THE country faces multifarious challenges which need to be addressed for ensuring the success of any economic revival plan. These problems are summarised below:

a) Although public opinion about seeking action against militant, ethnic and sectarian outfits has seemingly changed, the key political leadership is still dithering despite the recent expression of resolve to take on the Tehreek-i-Taliban Pakistan. Resultantly, the narrative about the perpetrators of protracted internal threats and the available choices to deal with them are confusing. Within the country this causes a lack of informed discourse and a vacillation in public support for any strategic shift, while the international community perceives us to be exporting terrorism instead of promoting peace within the country, region and the world.

b) The apparent lack of capability to craft a balance between the realities of global power structures and our long-term natural interests tied with strengthening regional links and bonds.

c) Although political stability is a new and positive development, the scale and intensity of the entire range of crises — internal insecurity, sluggish economic growth and the failure to productively employ the large young labour force, the majority of which has limited education skills — will question the capability of the leadership which is widely perceived to be upholding parochial interests.

The issues that need to be addressed for economic revival are myriad.
d) The fact that demographic and social pressures and the blowback of a mindset bred by 30 years of policies are intensifying at a time when the disparities of incomes and wealth have sharpened. This has resulted in the country being polarised between the haves and have-nots and between modernists and traditionalists, fuelling bitterness against the pillars of the state and the iniquitous systems and structures.

e) The inability of the political, military and bureaucratic leadership to tackle social tensions and internal issues — such as Baloch nationalism — through greater accommodation and provincial autonomy.

f) Despite being a more manageable issue, external security concerns continue to weigh heavily on the allocation of scarce resources, thus compromising the capability of the state to perform its economic and social responsibilities efficiently and effectively. Due to poor economic management, undertaking the imperatives of a security state and the resistance of the political, economic, military and civil bureaucratic elite to accept fundamental reforms has caused a tax to Gross Domestic Product (GDP) ratio of less than 10pc of GDP, low rates of savings and investment and skewed spending priorities at the expense of public services. Decent social services would produce a more equitable society by equipping the poor with the education, skills and health to participate meaningfully in economic growth which will be required to create productive jobs for 230 million people projected to be part of the labour force by 2045.

g) There has been a failure to initiate sustainable civil service and governance reforms at all levels of government to ensure the integrity and capability of the system. Institutions are currently deemed as dysfunctional; they have been rendered weak over time by the lack of the rule of law, weak coordination between the intelligence-gathering agencies to ensure synergies of mandates, the failure to empower the police, adequately resource it, and make it functionally independent, issues of incompetence, non-merit appointments, corruption and political interference in governance structures and operational matters. Resultantly, there is a fear that the political and administrative leadership can exploit opportunities, especially since the pace at which political and bureaucratic structures and supporting mechanisms can facilitate the institutionalisation of good governance is recognised.

h) With external capital flows destined to become more volatile, the poor-country image makes it more difficult to access these funds at affordable rates. Hence, the reliance on domestic sources will increase to meet the growing investment requirement, a tough task given the low domestic savings and tax to GDP ratio and the difficulties of raising these in a low-growth environment.

i) Fears regarding social unrest and political economy considerations make the reduction of large budget deficits through expenditure cuts a daunting proposition. This poses a dilemma on how to generate growth without more debt before fiscal space can be created through fundamental tax and public expenditure reforms for development spending, combined with remaining policy and institutional reforms needed to stimulate private investment.

j) A growth in exports has become critical for financing the country’s rising import bill, especially with doubts about the continuing robustness of remittances from sluggish Europe and the US and the high level of dependence on the economic health of the Gulf Cooperation Council countries and their policies that will allow for the continued inflow of skilled and unskilled workers. But the constraint is the disproportionate geographic and product (low-tech and of sunset- and low-growth industries) concentration of our exports and the inability of the leadership to design adequate policies and tools to improve the country’s competitiveness.

k) The access, quality and relevance of education has lagged behind the requirements of the economy and the aspirations of people. Skills are not becoming available at the pace, breadth and depth that is needed to meet domestic and international demand.

l) A deficiency in managerial skills due to the weak education system, poor work ethic and weak incentive structures which do not create a demand for professional skills. The entrenched culture of Statutory Regulatory Orders protects different sectors of industry, rendering irrelevant the need for quality skills to improve industrial competitiveness.

m) The weak democratic governance and judicial systems, incomplete decentralisation and ineffective institutional arrangements for transparency, rule of law and convoluted processes disallow the predictability and accountability of public servants and service providers.

n) Finally, a major challenge is the management of excessive expectations and aspirations, aroused by exposure to the internet and cable television in a highly interdependent and interconnected fast-changing world that has induced greater convergence of norms for organising equitable, inclusive and cohesive societies.

by Shahid Kardar
The writer is a former governor of the State Bank of Pakistan.

Published in Dawn, June 24th, 2014