LAHORE:
The government recently unveiled its economic plan for the next five years titled ‘Uraan Pakistan’ which promises to promote export-led economic growth, address food and water insecurity and conduct energy reform.
While the report raises the right talking points, it has been criticised by economic analysts for lacking in substance. The economic plan coincidentally releases just as we enter 2025, the year of completion for the ‘Vision 2025’ report authored by the PML-N government a decade earlier.
Vision 2025 listed 25 goals, none of which were achieved and a few of which deserve mention for their sheer magnitude of failure. The literacy rate was projected to increase to 90%; today it is 62%. Tax-to-GDP ratio was projected to increase from 9.8% to 18%; it decreased to around 9%. And finally, exports were projected to increase from $25 to $150 billion (yes you read that correctly!) Exports instead stand at $32 billion, which is a decline in real terms.
While the government is bullishly touting its new economic plan as the salvation to Pakistan’s economic doldrums, the parallels with its failed predecessor should be a cause for worry.
For example, the Vision 2025 aimed for Pakistan to reach the upper-middle income status by 2025. Its newest iteration aims to do the same, but by 2035. Reading through the document, it seems even the authors are acutely aware of their failures as both reports comically make mention of previous Vision documents but attribute their lacklustre performance to ‘political disruptions’ in sentences that can almost be copy-pasted from one report to the other. Ultimately, these parallels bear witness to a habit of our policymakers setting outlandish targets and fetching numbers from thin air with little regard to pursuing tangible changes that can turn those goals into reality.
These recycled economic plans are reflective of a broader sense of deja vu that many Pakistanis feel as the country cycles through predictable phases of economic and political instability. However, it is worth asking why no administration in the post-Cold War period has been able to undertake the liberalisation reforms that allowed so many countries in the region to reap the benefits of globalisation. The answer lies in Pakistan’s rentier-based economic model.
A rentier economy is defined as one where the bulk of national revenues occurs due to the presence of rents. A rent refers to a source of income that is derived by owning or controlling assets, rather than the production of goods and services.
While these rents are typically resource based (eg oil and minerals), they can also apply to non-resource-based rents such as location or geostrategic rents or even workers’ remittances.
The idea is that elites in Pakistan have little incentive to promote local industries as modest economic growth can be achieved due to the presence of ample dollar inflows in the forms of workers’ remittances, economic and military aid from the US, and loans and grants from ‘friendly countries.’ All these sources of incomes are essentially external rents as none of them are a reward for domestic economic productivity.
Historically, the greatest sustainer of economic growth in Pakistan during high-growth periods has been American assistance. First, in the 1960s, where Pakistan was a crucial US ally in the Cold War. Secondly, in the 1980s, during the Soviet-Afghan war and most recently, in the 2000s, during the war on terror.
The presence of these rents made ruling elites more inclined to promote informal sectors of growth, eg real estate and retail, as more exports were not necessary to finance increasing import requirements. During all these periods, economic growth was import and consumption-based and exports failed to catch up.
Pakistan’s prolonged economic instability over the past years is arguably because it has become a rentier state without rents. Following the Taliban takeover of Kabul in 2021 and US withdrawal, Pakistan is viewed more through the lens of US-China competition, where it is a stalwart ally of China and a bitter rival of India, an increasingly indispensable partner to the US.
With recent statements from the White House clarifying that Pakistan is not a formal ally, Pakistan should be pessimistic about the prospects of economic relief from the US.
But given that these dollar inflows are no longer available, surely the governing elites should recognise this and push for meaningful reforms? One problem with this is that decades of artificial growth have made the sectors most likely to lose out on reforms, the most powerful and influential. So, it is natural that any attempt to tax these sectors is met with stiff opposition and myriad political risks that no government is willing to take.
But there is another crucial reason, arguably the most critical consequence of a rentier economy: a rentier mentality. Such a mentality is defined by a fundamental impulse of the ruling class to see reward as an isolated act caused by luck or chance, rather than the result of an arduous and meticulous process. Such an approach means that ruling elites will continue to display opportunistic tendencies and search for external rather than internal solutions.
The newest iteration of this approach can be seen in the form of the SIFC, which aims to facilitate ‘investment’ from ‘friendly countries’ like Saudi Arabia, the UAE and China. This enables elites to beat around the bush of reform and point to stable foreign exchange reserves and economic stability as hallmarks of successful governance.
However, it remains to be seen whether the Saudis or Chinese have the financial appetite that will be required to finance such large trade deficits. Until then, it should come as no surprise when more visionless Vision programmes roll out copy-pasted and recycled economic phrases and jargon, absent of any tangible and meaningful changes.
Ultimately, the reason that successive administrations for the last three decades have failed to conduct economic reform, even in the face of default-threatening economic crises is simply because there is no incentive to do so. It is much easier to focus on rhetoric and look for more loans and rents rather than taking on powerful lobbies and business interests.
But the lack of incentives does not change the fact that, in the absence of external rents, Pakistan’s political economy is inherently unstable and will have to be corrected sooner or later. The real question is whether the government can bring these corrections before another crisis forces its hand.
The writer is a political and economic analyst at Lahore University of Management Sciences
