Why Pakistan will remain a basket case

I read William Milam’s analysis of Pakistan’s economic prospects on the Daily Times website today.

In spite of all the macro-economic policy reform under Shaukat Aziz, Pakistan will not be able to rise above its economic morass because:

a) There is no social reform and a dismantling of the feudal system. This is a deadweight to both the agricultural and industrial sector. But given that the political power is inextricably linked to the feudal system, change is unlikely. The income disparity will continue to get wider.

b) There is no educational reform and investment in higher education. But given the dismal state of primary and secondary education, there simply would not be enough reason to invest in tertiary education. The madrasa-educated can hardly be expected to take up Electrical Engineering, or IT courses. There is a chicken-and-egg situation here which needs to be crossed. The status of women actually discourages them from being active contributors to the economy.

c) Lack of institutions discourage investment. Musharraf and various minions of the Jamali government are going around the world asking political and business leaders to ‘come to Pakistan and see for yourself’ the actual situation on the ground. Well, if the situation is so good, why is there no domestic investment ? The truth is that the political climate and the consequent absence of any state institution (and more generally, rule of law) deters any investor. Pakistan’s laws do not operate in several areas like the Frontier province, the Gilgit-Baltistan (Northern Areas) and its part of Kashmir.

d) Government focus on a revisionist agenda in Kashmir.

e) Involvement of military in the business world. The Fauji group of companies for example dominate so many sectors of the economy. At the Okara military farms the Army is riding roughshod on the local population. Serving or retired Army officers run so many state-owned companies. Clearly, this has caused the failure of a entrepreneural class to emerge. The economy already dependent on textile exports cannot diversify unless there is entrepreneural activity. And unless it diversifies it cannot be expected to grow.

Lack of investment coupled with absence of domestic entrepreneurship do not leave any hope for a economic revival in Pakistan. But Musharraf’s regime is in denial. Pakistan’s economy is hooked on foreign aid (Musharraf got another loan of $500m from China) and repatriation by overseas Pakistanis. With deep fundamental failures there is no cause for being optimistic about Pakistan’s near term economic future. It is likely to remain a basket case. This is unfortunate for it affects the rest of us too.

Updates:

  • Taipei Times reports that poverty increased by 13%, including during Musharraf’s regime
  • IMF’s rosy report does not reflect the ground realities – Asia Times
  • Academic Desertification – The Daily Times
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