Pakistan has experienced several economic depressions since her inception as a country on the map of the world in 1947. Inheriting chiefly a biomass-based economy, Pakistan must have pursued a path of industrialization and accumulating human plus physical capital. The essential reforms for a fertile financial management were insufficient to save the country from the incessant pummeling of economic crises and those successful reforms which did take place in her history were mostly donor driven. Today, the economy of this country is in need of panaceas whose implementation can make a solid ground for the creation of an emerging economy.
A stable, flexible and a long-term exchange rate policy is the indicator of a sound monetary management. Pakistan must understand that for a developing country under depreciation of capital due to energy shortage and unstable domestic security, the depreciation of currency increases inflation and decreases national income. By examining this fact, one feels that the economic managers of Afghanistan are more prudent in monetary management than their Pakistani counterparts. For that reason, Pakistan must take steps for appreciation of her currency.
The maledictions of future economic collapse can be staved off by banning the fractional reserve banking and investment with borrowed money in the stock market. A true bull market can only be promulgated by expanding the national economy with employment made investors and continued production. In its recent report about the stock market crash of 2008, The Security and Exchange Commission of Pakistan (SECP) put forward recommendations for the revamping of existing broker regime, development of a strategic capital market development plan and a procedure for improved coordination between the SECP and the State Bank. For a fruitful outcome of these recommendations, the echelons of power are advised to take practical measures.
Today, the world’s economy is transforming from an industrial economy to an information-based economy. In order to get pace with the trendy cosmopolitan culture, the government should evolve a strategy to lay a solid base for booming hardware and software industry. Pakistan must ink free trade agreements with its neighbors to take full advantage of the booming free market firms. Measures should also be taken for creation of Special Economic Zones (SEZ) on Chinese style. For attracting foreign direct investment (FDI), Pakistan must improve its internal security situation and promote cultural flexibility for assimilation of foreign investors. The Chinese investment under the China-Pakistan Economic Corridor (CPEC) is a good sign of economic creativity in this scenario. The approval of energy projects on build operating basis must be spearheaded for specified period of time to solve the energy crisis on emergent basis. The fulfillment of the projects of Iran, Pakistan and India (IPI) or Iran, Pakistan and China (IPC) gas pipelines would add extra piquancy to the story of solving energy shortage.
The realization of the best monetary management demands the initiation of a shock therapy trial. In present circumstances, the treasure of dollars is not important. What really important is the domestic saving. For this purpose, the government must reduce its yearly expenditure. The operating leverage of each and every institution should be fixed during each and every fiscal year and the external borrowing should be brought a zero point. To reduce the debt burden, steps should be taken for debt relief through Rescheduling. An atmosphere of free market economy should be promulgated and the privatization of the white elephants like Pakistan International Airlines (PIA), Pakistan railways and Pakistan Steels must be carried out as soon as possible. A campaign against corruption and embezzlement would also help in minimization of extra expenditure. Policies should be shaped to make this land a current account surplus country. With no previously accumulated foreign wealth to finance current account deficit, Pakistan is importing present consumption and exporting future consumption. In this regard, measures should be taken to bring a fair balance between exports and imports.
During the past two decades, Pakistan received a chunk of aid in the form of coalition support fund and Kerry-Lugar Bill. In spite of depending on international aid and unilateral transfers for catapulting national income, Pakistan must pursue a policy of “trade not aid” in international arena. In 1977-78, the debt servicing as ratio of foreign exchange earnings came down to 13% because of remittances. In order to feed her crumbling economy, Pakistan must explore new and easy ways like that of remittances for some degree of respite.
Lastly, a practice to use GNP as a primary measure of national economic activity should be instituted because according to Paul R- Krugman and Maurice Obstfeld, the national welfare depends more directly on national income than on domestic product (Paul R-Krugman & Maurice Obstfeld, International Economics, 5th Edition, page 304). Furthermore, The Human Development Index (HDI) constructed by United Nations Development Program (UNDP) should be used as a standard tool for measuring the standard of living. Vibrant economy is the essential item for development. In order to take the nation out of claustrophobia, agoraphobia and the mentality of pipe dreams, the state must take practical steps for creation of a new Pakistan otherwise this land of pure must prepare for a dead end like Greece and USSR.