Restoring and setting sustainable economic path can bring Pakistan glory

Restoring and setting sustainable economic path can bring Pakistan glory

Interview with Muhammad Farooq Afzal — President/CEO, ITN Group of Companies

Profile:

Muhammad Farooq Afzal is a dynamic and a profound professional in the realm of Textiles, Information Technology, Business Consultancy, Tourism, and Event Management. He is pursuing his entrepreneurial ambitions for last 21 years, locally and internationally. He has been playing an instrumental role in promoting trade and business ties between Pakistan and other countries since 2004. Farooq has been continuously putting in his multifaceted efforts towards the cause of promotion of bilateral and multilateral trade. He has also been participating in TV talk shows regularly to speak about the economy, promotion of bilateral and multilateral trade based on the business opportunities lying in respective countries. Farooq holds a Master’s degree in Business Management from Philippines and Bachelor’s degree in Commerce from University of Sindh, Pakistan. He is also a Doctor of Homeopathic Medicine. He is the Founder President of Pakistan Turkey Business Forum and President/CEO of ITN Group of Companies.

PAGE: How would you comment on the socio-economic development in Pakistan over the period of last 7 decades?

Muhammad Farooq Afzal: Pakistan has progressed from a low-income to a lower middle-income developing economy while GDP per capita increased from US$294 in 1980 to US$1,284 in 2020. After the inception of Pakistan in 1947, more than 50 percent economy was based on agriculture. Pakistan mostly relied on importation of the goods. During United Pakistan era, we had immense reservoir of land and mineral resources — natural gas, crude oil, coal, limestone and marble. But in 1950s we faced economic crises because of the absence of economic infrastructure, financial resources and industrial base which resulted abnormal increase in poverty.

Then it was first time in 1950s when Pakistan got into Five Year Plans and started import substituting industrialization. During that time public and private sector worked hard which transformed into accelerated industrialization.

Pakistan banned the imports of cotton textiles and luxury goods in 1952 and regulated virtually all imports in 1953. Consequently, Pakistan joined the group of the most rapidly growing countries in the 1950s. But, anti-agriculture policy biases and anti-agriculture terms of trade between industry and agriculture caused the annual growth rate of agriculture declined less than 2%.

After 1958, during martial law agriculture grew by 1.80% and manufacturing grew at a rate of 7.8% per annum.

Then in 1960s due to massive inflow of American aid, political stability enabled Pakistan to sustain high rates of growth and achieved an agricultural growth rate of 5% per annum by achieving significant investments in water resources, increased incentives for farmers, mechanization of agricultural production processes, increased usage of fertilizers and pesticides, and the increased cultivation of high yielding varieties of rice and wheat. The large-scale manufacturing grew at a rate of 16% per annum during 1960/61-1964/65 due to protection of domestic industry from imports and subsidies for exporters.

Despite of the war in 1965 and reduced foreign economic assistance, Pakistan achieved an average annual growth rate of 6.7% in GDP during 1960-1970.

Because of growing interregional economic disparity, East Pakistan revolted against West Pakistan and became independent (Bangladesh) in 1971. Then, the martial law authorities empowered the socialist Pakistan People’s Party amidst very difficult macroeconomic circumstances, which nationalized all the industries, banks and schools and due to that poverty increased. Then increase in Pakistan’s import bill due to the October 1973 world oil price shock, a serious post-1973 global recession during 1974-77, failures of cotton crops in 1974-75, pest attacks on crops and massive floods in 1973, 1974, and 1976-77.

Pakistan experienced the worst inflation during 1972-77; annual fiscal deficit/GDP ratio was more than 8%.Trade balance deficits also rose to more than $1,000 million.

Then another martial law came on 5 July 1977, which accomplished denationalization, deregulation, and privatization. Agriculture grew at a rate of 2.4% per annum and the large-scale manufacturing grew at a rate of 5.5% per annum in the 1970s.While the large and medium-scale private manufacturing contributed 75% of the value-added and 70-80% of the total investment in manufacturing in the 1970s, the remainder of the 25% of the value-added was contributed by the small-scale manufacturing.

We can say that 1980s was the revival of the economy of Pakistan as the reversal of the nationalization regime of the Pakistan People’s Party and the revival of private sector’s industrial investment, which led to high rates of growth. Poverty incidence declined to 29.1% in 1986-87. Unemployment rate declined from 3.7% in 1980 to 2.6% in 1990.

In late 80s, Pakistan received massive inflows of worker remittances from the Middle East, which helped in increasing the ratio of national savings. During 1980-1990, Pakistan’s average annual growth rate of GDP was 6.3%. A manufacturing exports’ boom occurred in the 1980s with an annual large scale manufacturing growth rate of 8.8% and an annual agricultural growth rate of 5.4%.

In 1990s, Pakistan confronted the problems of declining worker remittances and rising external deficits. In the wake of declining growth rates of GDP, there occurred the second worst inflation in the 1990s. Unemployment rate sharply increased to 5.9% in 1991 and 7.2% in 2000. Pakistan financed the enlarged current account deficits via the sustained increase in her residents’ Foreign Currency Deposits. In 1995, external debt amounted to US$30 billion – external debt tripled during 1980-1995.

A serious debt crisis occurred in the late 1990s, when the public debt/GDP ratio rose from 57.5% in 1975-77 to 102% in 1998-99. Likelihood of external debt default emerged in 1996, and 1998, due to the Western economic sanctions imposed in reaction to Pakistan’s nuclear tests on 28 May 1998. Sanctions triggered massive capital flight. This debt crisis occurred despite an agricultural growth rate of 4.4% per annum and a large-scale manufacturing growth rate of 4.8% per annum in the 1990s. Poverty incidence sharply increased to 30.6% in 1998-99.

Debt crisis of the 1990s was followed in the 2000s by an era of macroeconomic crises − in spite of improvement in the growth rate until 2004-05 when the growth rate was 8.6%, the subsequent years were characterized by growth slowdown and low growth along with high inflation, energy crisis, and deterioration in fiscal and balance of payments positions. Poverty incidence increased to 34.5% in 2000-01 and then decreased to 22.3% in 2005-06.

Unemployment rate increased to 7.8% in 2002 and then declined to 5% in 2008. Adult literacy was 55% in 2007-08. Pakistan experienced economic crisis in 2008 and the prime effect of global financial crisis in 2009-10. In 2009-2010, the inflation-adjusted growth rate was a respectable 4.1%, the agricultural growth rate was 2%, industrial output growth rate was 4.9%, large-scale manufacturing growth rate was 4.4%, and the services growth rate was4.6%.

The history of Pakistan’s economic development highlighted the key role played by the manufacturing sector. Pakistan progressed from its status as a low-income to a lower middle-income country and achieved her objective of poverty reduction.

For sustainable growth, Pakistan needs to significantly increase national saving and investment rates, achieve budget surpluses for minimizing her domestic and external debt burden, and have political stability to promote a healthy investment climate for domestic and foreign investors, high levels of investment in human capital, and greater openness to international trade and private foreign investment.

PAGE: Your views on the human development in Pakistan:

Muhammad Farooq Afzal: Pakistan’s ranking on the Human Development Index is 150th out of 189 countries. In south east Asia region, we are much lower than India, Bangladesh Nepal and Sri Lanka which ranked at 76th. This is all because of the unequal distribution of income, resources and access to basic facilities in the form of health, education, food and shelter. The present government is trying to improve the figures associated to human development and that include shelters for the poor and needy, education related steps taken, health card being primary indicator for access to health and program for social safety in the form of Ehsaas. But still there are challenges in Pakistan which has differentiated people based on the money they have for living. Education is one of the biggest challenges, which Pakistan is facing in the form of human development linked to poverty as poverty growth elasticity is greater and is on rising trend. Pakistan is placed at the lowest bottom of the countries under Medium Human Development Index and that all because of the lack of proper education and its system. Pakistan can improve, if a development framework is built on an equality basis with improved governance structure and work on hindrances in the implementation of policies. The recent Ehsaas program launched by the current government needs to be integrated other programs within itself and should have uniform implementation framework across the board. Pakistan needs to have uniform health system which can be seen missing. Within health system improvement can be in the form of not only access to health services which itself is another challenge because of distance between consumer of services and services. For this purpose, there is need to reduce distance between services and consumers, there is need to reduce cost of health both in terms of basic health checks, major surgeries and accidental services. This will help in reducing health inequality. Education services should also be uniform across the board depending upon level of education. For this purpose, as done in different programs while looking at the past focus should be on capacity of teachers, increased number of teachers, increased space for the schools particularly at primary level and reduction of distance between school and student. There is much need to improve the governance structure which may bring in revisiting the policies and amendments in the system. There is need to ensure strong monitoring during whole process and introduction of uniform health as well as educational system.

PAGE: What challenges do you presume the entire population of Pakistan encounters at this juncture?

Muhammad Farooq Afzal: Pakistan has been facing different challenges regarding its economy. The economic situation of Pakistan is very critical and people are looking towards the solution of these challenges. Pakistan has different opportunities which can help it to solve its economic problem. But without tackling long term challenges and problems decisively, the country will no longer be able to take advantages of opportunities. Increase in debt and import and decrease in export, saving, investment, tax collection and lack of policy implementation, excessive taxation are some of the key challenges faced by Pakistan’s economy. Decentralization is one of the factors, which can help increase the economy of the country. Local government should report to the provincial government about its activities and the provincial government should report to the federal government. If our government does this, we can do more by the same resources which are being wasted today by its direct involvement.

Tax collection can play a vital role to improve the economy of Pakistan. The government should allow the Federal Board of Revenue (FBR) to work impartially, independently and transparently, which will make FBR an efficient and effective tax administration. This will increase the confidence of taxpayers in FBR and increase tax collection in a fair manner. This higher collection of tax can be used for the development of infrastructure. It will help to create jobs by reducing unemployment and generate income for the millions.

While there is a crucial need to fix persistent challenges, more innate reforms are required to improve and attract talent to serve in the businesses and public sector. Instead of politicians, the academics, intellectuals and community leaders should come forward and play their role in social revolution.

PAGE: What is your perspective about the future of Pakistan?

Muhammad Farooq Afzal: Pakistan has very bright future in time to come. Due to its strategic location and after the CPEC projects, which has become really a game changer for Pakistan will bring much prosperity not only in Pakistan but also for other land locked regions. The proposed economic zones will bring lot of investments into Pakistan. This will accelerate industrialization and will create millions of jobs and small medium enterprises – which is always a backbone of the economy of any country.

Further Pakistan’s future can only be shaped by its people. As a nation its people should get united to make things better and make this country a better place with love, peace, and harmony.

The current government needs to focus its efforts on restoring growth and setting Pakistan on the path to sustainable economic development.

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