For PM Imran Khan: A guide on how to fix the unfixable

Published: August 27, 2018
SHARES
Email

It is unconscionable that a poor debt ridden country should waste precious foreign exchange on importing luxury vehicles. PHOTOGRAPHER: ASIM HAFEEZ/BLOOMBERG

There is a new sense of optimism in Pakistan. Many in the country are looking to the government of Imran Khan to reform the way the country works and put it back on the track of development and prosperity.

The new government has signalled a willingness to think outside the box. This means trying to do what has not been done before. It means going against vested interests, the ‘rent seekers’ who have used their influence to accumulate power and enormous wealth. And finally, it also means going against established international ‘norms’ of behaviour as defined by the ‘Washington Consensus’.

First thing’s first. The most immediate problem is the ballooning trade deficit, which has reached close to $40 billion on an annual basis. There are two ways to fix a trade deficit. One is to increase exports and the other to reduce imports. The former is a long term project and may take several years to take effect. The latter – reducing imports – can be implemented relatively quickly.

Here’s what needs to happen: All imports of luxury goods must be immediately and completely banned. This would include luxury vehicles. It is unconscionable that a poor, debt ridden country should waste precious foreign exchange on importing luxury vehicles. This one measure would cut $1 billion from our import bill.

Similarly, a brutally honest reassessment of the fast moving consumer goods category (FMCG) is required. What do we really need? What can we do without?

The next priority is external debt, which is currently over $90 billion. Over the next year, Pakistan will need to spend $10 billion in interest and principal repayments. The way to handle this is to impose a moratorium on all debt repayments and a freeze on the accumulation of interest. The doctrine of necessity should be invoked and international lenders reassured that they will get their principal back as circumstances permit. But Pakistan will no longer pay interest on these debts.

Clearly, this is not a remedy for the faint-hearted. All hell will break loose. Pakistan will be labelled a defaulter. Ships and planes may be impounded at foreign ports and airports. Preferred trading status may be withdrawn. Sanctions will be threatened. But in the scheme of things, it is a remedy well worth exploring. It is better to take a chance on reviving our economy rather than commit to a slow certain death under the crushing burden of inequitable and iniquitous international debt.

Limiting imports and suspending debt repayments are short-term measures. But at the same time, the government needs to initiate long-term policies that will allow the economy to grow and thrive.

Of these, rebuilding industry should be a top priority. Over the past few decades, a slow but inexorable process of deindustrialisation has taken place. This explains both our large trade imbalance and the dangerous levels of unemployment, especially amongst young people.

How to rebuild the industry? Start by building a semi-permeable firewall around Pakistan. This will allow only crucial raw materials to enter the country and keep out all, or nearly all manufactured goods. If we want manufactured goods, let’s make them in Pakistan.

This is a strategy that worked for Japan after World War II when whatever industry it had was levelled to the ground. The then Japanese Ministry of International Trade and Industry (MITI) put up exactly such a firewall. The protection the wall allowed giants like Toyota and Mitsubishi and a hoard of other manufacturers to achieve global scale. Even today, foreign car manufacturers complain of limited access to the Japanese market.

Tax bears special mention. Chronic budget deficits are a direct result of a non-functioning tax system. Not even experienced and highly qualified tax advisors fully understand the Byzantine tax regime in Pakistan. The result is that only a million people pay taxes in a nation of 200 million. The way to fix the current tax code is to throw the whole book away and start from ground zero. Simplicity and transparency should be the keywords.

Agriculture and water must be addressed. Growing sugarcane in Pakistan is a crime. This is a crop that has a high water demand and is grown much more efficiently in high rainfall areas. Ideally, sugarcane should be supplanted by higher value crops that are more economical with water. Sugar is much cheaper to import than to produce locally. But the sugar mills are owned by powerful politicians including some who have financed Imran’s rise to power. Will his government find the wherewithal to take away their money machines?

Pakistan’s poor, whether they live in rural or urban areas, suffer from two basic problems. One is that they have no access to clean drinking water; and the second is the absence of sewage disposal systems. Step into an urban slum in any city and the stench of open drains immediately catches your nostrils. Children play in narrow sewage-infested lanes. Residents go about their daily lives in an environment where many would hesitate to even stand for a few minutes. This is no way for people to live in the 21st century. Efficient, practical and low-cost solutions must be found to both issues.

Education needs a major overhaul. Some 25 million children are not in school, as the prime minister aptly noted in his opening address to the nation. This catastrophe must be addressed on a war footing. Technology can provide options that were not available in the past. Experiments run by organisations such as Teach The World Foundation in Pakistan have demonstrated amazing results. Illiterate children were given tablets loaded with learning games in a classroom setting with minimum supervision. Within a period of three to four months, most of them had reached the reading skills of students with four to five years of schooling.

Moreover, our cities are choking with traffic and smoke. Mass transit solutions must be found before traffic comes to a complete halt on roads designed decades ago and the air becomes unbreathable.

And just as we need to find solutions to urban transport, we need to address the issue of intercity transport. Transport economics tells us that the most energy efficient form of overland transport is rail. This applies to both freight and people. In case of people, it becomes even more efficient in large populations such as we have in Pakistan. Common sense suggests that we start to focus our transport investments in building rail lines and related infrastructure. Money that is being thrown at the rapidly fading mirage of China-Pakistan Economic Corridor (CPEC) should now be rerouted to developing the rail system. China should be asked to help with a project that benefits Pakistan.

None of what I’ve mentioned here will be of any use or benefit to the country unless we address population growth. This is the elephant in the room that no one, not even the new prime minister, has addressed. Yet population growth, or rather control of population growth, is the single most important factor that will determine whether Pakistan succeeds or fails as a country.

In 1971, what was then West Pakistan had a population of 40 million. Today it is 200 million and by 2040 at current growth rates it will be 400 million!

The issue of population control needs to be on the top of Imran’s list of priorities. And the ultimate test of his mettle will be his ability to put it there and keep it there. This will not be easy in an age when wickedness and stupidity, clad in the respectable garb of religion, walk the streets of Pakistan with confidence and impunity.

Nadeem M Qureshi

Nadeem M Qureshi

Chairman and founder of the political party Mustaqbil Pakistan, Nadeem has a business background and has studied engineering at M.I.T. in Cambridge Mass. and business. He also went to Harvard Business School in Boston. He tweets @NadeemMQureshi (twitter.com/NadeemMQureshi)

The views expressed by the writer and the reader comments do not necessarily reflect the views and policies of The Express Tribune.

  • Abdul K Hussain

    As a 23 year veteran in investing in Emerging Market debt I can tell you that defaulting on your debt obligations will have disasterous consequences for a country with the geopolitical importance of Pakistan. Argentina and Venezuela debt defaults are a very different situation. These countries have limited strategic importance in the global context, not so Pakistan. The second we default you can bet that all global pirhanas will tighten screws to the maximum extent. This should literally be the last of all options. I agree with the ban on import of Luxury goods, but in my view, for a new government, and that too a relatively weak and inexperienced on, to impose a debt moratorium would be and extremely risky measure that is not required at this point.Recommend

  • M. S. Chaudhry

    Most of the suggestions, recommendations and advices are excellent but defaulting on loans would be disastrous. There is no harm in discussing terms of loans but defaulting without warning would be very harmful for economy. Why not get rid of half of the government and semi government employees and cut salaries, pensions and perks to 50% before taking any other step.Recommend

  • Rahul

    The biggest exporter to Pakistan is China and Pakistan’s biggest creditor is also China. The Chinese know how to deal with countries that renege on their debt obligations or deny them markets.Recommend

  • Patwari

    Exactly. They dropped two atom bombs on Japan. The country was literally wiped out.
    Even Europe had a Marshal Plan to bail it out after WW11. They would have starved.
    That was more than 70 years ago. Banking laws have changed. Rules and regulations
    have change. It is a global economy now. All interconnected.
    Recommending Pakistan to default on it’s loans, has to be one of the most ridiculous ideas. A joke. Pakland will not recover from this. And will be a slave to the Chinese
    or the Muslim brothers of Saudia. Grovelling and living on scraps. A pariah nation to the
    rest of the world.Recommend

  • Imran

    import ban on luxury vehicles is not the only issue to tackle trade deficit, we need to impose a protectionist, nationalist policy to cut imports and boom our industry which is very difficult step due to signing of free trade agreements with different countries. We are reviewing FTA with china, but I don’t think this would work even if China allows zero tariff on many exports items as the economy size and standards are not equal. our agriculture and manufacturing industry is not at international standards. We have to follow Switzerland rule, they have protected their agriculture by imposing heavy duties on agri products and specially duties varies around the year as the local crop is ready duty increases to protect local industry and secure jobs. we are in a trap and can’t came out of it unless we take following steps; 1- Impose protectionist nationalist import policy 2- Solve terrorism and extremism issues 3- increase investors confidence and ease of doing business by re-structuring institutions 4-increase women’s participation in every sector 5-Slow down population growth rateRecommend

  • Umair Hasnain

    Defaulting on Loans, put bluntly, would be a pretty stupid step. Focus on the FMCG sector first. As it gets the biggest chunks of imports after Oil and Imported vehicles. Put RDs on necessary import consumables and reduce duties on its Raw Materials. Give tax holidays to companies to encourage them just to produce locally.

    For import bill give the nation a target to reduce their use of cars by utilizing their cars in pooling services. Put up a traffic ticket if a person travels alone in a four wheel passenger car. They should focus on collective transportation. Put higher annual taxes on cars. Raising prices of fuel is not the way as it increases the inflation in general.

    Many more measures like these can be taken.

    That’s the way to go.Recommend

  • http://mustaqbilpakistan.pk/ Nadeem M Qureshi

    It’s useful to note that Paul Krugman in a recent NYT op-ed while discussing the economic issues facing Argentina and Turkey proposed the repudiation of foreign debt as an option to put these countries back on track. I’m surprised that our policy makers have not even put this option on the table.Recommend