Pakistan Essay

This essay has a total of 5665 words and 24 pages.

Pakistan

My topic deals with Pakistan, its relationship with the IMF and World Bank, and
its internal problems that are causing unemployment, poverty, economic crisis
and hunger. I shall be analyzing the situation using the neo-classical theory,
as it is what the economists of the Pakistan government and the IMF are using to
alleviate the economic instability of the country. Situated in the
sub-continent, Pakistan is a low-income country, with great promise for growth.

Unfortunately, it is held back from reaching middle-income status by chronic
problems like a rapidly growing population, sizable government deficits, a heavy
dependence on foreign aid, recurrent governmental instability and large military
expenditures. It is to address these fundamental faults in Pakistan's economy
that the IMF has initiated the Structural Adjustment Programs (SAPs) in the
country. This is discussed in further detail later in the paper. Like all
developing countries, Pakistan's population is largely employed in the
agricultural sector, which accounts for about 48 percent of the labor force. In
today's world the Industrial and Service sectors are the largest growing areas
of a developed county's economy. Yet Pakistan only employs 39 percent of its
population in Service, and a minute 13 percent in Industry. This is a paltry
figure, compared to the employment statistics of a developed country. Pakistan
is also heavily dependent on a single export crop, cotton. Hence the country's
fortunes rise and fall with the cotton market. It is no wonder that there are so
many poverty stricken people in Pakistan. When almost half the population is
involved in a very volatile market, a lot of the time, a lot of people will be
burnt by price fluctuations. The country is also subject to the mercy of the
weather. Focussing on a major cash crop means very little diversification. This
translates to mass hunger and hard times for the agricultural sector whenever
the agrarian lands are ravaged by floods, or conversely, by droughts. Even more
importantly, Pakistan's agricultural sector is marked by large landowners,
controlling most of the production. Hence, only a minimal amount of the profit
from exports goes to the poor people working for the large farmers. It is these
people who constitute a large portion of Pakistan's population. It is also
these people who are living in abject poverty in the rural regions of the
country, devoid of the right to feed their families. This is a great
illustration of a theme discussed in "World Hunger, Twelve Myths.' Lappe,

Collins, Rosset and Esparza discuss the commonly believed myths about why hunger
and poverty exist. In it they clarify this very important point: hunger does not
exist due to a shortage of available food, but because of ?fear' and
?powerlessness,' resulting in the ?anguish, grief and humiliation' felt
by the hungry and poverty stricken. Pakistan is a classic example of this
theory. Based on a feudal system, especially in agriculture, Pakistani society
is primarily controlled by feudal overlords, (a.k.a. the politicians or
relatives of politicians), who own or oversee most of the agrarian land and
industrial base. Being above the law, due to their political influence, these
corrupt people can literally get away with murder. Thus, keeping their laborers
subdued and underpaid is no hard task. Anyone who dares to complain is used as
an ?example' for potential future unrest. As a result, the people in their
?elakhas', (controlled lands), remain destitute in the throes of poverty,
unable to help themselves due to their lack of power and the fear of the ?thekedars',
(large landowners). By a lack of power, I refer not to a dearth of physical
prowess but to a scarcity of basic human rights. These are the same rights that
people in developed countries take for granted. The right to vote for whomever
one feels like is missing. Instead a lot of villagers are forced to vote for the
local land owner due to a combination of fear and ignorance; a fear of the
repercussions of a potential loss by the feudal lord and the ignorance of any
means to escape this same overlord's wrath. Very often there is also no choice
of candidates. There are very few people willing to risk their own and their
families' safety by running against their subjugators. All this goes against
the very nature of the free market economy that Pakistan is supposed to be
running. While the IMF and World Bank are using Neo Classical theory to address
the nation's problems in the capital, half the country is still being run
under the feudal system. Till this system is broken, and the immense lower
classes are empowered there is not a dent that can be made in the country's
poverty and hunger issues. Rather the problem will continue to grow right under
the economists' noses. Pakistan is also set back by ethnic problems, having
numerous groups including Punjabis, Pakhtoons, Sindhis, Balochis and Mujahirs.

Speaking different languages, the different ethnic groups do not get along very
well as is witnessed by the numerous clashes between Sindhis and Mujahirs in the
violence torn city of Karachi. The language barrier also translates to a lack of
mobility of labor, which is a key to economic success under neo-classical
theory. Hence the large sparsely populated province of Balochistan is presently
under utilized. Due to a lack of available labor, industries are tough to set
up. If the language/ethnic barrier could be overcome, the rich lands of

Balochistan could potentially become the saviors of Pakistan's economy.

Pakistan also has a very week industrial base. Being an ex British colony it
suffers from a similar problem to the one ailing a number of the African and

South American countries. This issue is that the colonists never bothered
building up the necessary base for industrialization. While the rest of the
world was busy building this base, greedy colonists who did not care about the
country and thus paid no attention to its development were exploiting countries
like Pakistan. Hence Pakistan is permanently playing catch up to the rest of the
developed world leaving very little money for social services to help the
situation of the poor. The literacy rate in Pakistan is also very low. In 1992,
the official literacy rate for the adult population was said to be a low 36
percent. Even more dismal was the statistic that listed 45 women being educated
for every man. With this dearth of qualified personnel, there is no room for
economic growth as there are no new minds to head the growth. Women are also the
primary food producers in Pakistan. If they are not being educated, it means
that they are not up to date on the latest production techniques, which in turn
translates to inefficiency and the aforementioned ignorance. Once again it all
ties into the powerlessness that marks the hunger and poverty-stricken. Women
represent 54 percent of Pakistan's population. If they are not allowed to
exercise their rights to an education and to vote, how can the country be
expected to progress? It is like asking a man with one leg to run. Like other
third world countries, in Pakistan, substandard housing, inadequate sanitation
and water supply, and widespread malnutrition contribute to spread of disease
and to high infant, childhood, and maternal mortality. The leading causes of
death are gastroenteritis, respiratory infections, congenital abnormalities,
tuberculosis, malaria, and typhoid fever, all preventable diseases.

Unfortunately the poor, uneducated lower classes are not given enough attention
by the corrupt officials running the country, which is resulting in their
situation deteriorating year by year. These, along with other economic and
social issues are causing immense hunger and poverty in Pakistan. Presently

Pakistan is passing through an unprecedented economic crisis, made worse by the
global recession. The turmoil in domestic markets and the imbalance between
resources and liabilities threatens to roll back the modest levels of economic
development and industrialization that Pakistan has achieved so far. Had it not
been for a reasonably strong agricultural base, the situation would be much
worse. This ?situation' has been caused by a mixture of issues, including
the near sightedness of politicians and their persistence in following
politically popular, but economically disastrous policies. An example of this is
the detonation of a nuclear bomb a year ago. Simply to show off to India and the
rest of the world, as well as to raise their local popularity, the Pakistani
government decided to go ahead with an unnecessary test that brought economic
sanctions against them and also cost them a lot of their aid from western
countries. However, much more important have been the structural reasons
underlying this deterioration, all of which have been contributing to the
growing feeling of desperation the hungry and poverty stricken have been
experiencing. Before this paper begins finding solutions to the problems at
hand, we need to remind ourselves of the key issues. 1) One major problem that

Pakistan needs to deal with is the fact that its expenses are far more than its
revenues. Partly due to decades of lax fiscal management, but more because of
myopic policies in its external relations, the militaristic structure of the
state and the narrow vision of its rapist elite, Pakistan is Rs 100 billion
short of the money to simply keep its existing machinery operational. How is a
third world country supposed to develop an infrastructure when it is spending
more than its net revenues on only two items, debt servicing and defense? In
fact, Rs 18 billion of its defense has to be financed to borrowing. The

Pakistani government has not been governing; it has simply been acting as a
debt-securing agency. 2) Lately the government has been touting the fact that it
has achieved the IMF imposed budget defect target. What it neglects to mention
that it achieved the target through questionable means. Firstly, it drastically
reduced its developmental expenditure from 7.5 per cent of GDP in the early
?90s to a paltry 3 per cent, which translates to a cutback of 140 billion in
present prices. A cutback of expenditure of such extent in the governments
purchases of private sector goods like cement, pipes and cables and services
like engineering explains why a number of private sub-sectors are at the point
of closing down, operating at a vastly reduced capacity. This is adding to the
issues of hunger, poverty and unemployment being faced in Pakistan. The
government has also reduced the amount it givers to the provinces by Rs 30
billion, transferring some of its debt to the provincial governments. In other
words the government has done nothing to resolve the issue of structural defect.

3) What's worse is that not only has developmental expenditure been sharply
curtailed, but that the scarce resources set aside for infrastructure works have
been diverted to less productive investments_like the new motorway and the new

Lahore airport. This massive reduction of the public sector's developmental
activities is causing a contraction in employment opportunities for Pakistan's
growing number of middle class educated youth. This is particularly serious in
the areas where the private sector is unlikely to locate due to the lack of
infrastructure. Thus the really poor areas continue to live in poverty due to
the government's inability to provide adequate physical and social
infrastructure or create an environment for private sector investment. It has
also not been able to maintain law and order and is guilty of not living up to
its contractual obligations which is further discouraging foreign and domestic
investment in the country. The treatment of its foreign currency account holders
and IPPs last year illustrates this point. 4) Pakistan suffers from the typical
problems that all third world countries suffer. One of these is massive
corruption at all levels, estimated at Rs 100 billion a year. This means that a
large portion of national wealth has been stolen from the poor. No wonder, the
country is unable to lift itself out of the quagmire of poverty and hunger. 5)

Tax evasion is another issue that the government needs to address. Successive
governments have failed to establish a tax culture due to an inequitable
structure, which taxes different sources differently. An example of this is
provided by the large farmers who, despite now getting higher international
prices for their crop, are unwilling to pay the modest levels of provincial
taxes. The political leadership itself does not pay its taxes diligently. Thus,
unless companies owned by sitting ministers install invoice based systems for
tax accounting, it will continue to be difficult to enforce retail taxes. Also,
the repeated bowing down of the government to shutter-down threats of traders
and the repeated refusal of large land-owners to meet their tax obligations is
increasing the burden of taxes on the helpless poor, the organized sectors, and
the honest people foolish enough to pay their taxes. If the rich are not willing
to meet their responsibilities, how are the poor supposed to survive? 6) There
is the additional problem of a gap of between 5 an 6 per cent of GDP per year
between domestic national savings and investments which translates to
approximately Rs 150 billion being financed from external borrowing. This
further adds to the crippling debt that is allowing the IMF and World Bank to
interfere in the formulation of domestic economic policies. 7) The external debt
of around US$ 34 billion is more than 50 per cent of GDP, and four times the
annual foreign exchange earnings. Pakistan can neither repay nor service this
debt. So far I has only postponed the inevitable, default by piling up further
debts at abominably high rates. 8) Pakistan's exports compromise 0.2 per cent
of world exports and diversification from a single crop economy has remained an
elusive dream. Therefore to hope for exports to be the driving force of economic
recovery, as the government is doing, would require an astronomical rise in
exports, and the price of cotton. In other words it is impossible. 9) The
country's ability to export is also affected by sluggish world trade, which
coupled with an over valued currency, is rendering Pakistan's exports
uncompetitive. With the rise in the price of oil, the gap between import bills
and export receipts is widening. 10) Until now this gap has been met with
remittances and short-term borrowing. But due to a decline in remittances for a
number of reasons and Pakistan's declining credit, this is no longer an
option. It therefore seems that it is impossible to maintain the present levels
of growth rates and imports as well as meet debt servicing. 11) Public sector
industries are also deeply in the red due to over-manning, corruption, and the
protection given to large defaulters of utilities. The combined debts of just

WAPDA and KESC, (which deal with electricity and gas respectively,) are Rs 91
billion while the loans of 18 public sector enterprises is close to Rs 250
billion. 12) The government is offering 15 to 18 per cent interest rates on its
saving schemes which is far to high for it to be able to generate high enough
returns to service the debt and still have enough left over to finance
developmental activities. 13) Most of Pakistan's industry faces the issue of
negative or nominal growth, while value-added industry is operating at 30% below
capacity. The limited growth is due to a lack of comparative advantage, the lack
of credit availability and a high interest rate. Despite inflation being well
below double digits, interest rates are as high as 15 to 18 per cent on loans!

This is too high to keep the present economy afloat, let alone raise it to a
maintainable level of growth. 14) There is also a lack of confidence in the
government by the private sector. How can a government that cannot even handle
domestic peace issues be expected to turn around an economy that is in the
throes of a downward spiral? Therefore the private sector has been occupied in
short-term trading and currency speculations which do nothing for growth or the
welfare of the state. 15) An obvious result of this situation is that the
disparity between the rich and the poor has grown. The share of the poorest 20
per cent of households has fallen to 7 per cent while the richest 20 per cent
are receiving over 45 per cent. The low rate of economic growth and the high
rate of inflation over the last few years have left the poor with no buying
power resulting in almost a third of the population living below the poverty
line. There is also anger amongst the poor about the fact that the incidence of
increased taxation has been heaviest for them; expenditures on services for them
have declined. Social tensions are rising with the growth of the absolute number
of poor, illiterate and jobless, as employment opportunities and wages decline
due to the stagnating economy. Such conditions are hardly conducive to political
and social stability, without which growth will remain a distant dream. On top
of all of this, Pakistan is plagued by the curse of the IMF and World Bank.

Constant defects in the current account of the balance of payments and depleting
foreign exchange reserves is causing the extension of credit to become an
exercise in haggling and bargaining. Each time there are negotiations along with
a string of conditions attached to the loan. The release of credit is then
delayed until each and every condition of the IMF has been met. The only way
that Pakistan can now secure loans and vital extensions on its debt is to
institute the Structural Adjustment Programs that have been drawn up by IMF
economists. The problem is that the benefit of these programs is questionable.

Most countries have suffered immensely from them. Instead of improving the
economy, these programs have been destroying them. Unfortunately, like other
countries that have yielded to the them, Pakistan is virtually being taken over
by the IMF, along with the World Bank. There is increasing evidence of this
everywhere:  A few months ago, the IMF opened a resident office in the
capital, Islamabad, to monitor the economic policies and performance. 

Before the budget is presented to the Assembly, it is sent to the IMF scrutiny
team for approval.  Even after the Assembly has passed the budget, the

IMF can amend it, totally against the will of the Assembly and public interest.
 Projects are started, speeded up or stalled at the will of the World

Bank.  Not, only are major projects subject to their approval, but even
small price changes in consumer products are also dependent on their assessment.
Continues for 12 more pages >>