Various countries in the world have diversified natural economic structures. Like the Gulf States in the Middle East’s economy is based on rich oil and gas reserves and by exporting energy, they are earning huge amounts of foreign exchange. Few countries have huge agricultural bases and earnings by exporting agricultural produce, whereas some are having strong Industries and earn foreign exchange through the export of industrial products. Also, few nations are earning foreign exchange through the export of weapons. The US is earning huge foreign exchange through its exports of weapons and defense technologies. Although the US is a unique economy and can print Dollars as much as they desire.
Pakistan is a country, blessed with rich natural resources, huge cultivatable land, plenty of water, and an excellent climate for agriculture, it is also blessed with an abundance of workforce, and especially the youth population is huge.
Poverty hit the nation, because of poor governance
Pakistan’s exports are almost half of its imports and the deficiency is met through foreign remittances sent by overseas Pakistanis. Imports are lavish and unnecessary, as we spent 7.5 billion on the import of food, whereas we are an agricultural economy. Imports of Chocolates, Biscuits, Juices, Cakes, fruits, and vegetables are avoidable or at least can be limited to remain within our own means. Essential imports may not be suspended, like, Oil & Gas, Petroleum products, edible oil, tea, etc. Imports of Machinery, Equipment, and the raw material is encouraged for the industrialization of the country. But there are many luxury items, which can be curtailed, like Cosmetics, Perfumes, pet food, etc.
An increase in Imports is always desired and many countries good examples like China, Taiwan, Korea, Vietnam, Bangladesh, etc. Pakistan has been struggling to increase its exports to earn more foreign exchange to meet its import demands. But, currently, despite our desires, the trend is the downfall of exports. Because of the high cost of electricity, gas, fuel, and lack of incentives, outdated machinery, and lack of innovation and up-gradation, our industry is no longer completive in price or quality. Under immense pressure from the IMF, the price of electricity, gas, and fuel has turned our industry uncompetitive. Removal of subsidies, and lack of incentives or tax holidays, Industrialization has become a dream only.
Recently many factories are closing down or scaling down their operation. Due to the shortage of foreign exchange, the import of raw materials has forced many industries to think seriously, either to close down or limit their production. Resulting increase in joblessness, creating a social problem in society. Shutting down Industry may create social unrest, a hike in crime rate, etc.
Some of the export orders have been canceled or could not be fulfilled as the lack of raw materials or the high cost of manufacturing. It has already adversely impacted the foreign exchange reserves of the nation.
The most important and largest source of foreign exchange was foreign remittances. Millions of Pakistanis are serving abroad and regularly sending foreign exchange to Pakistan, it has reached a peak of up to 32 billion US dollars, but has already reduced gradually. One of the reasons for reduced remittances is the global shrinkage of the economy. But, political and economic instability in the country has also impacted adversely. The State Bank of Pakistan is not able to operate the foreign currency accounts of the Pakistanis smoothly and there are cases of delays or refusal to pay them in dollars has also had a negative impact.
Many Pakistanis are maintaining foreign currency accounts in Pakistan, but are unable to withdraw their own money in foreign currencies. Even, sometimes their foreign remittances are converted into Pakistani rupees on the official exchange rate, whereas there is a huge gap between official and market exchange rates. It might prompt overseas Pakistanis to use Hawalah or Hundi as an alternate option. The right policies of the State Bank can discourage such illegal channels.
Policymakers must protect the interest of overseas
In 1998, after the nuclear tests, Pakistan was facing a severe shortage of foreign exchange. The Government of that time has frozen the foreign currency accounts of overseas Pakistanis, which shattered the trust. It took almost two decades to restore the trust of overseas Pakistanis.
The right vote to for overseas Pakistanis was vital to keep their interest in Pakistan and attract more remittances. The government may review this aspect too.
What so ever are the reasons, Pakistan is facing severe shortages of foreign currencies? Instead of borrowing more, all other options must be evaluated – encourage export and attract more remittance. Conducive policies may be formulated, and Industrialists and exports may be taken into confidence during the policy formulation process to boost exports. Similarly, overseas Pakistani may be consulted to introduce enabling policies to attract remittances.
Read more: CPEC: A stimulus for Pakistan’s economy?
However, foreign currency reserves are depleting rapidly, this issue must be addressed on an emergency basis and rational approach before it is too late. Borrowing is not a solution. It seems our rulers have focused only on borrowing. The other options for creating wealth are alternate and must be explored. Save Pakistan!
Author: Prof. Engr. Zamir Ahmed Awan, Founding Chair GSRRA, Sinologist (ex-Diplomat), Editor, Analyst, and Non-Resident Fellow of CCG (Center for China and Globalization). (E-mail: firstname.lastname@example.org).
The views expressed in the article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.