Dr. Salman Shah, a former finance minister, examines the state of the country’s economy since the Pakistan Muslim League-Nawaz government came to power in 2013 with the promise of putting the country on road to progress and prosperity.

Narratives’ Grading Policy!

A– Excellent   B– Average   C– Weak   F– Fail

Foreign reserves
“Foreign reserves are an important indicator of the stability of the economy, particularly of the currency. There are various benchmarks to judge that, such as number of months of imports and the ratio between the country’s exports and its debt level. For a country like Pakistan, if reserves are enough for six months of imports then it’s a reasonable standard. However, currently, we are between three and four months of imports. Pakistan’s foreign debt is over $70 billion and in comparison with exports, the difference is 300 percent, as compared to an ideal level of 200 percent. So we are basically moving into dangerous territory. Reserves have not been built up on the basis of non-debt flows, exports, remittances and investment, but on debt which is not very encouraging.”
Circular debt
“This is a very critical part of economic management. Pakistan has a large population, of which 60 percent is under the age of 25. We are very poor in terms of governance, human development and education, but the biggest factor is energy. The government has not been able to reform the energy sector. It has failed to create more competition, or develop a vibrant power market. As a result, all decision making in the sector is being done from Islamabad. But the water and power ministry is not competent enough to do all of this as it doesn’t have the required skills. Hence, we see the sector enmeshed in a high circular debt. We probably have the world’s most-expensive electricity, and this is the most-significant failure of the government.”
NFC award
“The National Finance Commission (NFC) award is again overdue. We still have to negotiate a new accord, but the kind of homework which is needed to make it an equitable and fair award, promoting economic development of all parts of the country, is not there. This requires a lot of data gathering to bring each and every part of the country within the ambit of development. The NFC secretariat is not functional and needs strengthening. Unfortunately, the government has been too involved in political activity so they haven’t been able to put in the efforts needed to come up with a sustainable NFC award.”
“Exports are coming down sharply. Even in the areas where we once had a lot of advantage, particularly the textile sector, we are suffering very badly. The main reason is that the productivity of our economy, of our textile as well as agriculture chain, is lacking. We need to improve on these. Productivity leads to competitiveness, and competitiveness leads to exports. We are not benefitting from modern technology and designs or an educated workforce.”
Value of rupee
“In the short run, we may not see a sudden devaluation of the rupee because it disrupts a lot of investment decisions. But if we have to manage the stability of the rupee, we need to take measures of increasing the supply of dollars into the economy; we need to de-control some of the supply-side initiatives; we need to promote the exchange companies and make them more effective, capable of attracting more remittances into the country. Also, we need to look at our projects, such as CPEC, where we need some upfront dollar inflows into the country and together with that we need to improve the competiveness and productivity of our manufacturing sector.”
Stock market
“I think the stock market is one sector of the economy which can generate lots of inflows into the country. We have recently been upgraded from a frontiers market to an emerging market and at this point in time Pakistan is a very attractive proposition amongst the emerging markets. The price-earnings ratio is almost at a low point and that means if we can get a message to the world that Pakistan is a rapidly developing country and that it has great opportunities with CPEC developing connectivity with the world’s largest economy, which is China, it can really be a booming scene.”
“In the past decade, inflation was driven due to oil prices. When the oil prices in the global market suddenly shot up, it created a new cycle of increased commodity prices in Pakistan. But now that the oil prices are back down, it is a great opportunity to introduce reforms and better our investment climate, strengthen our state institutions and formulate strategies to compete with the world economies.”
“There is a massive youth bulge. We still have a high unemployment rate. Our economic growth should be over 8 percent so that we could have at least three million new job avenues every year, which is our requirement, but it is not happening. We are not able to end unemployment because we are not growing at a higher rate. Furthermore, the growth we have today isn’t enough for employment generation. Employment generation should be the biggest objective for Pakistan’s economy.”
“Our energy sector is the most messed-up sector of our economy. If we look at the IMF programme, the reforms that were recommended were for the energy sector. When the head of IMF visited Pakistan earlier this year, she said the IMF programme has been achieved, but the real game has now started because you need to carry out reforms, of which power and energy reforms were on the top of the agenda. In spite of that, if the sector is accumulating a lot of arrears, plenty of receivables and masses of circular debt, it is an indicator that we have failed the reforms in the sector. We are adding capacity in the power sector but unfortunately that is the world’s most-expensive electricity and it will hurt Pakistan’s competitive market position. It will be detrimental for the country’s economy.”
“Our development is mainly reliant on investments, in economic terms we call it the investment-to-GDP ratio. During 2008’s high point, at least 24 percent of the GDP were investments. Later, the investment rate fell to 12 percent. And today, it is not more than 15 percent. Until and unless our investment-to-GDP ratio is around 20 percent to 24 percent, we can’t have sustainable development.”