The economic crisis in Pakistan dates back to the era of partition. The country was unfortunately sited on the parallels of latitudes and meridians of longitudes having no industrial infrastructure. The economy was dependent on the import of raw material either to Indian areas or other industrial hubs far away from the mainland. The only two cash crops of the country were cotton of West Pakistan and jute of East Pakistan.
The same situation still prevails. The shabby economic growth is still a curse for us. The dept-To-GDP ratio is still very high demanding a lot to be done for development. The country is plunged in a serious vicious circle of both domestic and foreign debts surpassing to over a hundred billion American dollars. The debt servicing on these loans is much above 20 percent of the GDP. The infrastructure is still far behind than even that of other neighboring countries. The question arising here is that what the reasons are laying behind our dilapidated economic conditions. The spectaculars among them look me to be as summarized below:
1. Low Tax-To-GDP ratio:
The most serious problem to our economy is our weak tax base. It contributes a negligible, 10%, share to our GDP as compared to 30-35% in the developed world, and is highly recommended to be on the same lines with them. Tax-To-GDP ratio can reach to the required 35% only if tax evasion is brought into control and rich farmers are also taxed.
2. Depleted Economic Resources:
The country has a very weak economic base since partition. Most of our domestic resources still lie buried in soil and rocks. We never had friendly ties with our neighboring countries particularly with our arch rival India and western neighbor Afghanistan with whom we share a 2252km long mountainous terrain; due to which couldn’t got bonded with our next door economies in trade ties. The evil of continual irrational use of national exchequer add further salt to injuries. Pakistan with a population of 17 million has 84 ministers in the cabinet, compared to 120 in china, India, USA and UK combined, whose combined population is far above three and a half billion. Consequently the resources are often short of requirements.
3. Debts and Debt Servicing:
The internal and external liabilities of Pakistan are far above a hundred billion US dollars, 55million of which are external loans. The debt-to-GDP ratio is 40%. The annual expenses on debt servicing are $4billion annually. In financial year 2010 Pakistan will give $5.6billion in debt servicing alone, which are more than three time of that reserved for health. The international lenders, WB and ADB, had offered more $3billion in the aftermath of recent unprecedented floods. Most of the funds provided by Friends of Democratic Pakistan were also in the form of soft loans. A country so drowned in debts can’t be expected to accomplish its economy.
4. Transparency:
The transparency is a rare practice in Pakistan. According to the reports of Transparency international, Pakistan losses $4 billions annually only due to corruption. The auditor General of Pakistan confirmed immediately that Pakistan has lost circa $4 billions to corruption in 2008.
The NRO and alleged involvement of our cricket heroes, including their captain, in Spot fixing are conspicuous examples of our accountability. The highest administrative office of the country-holder’s alleged Swiss accounts and his refusal to have an openly monitored bank account for the collection of charities for flood-hit people’s rehabilitation are some other evidences to indicate the system of transparency and accountability prevailing in this mighty land.
5. High oil prices in international market:
The oil prices in international market have exerted an unprecedented and unaffordable burden on our limited mismanaged economic resources. The surge in oil prices was caused by refusal of OPEC and Saudi Arabia to increase oil supply coupled with political instability in Iran and Iraq. Meanwhile the demand of oil also increased due to hoardings started by USA, China and other power-resource-starving countries.
6. Inflation:
Poverty is a curse and is on rampage in our country since the scratch. 60% people of our country have no other alternative but to live below the poverty line. The national savings are only 18.1% as compared to 18.6% in 2002. Inflation, which was 3.4% in FY 2002, surged to 9.5% in FY07 and have now surpassed to double figures. Inflation in food items is comparatively higher. Domestic investment is therefore very low but domestic savings however witnessed an increase due to a substantial increase in remittances sent by workers working abroad.
7. Foreign Direct Investment:
FDI is also very low basically on the account of the prevailing law and order situation, unavailability of infrastructure and changing policies of frequently changing administrations.
8. Energy Crisis:
The power unavailability in the country resulted in closure of more than 80% industries in the country and of more than 40% in the industrial hubs i.e. Karachi, Lahore and Faisalabad. Many of the labor working on the basis of daily stipends got deprived of their jobs. The government intention to establish the Aegean’s stabiles by launching IPPs badly failed, not even a single unit of power was created by the former autocratic dictator and the establishment of even small dams to become operational will take years that’s why there were hours of power outage and the problem of low voltage. Over politicization of vital projects of national interests like kalabagh will never do will for the country.
9. Low literacy ratio:
In Pakistan only 40% of the school age children are lucky to attend the classes. The rest of the students either see the school off or not join a school. Only 1% of our people have university degrees of master level or above. The chances of coming out from the vicious circle of poverty for a people with no schooling are very rare. This is therefore the only way out for our people to come out of these economic crises.
10. Political Instability and changing Economic Policies:
Even after a lapse of 63 years since its birth Pakistan is still not sure whether it needs privatization or nationalization. Prime Minister Zulfiqar Ali Bhutto nationalized and president Musharraf came forward to sale back all national assets. The govt. should be very careful to encourage investors. Recently the bad blood developed between PPP and PML-N created a trust deficit among the political parties due to which the finance ministry remained without a political head and then three different, equally incompetent, finance ministers were changed in a limited time interval of 3 years.
11. Mismanagement
The political and bureaucratic rulers of Pakistan either don’t or can’t tackle the crisis when and where they’ve emerged. A committed and interested leadership, if Pakistan had, should’ve brought the country out of these challenges; and is therefore highly required.
Impact of Energy crisis:
The energy crisis will bring about enormous impact on our economic, social and political spheres of collective and individual life. The worse impact however will be on the economic side.
Impact on economy:
The economic impact will be very much apparent. The following outcomes are likely to be very much apparent.
GDP
The GDP will go further down because a lot of national wealth will go for the import of oils from Gulf. The prices of oil products have already surged $120 per barrel. 30% of import earnings are spent merely on oil import.
Unemployment
India succeeded to create about 4.7 billion jobs last year containing about one billion only in telecom sector. Pakistan created about 32 million. A due share of interest should be attributed to telecom sector for jobs creation. Given the situation, when many of our industries are closed due to energy crisis people will find it really hard to come by appropriate jobs. Unemployment and underemployment will continue to dominate the scene.
Revenue:
An increase in revenue collection while the country is environed by debts and inflation is nothing more than making castles in the air.
Corruption:
When your expenses are more than your income, corruption for keeping the kitchen running is bound to surge.
The same situation still prevails. The shabby economic growth is still a curse for us. The dept-To-GDP ratio is still very high demanding a lot to be done for development. The country is plunged in a serious vicious circle of both domestic and foreign debts surpassing to over a hundred billion American dollars. The debt servicing on these loans is much above 20 percent of the GDP. The infrastructure is still far behind than even that of other neighboring countries. The question arising here is that what the reasons are laying behind our dilapidated economic conditions. The spectaculars among them look me to be as summarized below:
1. Low Tax-To-GDP ratio:
The most serious problem to our economy is our weak tax base. It contributes a negligible, 10%, share to our GDP as compared to 30-35% in the developed world, and is highly recommended to be on the same lines with them. Tax-To-GDP ratio can reach to the required 35% only if tax evasion is brought into control and rich farmers are also taxed.
2. Depleted Economic Resources:
The country has a very weak economic base since partition. Most of our domestic resources still lie buried in soil and rocks. We never had friendly ties with our neighboring countries particularly with our arch rival India and western neighbor Afghanistan with whom we share a 2252km long mountainous terrain; due to which couldn’t got bonded with our next door economies in trade ties. The evil of continual irrational use of national exchequer add further salt to injuries. Pakistan with a population of 17 million has 84 ministers in the cabinet, compared to 120 in china, India, USA and UK combined, whose combined population is far above three and a half billion. Consequently the resources are often short of requirements.
3. Debts and Debt Servicing:
The internal and external liabilities of Pakistan are far above a hundred billion US dollars, 55million of which are external loans. The debt-to-GDP ratio is 40%. The annual expenses on debt servicing are $4billion annually. In financial year 2010 Pakistan will give $5.6billion in debt servicing alone, which are more than three time of that reserved for health. The international lenders, WB and ADB, had offered more $3billion in the aftermath of recent unprecedented floods. Most of the funds provided by Friends of Democratic Pakistan were also in the form of soft loans. A country so drowned in debts can’t be expected to accomplish its economy.
4. Transparency:
The transparency is a rare practice in Pakistan. According to the reports of Transparency international, Pakistan losses $4 billions annually only due to corruption. The auditor General of Pakistan confirmed immediately that Pakistan has lost circa $4 billions to corruption in 2008.
The NRO and alleged involvement of our cricket heroes, including their captain, in Spot fixing are conspicuous examples of our accountability. The highest administrative office of the country-holder’s alleged Swiss accounts and his refusal to have an openly monitored bank account for the collection of charities for flood-hit people’s rehabilitation are some other evidences to indicate the system of transparency and accountability prevailing in this mighty land.
5. High oil prices in international market:
The oil prices in international market have exerted an unprecedented and unaffordable burden on our limited mismanaged economic resources. The surge in oil prices was caused by refusal of OPEC and Saudi Arabia to increase oil supply coupled with political instability in Iran and Iraq. Meanwhile the demand of oil also increased due to hoardings started by USA, China and other power-resource-starving countries.
6. Inflation:
Poverty is a curse and is on rampage in our country since the scratch. 60% people of our country have no other alternative but to live below the poverty line. The national savings are only 18.1% as compared to 18.6% in 2002. Inflation, which was 3.4% in FY 2002, surged to 9.5% in FY07 and have now surpassed to double figures. Inflation in food items is comparatively higher. Domestic investment is therefore very low but domestic savings however witnessed an increase due to a substantial increase in remittances sent by workers working abroad.
7. Foreign Direct Investment:
FDI is also very low basically on the account of the prevailing law and order situation, unavailability of infrastructure and changing policies of frequently changing administrations.
8. Energy Crisis:
The power unavailability in the country resulted in closure of more than 80% industries in the country and of more than 40% in the industrial hubs i.e. Karachi, Lahore and Faisalabad. Many of the labor working on the basis of daily stipends got deprived of their jobs. The government intention to establish the Aegean’s stabiles by launching IPPs badly failed, not even a single unit of power was created by the former autocratic dictator and the establishment of even small dams to become operational will take years that’s why there were hours of power outage and the problem of low voltage. Over politicization of vital projects of national interests like kalabagh will never do will for the country.
9. Low literacy ratio:
In Pakistan only 40% of the school age children are lucky to attend the classes. The rest of the students either see the school off or not join a school. Only 1% of our people have university degrees of master level or above. The chances of coming out from the vicious circle of poverty for a people with no schooling are very rare. This is therefore the only way out for our people to come out of these economic crises.
10. Political Instability and changing Economic Policies:
Even after a lapse of 63 years since its birth Pakistan is still not sure whether it needs privatization or nationalization. Prime Minister Zulfiqar Ali Bhutto nationalized and president Musharraf came forward to sale back all national assets. The govt. should be very careful to encourage investors. Recently the bad blood developed between PPP and PML-N created a trust deficit among the political parties due to which the finance ministry remained without a political head and then three different, equally incompetent, finance ministers were changed in a limited time interval of 3 years.
11. Mismanagement
The political and bureaucratic rulers of Pakistan either don’t or can’t tackle the crisis when and where they’ve emerged. A committed and interested leadership, if Pakistan had, should’ve brought the country out of these challenges; and is therefore highly required.
Impact of Energy crisis:
The energy crisis will bring about enormous impact on our economic, social and political spheres of collective and individual life. The worse impact however will be on the economic side.
Impact on economy:
The economic impact will be very much apparent. The following outcomes are likely to be very much apparent.
GDP
The GDP will go further down because a lot of national wealth will go for the import of oils from Gulf. The prices of oil products have already surged $120 per barrel. 30% of import earnings are spent merely on oil import.
Unemployment
India succeeded to create about 4.7 billion jobs last year containing about one billion only in telecom sector. Pakistan created about 32 million. A due share of interest should be attributed to telecom sector for jobs creation. Given the situation, when many of our industries are closed due to energy crisis people will find it really hard to come by appropriate jobs. Unemployment and underemployment will continue to dominate the scene.
Revenue:
An increase in revenue collection while the country is environed by debts and inflation is nothing more than making castles in the air.
Corruption:
When your expenses are more than your income, corruption for keeping the kitchen running is bound to surge.