subsidies, rebates, exchange-rate adjustments and devaluation, Pakistan has not been able to boost exports to address the unfavorable balance of trade. During the last 70 years, Pakistan had only twice favorable trade balance once in 1950 and then in 1973, due to Korean War and oil boom respectively. However, surpluses were not large and amounted to $53 million in 1950-51 and $20 million only in 1972-73. Even massive devaluation during 1990s could not produce positive results because Pakistan could not build up an export base through diversification from the market and products’ point of view, viable enough to meet the growing needs of foreign exchange for the import of goods and services. The question is if Pakistan takes loan from IMF, it will have to increase electricity and gas tariff.
It means that cost of inputs would increase the cost of production, thus Pakistani exporters would not be able to compete in the world market. Even the SBP report revealed that despite robust economic growth and macroeconomic stability, Pakistan could not overcome the problems of poverty reduction, inflation, and increasing investment level to achieve the sustained economic growth and creation of employment opportunities. Indeed, it was due to profligacy, ineptness and corruption of the ruling elite. The new government is determined to eliminate corruption, reduce poverty and put the country on the road to progress and prosperity. But it will have to clean Augean stables by putting all corrupt government functionaries in the dock, and according to Imran Khan Pakistan can be saved by replacing the corrupt system by a system based on meritocracy.