KARACHI: The main goal of economic managers is to make the economy grow. Managing the balance of payments, keeping inflation under control, and lowering unemployment are all other economic goals that depend on how well the economy grows.
People living standards are directly affected by economic growth, which has a direct effect on people lives.
Pakistan has struggled with economic growth for decades and has unable to find a lasting answer. In the last 25 years, we tried consumerism-led growth twice, but it failed. Pakistani consumerism was almost entirely driven by imports, not just vehicles and personal loans. This model fails because the balance of payments crisis occurs when real GDP growth exceeds 4%, causing a quagmire.
Imports soar to fuel growth, causing an unsustainable current account imbalance. This causes a sharp drop in foreign exchange reserves.
After the quick drop in reserves, we rush to global lenders like the IMF and World Bank, who want dramatic currency devaluation to make imports expensive and exports competitive.
Because our economy depends on imports, this drop in value makes inflation worse. To stop demand from rising, interest rates are raised. This hurts investment and spending, which stops growth.
With this background in mind, let look at some cases of growth. A lot of writing talks about the Chinese model. The main thing that helped them grow was the easy access to cheap labor, which the Chinese made good use of.
Pakistan also has a lot of cheap labor. The only problem is that the workers are not very skilled. To make this work in the long run, we need to put money into workers and help them get better at what they do.
A solid credit base and a strong banking system were the second things that helped China grow, after cheap labor. For China, study has shown that the strength of the financial system and economic growth are not only linked, but also have a two-way causality, which means that they affect each other.
These are the steps that China took to grow. People who were able to find work helped the economy grow, which raised the pay per person. The country deposit base grew because of this extra money coming in, which in turn made the credit base bigger. This increase in the number of people who could get loans led to more economic growth through exports and investments.
We have a strong banking system with enough capital, which is something the IMF praised in the Standby Arrangement (SBA) document. Most of the credit does not end up with the private sector, though, which is the main trouble. To make this growth happen, we need to get rid of the things that are getting in the way and give the private sector, especially small and medium-sized businesses (SMEs) that deal with IT, more credit.
The IT push is emphasized since it will boost the country foreign exchange and balance of payments. Second, Pakistan has one of the most diversified environments, making tourism vital. With world-class lush meadows and the highest frozen peaks in the north.
We have lush central plains and stunning Cholistan and Thar deserts. Our southern coastline, from Karachi to Gwadar, is likewise magnificent.
We can give tourists stunning sandy beaches and frozen mountains, only two hours flight from Karachi to Gilgit. I suspect this is rare. Religious tourism benefits Sikhs and Buddhists.
Europe has appropriately used tourism to boost its economy. A 1% increase in tourism receipts raises per capita income by 0.03%, especially in southern Europe.
Not only does tourism contribute to economic growth but its impact is much more equitable. The fruit of this growth goes to the lower echelons of society, and this is a very important observation for Pakistan because income inequality is a serious issue here.
The fact that tourism has had a good impact on the lives of individuals residing in Hunza and the places that surround it is one piece of evidence that supports this assertion.
We need to develop a good growth story for our country, and these examples can teach us a lot about how to do so.
