“Koi khwaab na yeah to bataen kya?” What can one say when no desires persist? – Farida Khanum’s rendition of Athar Nafees
Renowned Columbia University growth analyst Dr. Jeffrey Sachs addressed the Sustainable Development Policy Institute in Islamabad on November 21. He began by highlighting the common “failure of social systems to address people’s needs” and cited the militaristic foreign policy of the United States as a prime example.
He pointed out that instead of being concerned about the well-being of Americans, U.S. legislative decisions were often driven more by “jealousy” towards China. He emphasized that the people of the region would greatly benefit from peace between India and Pakistan.
Sachs observed that the Pakistani economy seemed to be “stuck” in a low-growth trajectory, and based on IMF “diagnostics,” negative growth was likely this year. Additionally, there was no clear path to transformation. Domestic investment, which accounted for only 14% of GDP last year, was “barely sufficient to cover depreciation.”
The situation had been exacerbated by the twin crises of devastating floods and the COVID-19 pandemic. In contrast, China had maintained a private investment rate of 40 to 50 percent since Deng Xiaoping’s “Opening Up and Transformation” policy in 1978. Simply put, Pakistan was not investing adequately in its future.
The situation in Pakistan was equally dire concerning education, a vital component of individual development. According to the World Bank, the School Life Expectancy in Pakistan, representing the number of years an average child spends in school, was only eight years.
The situation worsened when professional and technical education and training were taken into account. Furthermore, federal revenue, the primary source of funding for essential services and development, constituted only 12 percent of GDP.
If Pakistan were to meet its urgent needs for education and specialization, it would need to allocate 83 percent of its current government revenue, leaving almost nothing for other priorities.
The financial crisis in Pakistan was both a political and economic challenge. According to Sachs, there was no way the private sector, a critical component of human development, could bridge the gap. To make matters worse, Pakistan’s budget deficit for the fiscal year ending in 2023 was 7 percent, resulting in a 30 percent annual inflation rate. Sachs bluntly stated that “a major transformation in Pakistan was needed” in light of these statistics.
Sachs also noted that Pakistan had sought another loan from the IMF. What did the IMF demand in return? Reduce investment! At that time, Pakistan’s investment in critical areas of human and economic development was already insufficient.
In response to Pakistan’s protests, the IMF issued a directive: Stay silent! Avoid creating an issue! Sachs acknowledged that austerity measures were necessary but insufficient. So, what should be done? A comprehensive national investment strategy was essential.
According to Sachs, the Chinese had pursued the right strategy, resulting in a five-fold increase in their government revenue and a 32-fold increase in GDP since 1978. While Sachs did not expect Pakistan to match China’s performance, he stressed that it needed to make a concerted effort, even though “it won’t be easy.” Pakistan had no choice but to try.
Where should Pakistan invest? Sachs reaffirmed his well-known six pillars: education, healthcare, clean energy, sustainable land use (including land reforms), urban renewal (as half the population resides in urban areas), and digital transformation (with 5G being essential). To embark on this journey, Pakistan would need to increase its revenue collection to 25 or 30 percent of its GDP, effectively doubling its current level.
This would require a parallel increase in the savings rate, including household savings, especially for low-income families. At 35 percent of GDP, Pakistan’s national debt was not particularly large, but it was short-term debt, leading to liquidity issues and discouraging foreign investment. Thus, a debt management plan was needed to attract both public and private international creditors.
Sachs concluded that while these challenges were daunting, they were achievable. Pakistan’s success was crucial to demonstrating its commitment to development to the international investment community.
According to one of Pakistan’s esteemed economists, there was nothing “new or unexpected” in Sachs’ remarks. This was not meant to be critical but an acknowledgment that solving Pakistan’s economic crisis was both a social and economic challenge. Textbook finance and IMF remedies offered inadequate and temporary solutions at best.
Other economists argued that global supply chain disruptions had hampered Pakistan’s economic policies, and the quality of investments was more important than quantity. Some believed Sachs’ presentation was too macro, as the devil lay in the details.
Another perspective highlighted that interest payments constituted a significant portion of Pakistan’s government revenue. It was noted that foreign direct investment in Pakistan tended to be short-term, with profits repatriated in foreign currency. Sachs suggested that Pakistan needed to attract long-term loans and investments from the global investment community, necessitating significant structural reforms. In reality, China was the only country providing long-term investments, which concerned the United States and alerted Pakistani leaders.
In summary, Prof. Jeffrey Sachs’ assessment was a breath of fresh air. The implications were evident. Pakistan must first overcome its state of dysfunction before it can address the challenges it identified. How can this be achieved? Only through action, mobilization, movements, organization, and pro-people governance can provide a solution. Unfortunately, this is unlikely to be facilitated by the political elites, who are directly dependent, inwardly hostile, and apprehensive. The middle class bears a significant and historical responsibility to address this issue. Otherwise, Pakistan’s future remains uncertain.
The author previously served as the head of UN missions in Iraq and Sudan, as well as ambassadorships to the United States, India, and China. [email protected]