pakistan's economic problems

Written by Badshah Gul 11:47 am Articles, Current Affairs, Pakistan, Published Content

Pakistan’s Economic Problems & the Need for Regional Connectivity

Economic security is necessary for every state but Pakistan’s economic problems have made it difficult for the South Asian state to acquire it. The author, Badshah Gul, notes that to improve its economic condition and to efficiently utilize its national resources, Pakistan needs to strengthen its relations with its neighboring countries—China, India, Afghanistan, and Iran—and engage with regional organizations like SAARC and the Economic Cooperation Organization (ECO).
About the Author(s)
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Mr. Badshah Gul has a bachelor's degree in English literature from the University of Malakand. He is a CSS aspirant with an interest in international relations and regional politics.

Introduction

“While history has been unkind to Pakistan, its geography has been its greatest benefit. It has a resources-rich area in the north-west, people rich in the north-east,” said Stephan Cohen. Therefore, Pakistan’s geo-strategic location is a blessing, however, since the inception of the country, the events that followed badly damaged the country’s image and reputation and caused it to suffer from numerous economic problems.

Pakistan has been harping on the same mantra of geo-economics for quite a long time which took great precedence since the conclusion of the Doha agreement. Soon after the withdrawal of the US troops from Afghanistan, the Pakistani policymakers and the Foreign office has left no stone unturned in this regard. Recently, Pakistan unveiled its first-ever National Security Policy, with economic security as its core objective – a welcome step, indeed. However, shifting from geo-strategy to geo-economics in an unsettled world would be a hard nut to crack.

The Cost of Alliances

Before going further, it is imperative to define the concept of geo-economics. The term “geo-economics” is not something new to the world. It refers to considering the national resources of states in light of their political and spatial dimensions. In the 1990s, geo-economics was to refer to the idea that in the post-Cold War era, the competition between states would go beyond the military realm and focus more on the economic sphere.

For years, the international community has viewed Pakistan as a state plagued with a weak economy, divisive politics, and societal disorders, especially violent religious extremism. The major events which changed or exploited the country’s image internationally were the Cold War, the Afghan jihad against the Soviet Union, and the Global War on Terrorism. Since the very beginning, Pakistan had joined the western block in the said events.

Hence, it is evident from the fact that each time Western countries, particularly the US, had left Pakistan in the lurch upon the attainment of their goals. In the US-led War on Terror, Pakistan has lost more than 80,000 human lives and more than 150 billion dollars in economic losses. Similarly, since the inception of the country, all the recourses have been directed towards the military, as it has been instilled in the masses that the county has been facing hegemonic designs at the western and eastern borders—as proven by the 1965 and 1971 wars.

Pakistan’s Economic Condition

A strong economy is a prerequisite for shifting from geo-strategy to geo-economics, but currently, Pakistan’s economic condition is not in a good shape. Similarly, since Pakistan Tehreek-e-Insaf (PTI) came to power, the country’s economy has been in the grip of the International Monetary Fund (IMF). The country is currently facing an account deficit.

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According to the data from the State Bank of Pakistan (SBP), in the first five months (July to November) of the current fiscal year, Pakistan’s current account recorded a deficit of $7 billion mainly on account of increasing imports and decreasing export. In addition, the trade deficit has also been galloping, as reported by the Pakistan Bureau of Statistics.

Pakistan’s trade deficit has increased by a sharp 106.4 percent to $25.478 billion, mainly by the threefold increase in imports compared to exports. Similarly, the Pakistani rupee becoming the worst-performing currency in Asia, from the best-performing in March, is the manifestation of the investors’ lack of trust in the Pakistani market.

Agriculture is the backbone of Pakistan’s economy. Agriculture constitutes 24% of the GDP of Pakistan and is the source of living for two-thirds of the population. A decade ago, Pakistan was a country with a surplus in agricultural production and now, Pakistan’s economic condition has worsened to the point where it isn’t even capable of fulfilling the needs of its population. Despite its contribution to the GDP, the agriculture sector has been neglected, resulting in a lack of production which was further exacerbated by climate change and the COVID-19 era. Thus, compelling the state to import food items.

If Pakistan’s administration pursues the narrative of geo-economics, it needs to first overcome its economic problems and improve its economic condition. For this, it ought to spend a substantial amount of money on research and development, assist farmers to adopt modern technologies, develop new high-yield seed varieties, avoid the use of pesticides, improve soil fertility, and find new ways to adapt to climate change.

Though, some initiative has been taken by the Parliamentary Committee on China-Pakistan Economic Corridor (CPEC). Under the framework of CPEC, the committee called for strengthening the agriculture sector since it has the potential to be a source of employment for the people of Pakistan. Similarly, other major problems hindering Pakistan’s economic growth are unemployment, and sky-rocketing inflation, etc. It is, hence, the need of the hour for Pakistan to put its house in order.

Why Pakistan’s Neighbors Matter

The regional countries can play a significant role in the narrative of geo-economics. Pakistan’s engagement with the regional countries and regional organizations is imperative if it wants to deal with its economic problems. The following section deals with the current outlook of Pakistan’s relation with regional countries—China, India, Iran, and Afghanistan, and their role in the promotion of Pakistan’s narrative of shifting from geo-strategy to geo-economics.

India

India is the world’s 2nd most populated country and the biggest trade partner of the US, European Union, and China. From a regional perspective, India is located on the eastern side, but since the revocation of the special status of the Indian Occupied Kashmir on 5th August 2019, all diplomatic and bilateral relations have also been suspended between Pakistan and India.

Similarly, despite the recent skirmishes between China and India on the Line of Actual Control (LAC), the volume of their trade has not come down. Reportedly, “the India-China bilateral trade touched a record high of over USD 125 billion in 2021, crossing the USD 100 billion mark in a year when the relations hit a new low due to the prolonged standoff by the militaries in eastern Ladakh. The total trade between China and India in 2021 stood at USD 125.66 billion”.

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Thus, Pakistan needs to engage with India and solve all issues bilaterally. Though India has a lack of visionary leadership, the hegemonic and belligerent designs and the Hindutva ideology of the Bharatiya Janata Party (BJP)—the incumbent government—are a hindrance to the attainment of this goal. However, if Pakistan is truly committed, it needs to put aside all political or ideological differences prevalent to trade and re-establish bilateral as well as diplomatic relations with India.

China

China, the iron brother, is located in the north of Pakistan. Historically, China has been supportive throughout Pakistan’s history. Despite, Pakistan joining the western block in the containment of communism during the Cold War era, China remained neutral toward Pakistan. Therefore, the relation of China and Pakistan is often described with the words “higher than the mountain, deeper than the sea, and sweeter than honey”.

Based on this relation, Pakistan has joined China’s most ambitious project of the 21st century, the Belt and Road Initiative (BRI). Despite, much criticism of CPEC from the western countries, particularly the US, and even after it was called another “East India Company” and a “debt trap”, Pakistan remained committed. It considers CPEC as a “game-changer” for the state’s economy since the corridor has the potential to revive the Pakistani economy.

Similarly, in shifting to geo-economics, China could play a significant role. Pakistan needs to invest in the agricultural sector and livestock as ”China imports meat worth $48 billion from other countries. Since Pakistan has huge potential in the livestock and other food processing items, there is an exigency of meeting international food standards and initiating negotiations with China to remove anomalies and enhance local exports in these areas”.

Moreover, investing in the agricultural sector could yield or reduce the pressure on import bills as in “the fiscal year 2020, China imported around 17 billion U.S. dollars’ worth of agricultural products from the United States.”

Iran

Iran is the biggest Shiite Muslim neighbor of Pakistan. Iran became the first country to recognize the sovereign status of Pakistan. It helped Pakistan through thick and thin and remained a brother country. However, in western geopolitics, the unilateral withdrawal of the US from the Iran nuclear deal and the imposition of sanctions crippled the Iranian economy. Thus, Pakistan needs to engage with Iran, as the economies of Iran and Pakistan are alike.

Afghanistan

Afghanistan is also a Muslim country neighboring Pakistan. Since the withdrawal of US troops from Afghanistan, and the Taliban’s takeover, the economy of the state has been crippled. The situation was further exacerbated when the afghan foreign assets were frozen by the US. It has been six to eight months but the Taliban government has not been recognized by any country, regionally or internationally.

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Afghanistan is “on the brink of a humanitarian catastrophe” and its collapsing economy is “heightening the risk of extremism,” warned Deborah Lyon, the Special Representative of the Secretary-General and Head of the United Nations Assistance Mission in Afghanistan (UNAMA). Hence, the growing unemployment, malnutrition, the fragile economy, and the threat of the Islamic State of Khorasan (IS-K) have worsened the situation. Thus, sooner or later, Afghanistan would be on the verge of collapse.

Therefore, Pakistan has the opportunity to improve its relations with the Taliban government and engage it for the attainment of the goal of geo-economics in saving the Afghanistan economy from total collapse. Pakistan could also play a significant role in the recognition of the Taliban government by compelling the Taliban to abide by the demands of the international community. Furthermore, Pakistan has also the opportunity to include Afghanistan in its most ambitious project, CPEC.

Involving Regional Organizations

In Pakistan, CPEC alone is not enough to usher in or revive the economy and fix its economic problems. Pakistan needs to engage and utilize regional organizations, like the South Asian Association for Regional Cooperation (SAARC) and the Economic Cooperation Organization (ECO), as well. According to Hassan Baig, an economist, ”The SAARC countries have a big consumer market of about two billion people with comparatively cheap labor and the potential for industrial growth.”

Through the establishment of trade infrastructure, and increased industrial growth in the SAARC member states, not only will the socio-economic conditions of the population improve but also the opportunities for investment in the region. For this, these SAARC states first need to overcome the barriers in intra-regional trade.

Similarly, ECO is another forum that consists of Muslim-majority countries with a long history of trade and merchandise. Unlike SAARC, the ECO member countries have a long history of cordial relations without any dispute. ECO member countries are rich in energy resources which Pakistan desperately needs and have the potential to solve energy woes or crises. The Iran-Pakistan (IP) gas pipeline and the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline can serve as starting points for regional cooperation among the ECO states.

In a nutshell, Pakistan’s foremost priority is to engage with the regional countries and effectively utilize the regional organizations to resolve the disputes bilaterally and diplomatically, and to overcome its economic problems. Otherwise, its strategies would only remain on paper. 


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