Pakistan is facing an existential financial and economic crisis. External debts are skyrocketing and economic activities are contracting. Inflation is on the rise as people have limited choices for their livelihoods. It is the result of deep structural flaws, including consumption-led GDP growth, a commodity-based market, a lack of innovation and diversification.
Consumption-driven growth has severely affected the economy, hampering its transition from primary to secondary or tertiary economy. The country is trying to get out of this situation and is looking for ways to help people.
In this context, Prime Minister Shehbaz Sharif has proposed the idea of an Economy Charter and urges all power actors and stakeholders to come together to come up with innovative ideas and real-time solutions. This is not the first time that such an idea has emerged. Unfortunately, this has never materialized in the past due to differences in priorities between powerful players.
The current crisis forces us to take concrete measures to get out of this crisis. To this end, we must take a scientific approach, not grand statements. It is necessary to get rid of fanciful slogans and draw up a charter based on the realities on the ground. So, before formulating a charter, Pakistan should think about a few questions. First, where does the crisis come from? Second, what are people’s needs? Third, what are the ground realities such as the state of human capital and financial resources? Fourth, which sector has the potential to bring immediate relief and pave the way for sustainable development? Fifth, which country can serve as an anchor country? Sixth, charter for the elite or the people?
The second step should be to design a charter adopting a phased methodology and each phase should be labeled with a concrete number of GDPs and priority areas. A study by the Asian Institute of Eco-Civilization proposed the following phased framework. Phase 1, Fruits at Hand (two years), targeted a GDP of $430 billion and the priority areas would be agriculture and tourism. Phase 2, short term (five years), GDP target of $600 billion and priority areas would be SMEs and industry. Phase 3, medium term (15 years), GDP target of $1.5 trillion and priority would be industry and SMEs. Phase 4, long-term (25 years), GDP target of $3 trillion and priority areas would be services, industry and SMEs. It is pertinent to mention here that the priority per phase does not mean that Pakistan ignores other sectors, it is just a priority for certain phases.
Third, as the economy expands, Pakistan would need an anchor market, which can accommodate excess production and provide the necessary foreign direct investment. Having CPEC, China can serve as an anchor market for Pakistan.
Fourth, the Economics Charter must not repeat the mistakes of the Democracy Charter. As most people think, it was a charter between the powerful and there was nothing for the common people. Thus, the Charter of the Economy must be pro-poor, with strong mechanisms for the distribution of resources. Public enterprises can perform this function.
However, the Economy Charter cannot achieve the objectives without overhauling the system of governance. First, Pakistan will have to carry out a bureaucratic overhaul. To this end, the first intervention should be to reform the incentive policy and the merit system.
Second, Pakistan’s planning system is weak and exclusive in nature. There is a strong need to refine it. Planning should start from the bottom up and not be influenced by so called representatives of society like NGOs, think tanks etc. In this regard, we can learn from China, especially from the process of developing five-year plans.
Third, there is a need to improve the business environment, not just by ranking. For example, business registration is a complex process and involves seven agencies, and security clearance complicates it further. It takes several days or even months to register a business. Moreover, the tax system should not be extractive for either industry or ordinary people. As Ibn Khaldun said, tax rates must be rationalized and the tax net must be widened.
Fourth, it is well established that implementation and monitoring are the weakest links in the execution of policies and programs. Deadlines are not met due to lack of monitoring and accountability mechanisms. In addition, the political score creates problems. Pakistan can overcome barriers by creating M&E and accountability mechanisms and linking advocacy to the successful delivery of a specific number of programs.
Fifth, the most important intervention would be to produce high quality human capital with strong values, ethics and commitment to the development of society. It should take care of the needs of the economy and the fourth industrial revolution.
Sixth, to create buy-in from all, it is necessary to form a joint committee consisting of the leaders of the five main political parties (not government or opposition), the leader of the opposition, the leader of the services, the head of the judiciary with the prime minister heading the committee. This will help dampen the political score and ensure smooth implementation of the Charter for the Economy.
Seventh, there should be no rehiring of retired civilian and military personnel. If someone wants to serve the nation, he has to do without salary because he already enjoys benefits after retirement.
In conclusion, Pakistan must learn the importance of indigenous wisdom and the role of Islamic laws. Father of the Nation has always emphasized the role of indigenous wisdom and Islamic principles in building a prosperous society (speech at the opening ceremony of the State Bank of Pakistan). Finally, being an Islamic country, the “system of interest (Riba)” must be eliminated.