Lahore: Exports are increasing, remittances are ballooning, foreign exchange reserves are comfortable, the construction sector is booming, yet the masses are unhappy on a large scale. Surprising, isn’t it?
The government is trying to make it work but has failed. The effects of the economy are not being felt at the grassroots level. Despite the increase in economic activity, prices continue to rise. Income is also stagnant. The economy has improved for the elite. The production and sales of luxury cars are much higher than small cars of 1000 cc or less. Construction is more visible in congested areas or in government-sponsored projects.
Production in large-scale manufacturing is increasing at a time when it is declining or stagnating in small and medium-sized industries. The share of total employment in large scale industries is less than 10% of total employment.
More than 70% of employed SMEs are under pressure. As development has improved, so has the level of governance. Sugar and wheat prices are rising again after a slight decline due to imports.
Pakistan has always been categorized as an elite economy where almost all economic benefits are in the hands of the elite. The trial down effect of development has not been seen anywhere this time. If the vast majority of human resources are deprived of the benefits of development, we will not be able to move towards sustainable development.
As always, strategic planning seems ridiculous. The ruling class is using all its energies to prove the economy. We have made great strides in making it easier for the World Bank to do business, but it has been accomplished by the same increase in business costs. Feasibility reports of various industrial products show that protection against imports may enable local sales but there is no competition in exports.
The minimum wage is fixed at Rs. 17,000 (from 2018). The cost of living has risen so much that it is not possible to live comfortably with a minimum wage. The dilemma for the government is that businessmen, especially exporters, will not welcome the increase in the minimum wage. In addition, only workers are paid the minimum wage, mostly exporters and the corporate sector. The majority work for half or two-thirds of the minimum wage set by the state. Due to rising prices and low incomes, the people are not interested in the development of the elite. They want their share of the pie. Productivity has decreased over time. We cannot expect unhappy and low paid workers to improve productivity while in trouble.
As far as economic indicators are concerned, we look at the current data and do not analyze the factors that helped to improve these indicators. If we continue to accumulate debt, we will continue to be a poor economy.
The most important economic indicator that needs improvement is the fiscal deficit. An improvement in the fiscal deficit is the most important sign of an improvement in the economy. The fiscal deficit has been steadily declining since this government came to power. Economic improvement cannot be said to improve other indicators of borrowed money.
The most painful aspect of borrowing at present is that it is mostly for consumption purposes. Without further ado, this loan service will not be possible. Borrowing for sustainable infrastructure projects generates enough revenue to save on service loans and something for the government.
Another important point is that the volume of our exports is now less than the remittances sent by our workers. It shows that we have sent out a huge amount of our human resources. These human resources send money home until their families reunite with them abroad. After that, remittances from these workers decrease. To get rid of foreign aid, we need to increase at least three to four times the current level.
Tax revenue is the most frustrating element of our economy. Everyone agrees that at least 50% of our economy is informal (some say it is 60%). If we regularize the informal economy, we can theoretically double our income (even after ignoring short filing).
The government does not have the courage to fight tax evaders. In fact, it has given incentives to the construction sector to invest in black money to promote growth. The current progress is no different from the periodic progress of the last three decades. The only difference is that the growth is very low.