AWP Position Paper (Pakistan)

Economy of Debt:
Alternatives to Austerity and Neoliberalism in Pakistan

Draft position paper on the IMF deal and a progressive approach to the
Pakistani economy
Ammar Rashid, M. Nawfal Saleemi and Aasim Sajjad Akhtar

May 2019
Economy of Debt: Alternatives to Austerity and Neoliberalism in Pakistan
Draft position paper on the IMF deal and a progressive approach to the Pakistani economy
Table of Contents
1. Introduction: ......................................................................................................................................... 3
2. The International Monetary Fund (IMF).............................................................................................. 4
3. Neoliberalism ....................................................................................................................................... 5
4. What will an IMF program entail? ...................................................................................................... 7
5. What hinders Pakistan’s economy?.................................................................................................... 9
5.1. A rentier state development strategy ...................................................................................... 10
5.2. Premature de-industrialization and the crisis in domestic production: ................................ 11
5.3. The crisis in public finance: ....................................................................................................... 14
5.4. The question of land:................................................................................................................. 16
5.5. Addressing agricultural inequality and productivity: .............................................................. 19
5.6. The crisis of labor productivity and well-being: ...................................................................... 21
5.7. The question of women’s stifled potential: ............................................................................. 24
5.8. Making banking & finance work for the people:..................................................................... 25
5.9. Sustainable energy for pro-people growth: ............................................................................ 27
6. An alternative to austerity – stimulating and restructuring the Pakistani economy.................... 30
6.1. Short-term measures: ................................................................................................................ 30
6.2. Medium-to-long term measures: .............................................................................................. 30
2
1. Introduction:
Pakistan is set to begin its 13th International Monetary Fund (IMF) program since the late 1980s,
purportedly to curb twin deficits - fiscal and balance of payments – and effect ‘structural adjustment’
of the economy to 'promote long term growth’, amid widespread austerity, rapid inflation and steadily
declining macroeconomic performance. The PTI government's leadership has claimed that this
program is being undertaken as the last resort to rescue an economy brought to its knees by past
rulers’ excessive borrowing, spending and corruption. It has also declared that this is will be the last
time the country seeks IMF assistance, a claim we have heard before many times. Meanwhile, the
mainstream opposition, the PMLN and PPP, criticize the government for undertaking the exact same
steps they themselves took when in power not so long ago.
However, we need to better understand why it is that Pakistan after every few years needs to look
towards the IMF – and other international financial institutions like the World Bank (WB) and Asian
Development Bank ( ADB)1 - for financial support and structural adjustment. Have previous programs
laid a platform for sustained employment and economic growth or are these only temporary sources
of financial ‘relief’ in a perpetual economic cycle of low growth, limited improvement in domestic
productivity and resource mobilization, and indebtedness, leading to further balance of payments
crises and further IMF-dictated adjustments that again perpetuate low growth and so on, a cycle that
has gone on for the past three decades. Today, Pakistan’s foreign debt burden is over US$105
billion.2
With the three main political parties and military united, beyond internal differences, in a sort of
mainstream ideological consensus on economic and financial policy, it is critical that more radical
questions are asked. What are the structural weaknesses of the Pakistani economy? Whose interests
do our economic policies serve? What fundamental changes need to take place in the orientation of
the state to overcome these periodic crises? How can we change the immensely skewed distribution
of economic resources in Pakistan? What does an alternative pro-people economic policy look like?
And what are the possible ways in which it could be achieved?
In order to address these questions, this paper will first provide a brief account of the history of the
IMF and a brief discussion of the political-economic ideology of neoliberalism that is the basis of its
prescriptions that have been implemented the world over. Then it will look at the contours of the
current IMF deal and move to an examination of the structural problems in Pakistan’s economy that
underpin its repeated recourse to the IMF. It will end with a series of short term to medium-to-long-
term proposals for undertaking a structural overhaul of Pakistan’s economy to enable it to overcome
its continued dependence on the IMF and create a more sustainable and domestic basis for its
functioning, and, most importantly, to make the economy function in the interests of Pakistan’s long-
suffering working people.
The central thesis that runs through the course of this paper is as follows. Pakistan’s economy has
developed an unhealthy dependence on foreign aid because of two weaknesses - its inability to
produce and distribute sufficient economic surplus domestically and the state’s inability to mobilize
and distribute adequate domestic resources to meet the population’s needs and earn foreign
exchange to survive the dictates of a ruthless globalized capitalist economic order. These weaknesses
have been created and perpetuated by the narrow interests and rent-seeking behavior of the
1
The government’s adviser to the Prime Minister on Finance, Hafeez Sheikh also announced on 25 May 2019 the
decision to borrow an additional $2-3bn worth of programme loans from the Asian Development Bank and World
Bank. See https://www.dawn.com/news/1484545/imf-loan-much-cheaper-than-other-programmes-hafeez-shaikh
2
Business Recorder, 2019. ‘External debt, liabilities hit historic high of $105 billion’. Published on May 16 th 2019.
https://fp.brecorder.com/2019/05/20190516474482/
3
country’s military, political and economic elites and exacerbated by neoliberal policies imposed by
the IMF, WB and other institutions. At the core of these structural weaknesses are the securitized,
rentier logic of the state, the stagnation of the economy’s industrial base, a broken and regressive
tax system, crippling inequalities in land and resource distribution, falling productivity and
longstanding neglect of workers, and unregulated banking and energy sectors that the state has
failed to leverage for public benefit. Understanding and overcoming these challenges in consideration
of their history and political economy, rather than a solely ‘technocratic’ understanding of the
economy, is essential to coming up with an economic strategy for self-reliance, economic sovereignty
and public welfare in Pakistan.
2. The International Monetary Fund (IMF)

The International Monetary Fund (IMF) was formed at the Bretton Woods summit in 1944, along with
the World Bank (then the International Bank for Reconstruction and Development) in direct response
to the horrors and destruction of the Second World War. The purpose was to create a system of
monetary stabilization that would prevent future shocks and crashes like the ones that had
destabilized Weimar Germany, precipitated the Great Depression and led to the rise of fascism in
Europe.3 The IMF was supposed to ensure stable international exchange rates by pegging the
currencies of all participating currencies to the US dollar, which was itself backed by gold reserves
(in theory, dollars were convertible into gold). When it looked as if countries were falling into crisis,
IMF would enter with stabilizing grants and loans. At the same time, the World Bank would make
long-term investments in development to pull countries out of poverty.
The Post-WWII period was one of relative stability and growth – seen by some as the Golden Age of
20th century capitalism – which were a result of i) Keynesian economic policies, which consisted of
high levels of governmental intervention and socialized provisioning of essential services as well as
a greater share of income for the working classes; and ii) a particular historical juncture whereby war
ravaged economies had to be rebuilt and there was sustained pressure to improve conditions of the
working masses to ensure both peaceful recovery and prevent leftwing revolutionary ferment in the
capitalist world. Consequently, from after the end of WWII until the mid 1960s, Western Europe
experienced sustained economic expansion, redistribution of income and state provision of essential
services such as healthcare, education, housing and unemployment benefits, in a kind of ‘Welfare’
capitalism.
The formation of the IMF and WB took place in this time, when it seemed the world had finally
recognized the perils of self-regulation by markets and agreed on the need for a strong economic
role for the state to ensure stability and public welfare. From their formation at the 1944 Bretton
Woods conference until 1971, not only were currencies stabilized in this manner, possession and
movement of capital was also effectively regulated in a way to prevent major economic crises or
shocks.
However, the international financial institutions (IFIs) formed in the Bretton Woods conference never
lived up to their lofty ‘universal vision’. Their failure was engineered into their very structure - from
the very start, the IMF and WB allocated power not on the basis of “one country, one vote,” like the
UN General Assembly, but rather on the size of each country’s economy - an arrangement that gave
the United States an effective veto over all major decisions, with Europe and Japan controlling most
of the rest.
The role of the IMF first changed drastically in 1971 when US withdrew from the Gold standard in
response to economic crisis and inflation in the US, effectively undermining the basis of the Bretton
3
Klein, N. 2007. ‘The Shock Doctrine: The Rise of Disaster Capitalism’. Toronto: A.A. Knopf Canada.
4
Woods system of international financial exchange. From there on hence, the dollar and other major
currencies have been ‘free floating’, meaning that their rate is determined by demand and supply in
relation to other currencies, but this exchange rate is still influenced by the central bank through its
determination of key policy interest rates.
The already undemocratic nature of the IMF and WB meant that when Ronald Reagan and Margaret
Thatcher came to power in the US and UK, respectively, in the eighties, their highly ideological
administrations were essentially able to transform the two institutions for their own ends, rapidly
increasing their power and turning them into vehicles that functioned primarily for the advancement
of powerful capitalist and financial interests.4 Gradually, the IMF and World Bank were ideologically
colonized by the Chicago School model of free-market policies, which later came to be known as the
Washington Consensus or neoliberalism (see section 3 on neoliberalism below).
Henceforth, the IFIs (including the IMF, WB and later, the WTO) shifted their focus from exchange rate
stability, Keynesian intervention and balancing world trade (at least for the developed world) to
deregulation, financialization, aggressive trade liberalization and unending structural adjustments
through conditionalities attached to balance of payments support and developmental loans. In short,
today this troika is neoliberalism’s vanguard.
Since the 1980s, there are countless cases of IMF/WB/ADB policies that have led to economic
disasters across the world, which have in turn paved the way for a neoliberal onslaught in a new
round of accumulation and dispossession on a world scale. These financial institutions and the
interests behind them helped create debt crises in Latin America and Africa, led aggressive shock
therapies in former Soviet Republics, precipitated the Asian Financial Crash through removal of
financial controls, spearheaded deregulation which was instrumental in fomenting the kind of
conditions that led to the Global Financial Crash of 2007 and globally advocated for structural
adjustment that affects the poorest without putting economies on a path of long term stability.
Considering we have established that the IMF, WB and WTO have come to represent the neoliberal
consensus we turn now to a brief analysis and history of neoliberalism.
3. Neoliberalism
In simple terms, neoliberalism is similar to classical liberal theory in which the government should
have only a limited role to play in the workings of the economy, confined to enforcement of contracts,
maintenance of law and order, and removal of barriers to trade. However, while classical liberal theory
focused on the protection of private property by the state, neoliberalism involves the expansion of
the principle of market competition to all aspects of the state itself. In the words of Michel Foucault:
‘instead of accepting the free market defined by the state and kept as it were under state supervision,
neoliberals turn the formulate around and adopt the free market as the organizing and regulating
principle of the state… in other words, a state under the supervision of the market rather than a
market supervised by the state’.5
Neoliberalism came about as a response to the social and political discontent in the developed world
in the 1960s that had begun to spill over into the economic realm as well. As mentioned earlier, the
brief period of peace and relative prosperity in Europe and North America in the Post-War era had
been held together by Keynesian social democracy; comprised of active government intervention in
4
Ibid
5
Foster, J B. 2019. ‘Absolute Capitalism’. Published in Monthly Review on 1 May 2019.
5
and regulation of economic affairs, provision of public health and education, progressive taxation
and redistribution and ensuring a greater portion of the surplus with labor through higher wages.
However, Keynesianism and social democracy could not paper over all the contradictions within the
capitalist order; symbolized by popular domestic and global opposition to the Vietnam War, demands
for equality by African Americans suffering from racial injustice, mass unemployment, and crumbling
infrastructure, and the 1968 demonstrations by European students and labor soon began to threaten
the social foundations of the Post-War compromise.
Two major events in 1973 tipped things over; namely, the overthrow of the world’s first elected
socialist prime minister Salvador Allende in Chile (in a US backed coup that brought General Augusto
Pinochet to power); and the oil price hike following the second Arab - Israeli war. These two events
were instances of the Global South’s attempts to assert themselves against imperialism, chart an
independent economic and political trajectory for themselves and make use of their domestic natural
and economic resources rather than allowing them to be exploited by global capitalists. The oil price
increase led to a deep recession, rising inflation and contraction in the manufacturing sectors of
industrialized economies. Increasingly, capitalists in the developed world called for the protection of
their profits and the disciplining of both organized labor and Third World economies.
Neoliberalism was basically an acquiescence to capitalist demands; a conservative reaction to

contradictions within the capitalist mode of production itself, particularly in the US and Western
Europe. It was spearheaded by US President Ronald Reagan and UK Prime Minister Margaret Thatcher
as an ideological and economic assault on working classes, the disadvantaged and the Global South
through fiscal austerity, monetarist interest rate management, breaking up of unions, outsourcing of
manufacturing to havens of cheap labor in the Third World, advances in the state’s oppressive and
surveillance capability, and aggressive commodification and expansion of debt.
A core component of neoliberalism was financialization, which involved the gradual shift of focus of
economic activity from the production of goods and services to the financial markets. This process
has brought the logic of financial engineering to an ever-expanding range of human activities and
gradually swept aside social arrangements, such as pensions, welfare and public housing, in order
to achieve the neoliberal ideal of a self-regulating market (Block 2016). Financialization was, in a
sense, a response to falling rates of manufacturing profit in the 1970s; in order to continue surplus
extraction, capitalism in the global North turned its focus away from industrial production to finance
which promised much higher returns without having to bear the high costs of labor and capital
inputs.
The ideological foundations of neoliberalism were laid by the Chicago school group of economists
led by Milton Friedman, who called for free markets, privatization, deregulation, free trade and drastic
cuts to government spending. These policies, masquerading as technical and uncontentious, included
such bald ideological claims as all “state enterprises should be privatized” and “barriers impeding
the entry of foreign firms should be abolished.”6 From the 1980s onward, ideologues of
neoliberalism the world over spread the gospel of unfettered free markets, the hollowing out of state
regulations, and an end to all protective trade barriers by national governments. The fundamental
ideological claim they made was that government regulation limits economic growth and that instead,
the invisible hand of the market could best lead to an efficient allocation of resources and economic
growth, which would ultimately ‘trickle down’ to the rest of society.
6
Klein, N. 2007. ‘The Shock Doctrine: The Rise of Disaster Capitalism’. Toronto: A.A. Knopf Canada.
6
However, actually existing neoliberalism – David Harvey distinguishes between neoliberalism as a

set of theoretical claims and neo-liberalization in practice, whereby markets are always politicized
and unfree - was characterized by restructuring and job cutting, privatization, state withdrawal
from social provision of education, healthcare, transport and housing, break up of unions, new
waves of enclosures and dispossession, and consumption-fueled jobless growth.
Crucially, the ideology of neoliberalism resolutely ignores a central fact of economic history; that no
country has developed economically, be it in the developed world or newly-industrialized economies
in Asia, without a substantial economic and regulatory role of the state (Chang, 2002, 2003). This
is, according to development theorists like Hirschman (1958) and Gerschenkron (1962), especially
important the later a country industrializes, because the state is the only institution with the resources
to finance large-scale capital projects that private investors in developing countries are hesitant to
risk short-term gain for. However, decades of neoliberal policies in already ill-equipped states like
that of Pakistan have fundamentally undermined the ability of states to play this economic and
regulatory role.
Acknowledging and understanding the ideology and workings of neoliberalism and the IFIs that
enforce it is vital to understanding why it is that Pakistan is set to enter into its 13th IMF program
in 31 years with little hope that this will transform our economy and set us on a path of sustained
growth and development.
4. What will an IMF program entail?

The effects of IMF’s latest structural adjustment program can be assessed in part by looking at the
programs that preceded it; the Fund’s macroeconomic prescriptions have been so consistent over
the past three decades, that one can confidently predict the contents of any loan package by looking
at past documents.7 Pakistan began its first IMF Structural Adjustment Program (SAP) in 1982 under
General Zia-ul-Haq, and has taken 12 other conditional loan packages since. As in other countries,
IMF programs in Pakistan have consistently featured the imposition of one-size-fits-all neoliberal
‘solutions’ – a free-floating exchange rate, privatization of state assets, liberalization of trade,
imposition of indirect taxes, cuts to subsidies and a focus on reducing budget deficits.
Multiple studies have confirmed the failure of these programs and their severe negative
consequences for inequality, poverty and public welfare. According to research by Haroon Jamal
(2003), during the 1988-1999 ‘structural adjustment’ period, poverty incidence increased from 24%
to 30% and inequality increased from a Gini coefficient of 0.34 to 0.38.8 Zaidi (2008) notes that
per capita income actually decreased in PPP terms from $2890 to $1890 in the decade between
1992 and 2002.9 An impact evaluation of structural adjustment programs between 1981 and 2001
found that SAPS adversely affected the macroeconomic variables of the country, including an overall
deterioration in real per capita income and a huge increase in unemployment (due to policies
imposing budget deficit reductions, indirect taxes, exchange rate adjustments, cuts to subsidies and
rise in energy costs from privatization).10
7
Ahmad, A. 2019. ‘Pakistan will be going to the IMF for the 13th time. Will PTI’s Asad Umar fare better than past
ministers?’ Published in Dawn on 6 August, 2018.
8
Jamal, H. 2003. ‘Poverty and Inequality during the Adjustment Decade: Empirical Findings from Household
Surveys’. The Pakistan Development Review 42 : 2 (Summer 2003) pp. 125–135
9
Zaidi, S.A. 2008. ‘The Political Economy of Military Rule in Pakistan: The Musharraf Regime’. ISAS Working Paper.
No. 31: 9.01.2018. Institute of South Asian Studies: National University of Singapore.
10
Khan, R.A, Nawaz, M, A, and Hussain, A. 2011. ‘Impact Evaluation of Structural Adjustment Program: A Case of
Pakistan’. European Journal of Economics, Finance and Administrative Sciences. Issue 29.11.
7
In the absence of a state equipped to regulate or discipline business interests, IMF conditionalities
of privatization, liberalization and deregulation have only created fresh opportunities for a particular
class of profiteers while shifting the bulk of the associated risk to the public sector, and therefore to
the taxpayer. Past neoliberal policies have been formulated by the IMF and willingly adopted by
Pakistani ruling elites with the purpose of ‘stabilizing’ the economy and to ensure the state is able
to pay back its creditors; yet IMF (and WB) supported ‘reforms’ in banking, energy, real estate,
telecommunication, and other sectors have successively made the Pakistani economy weaker and
less able to achieve any real measure of stability and self-sufficiency. Despite repeated claims of
bailouts only in exchange for ‘deep rooted and wide-ranging structural reforms’, IMF programs offer
only temporary relief at the expense of public welfare, without improving structural shortcomings
and long-term sustainability; in practice, further helping to consolidate the wealth and power of
Pakistan’s rent seeking elite.
The recent discussions with the IMF have followed a similar collusive pattern between the Fund’s
officials and those of the Pakistani government; this time featuring a bizarre spectacle of what Dr.
Kaiser Bengali has called ‘IMF negotiating with the IMF’ owing to heavy representation of former and
recently former IMF employees in the Pakistani delegation. Details of the negotiations have been
scant but according to a Dawn news report on May 11, 2019, ‘the IMF mission has taken an
“unusually aggressive line” demanding deep-rooted and wide-ranging structural reforms’, along with
‘increases in electricity and gas rates as well as quick recovery plan for … public sector entities’. The
IMF further wants ‘combined adjustment .... of 3.5% of GDP’ and ‘... next year’s tax revenues at close
to Rs 5.3 trillion from this year’s target of Rs 4.4 trillion.’
These negotiations ultimately in a staff level agreement on a 39-month Extended Fund Arrangement
(EFF) for about US $6 billion. Among the main conditions found in the text of the recent IMF
communique is the enactment of a ‘market-based exchange rate’, which has already led to the USD
rising to over Rs. 154 and predicted by some to reach over Rs. 200 over the next months. It is
important to bear in mind that most developing countries reject a free-floating exchange rate due to
the attendant volatility it entails. As Patnaik (1991) has argued, allowing freedom to capital flows in
third world conditions is likely to create a situation where more capital wishes to flow out of the
country than in it; hence, a depreciating exchange rate as a means of stabilizing is both economically
absurd and socially pernicious, due to the squeeze on real wages and investment it causes.11
Evidence from past experience and current economic conditions and forecasts make it clear that this
program and its associated policies will likely lead to rapid inflation, fall in growth, contraction in
exports, an increase in unemployment, a reduction in subsidies, fall in public sector development
programs, a new round of privatization, speculative raiding of land and dispossession, and increase
in precariousness, informality and poverty, all under the mantra of flexibility, markets and
competitiveness.
In a recent analysis of the (known) terms of the current IMF deal, former federal Minister Hafeez
Pasha, and former State Bank Governor Shahid Kardar have argued that with the resultant low GDP
growth and decline in the level of investment, the number of unemployed workers will increase
sharply by 51percent from 3.7 million in 2017-18 to 5.6 million by 2021-22. Further, the number
11
Patnaik, P. 1991. ‘Devaluation, Dual Exchange Markets and Existence of an Equilibrium in a Flexible-Rates
Regime: A Theoretical Note.’ Economic and Political Weekly. Vol. 26, No. 39 (Sep. 28, 1991), pp. 2251-2255, 2258-
2262
8
of people living in poverty is expected to increase cumulatively by 9 million by 2021-22 (an increase
of 4.5 percentage points).12
IMF programs and more debt from international financial institutions are clearly not the solution to
Pakistan’s economic woes – in fact they, with their one size fits all approach, are part of the problem.
Pakistan needs to escape this dependence on foreign debt and for this we must look inward to focus
on the specificities of our economic challenges and figure out the right combination of pro-people
economic policies; ones that can build a sustainable domestic base of production, generate and
redistribute economic surplus through a progressive tax system, invest in workers skills and well-
being to improve their productivity and tightly regulate important sectors like land, agriculture,
banking, finance and energy to ensure they serve the needs of public welfare rather than profit.
Through this, we may be able to build an economy that is centered on the welfare of the population
rather than the ideology and whims of international financial technocrats and the interests of local
landed, capitalist and civil-military elites.
However, before moving toward recommendations for an alternative program we must undertake a
concrete analysis of the Pakistani economy in light of its current crisis and understand precisely its
current malaise.
5. What hinders Pakistan’s economy?

The immediate, proximate explanation for Pakistan’s need for an IMF loan lies in its balance of
payments crisis. The current account deficit has spiraled in recent years, due to a massive increase
in consumption-driven imports and stagnant exports; despite the government’s rapid devaluation of
the currency in the months preceding the IMF deal, exports have still not risen and the deficit remains
worryingly high at $26.17 billion. On the fiscal side, Pakistan is chronically unable to raise sufficient
tax revenues to meet its burgeoning expenditures (weighed down principally by debt servicing and
defense), with the fiscal deficit reaching Rs 2,260 billion or 6.6% of GDP in 2018, leading to large
amounts of domestic borrowing and inflationary pressures (the inflation rate is expected to reach
over 7% this year).
Pakistan’s current and fiscal account deficits are indicators of two chronic weaknesses in the country’s
economic structure, within the context of a capitalist mode of production. One, that Pakistan’s
economy is unable to generate and distribute enough output to adequately meet a rising population’s
needs (causing high imports) and earn enough foreign exchange to pay for imports (causing dollar
debt). And two, that the Pakistani state is unable to mobilize and distribute domestic resources to
effectively meet the cost of its operations and service delivery and regulatory responsibilities towards
the citizenry and economy (causing domestic borrowing).
These weaknesses are the result of historically rooted structural imbalances in Pakistan’s economy
that have been perpetuated and shaped by the narrow interests of the country’s military, political and
economic elites and exacerbated by neoliberal policies and IMF conditionalities. The following sections
outline the contours of these structural problems with a view to identifying the radical changes that
are necessary to create an economy that is both self-reliant and fulfils the needs of the majority.
12
Pasha, H, Kardar S & Imran, M. 2019. ‘Economic Impact of IMF Program’. Published in Business Recorder on 20
May, 2019. < https://fp.brecorder.com/2019/05/20190520477186/>
9
5.1. A rentier state development strategy

At the core of Pakistan’s economic woes is its persistent rent-seeking strategy for national
development. Rentier states (Beblawi and Luciani, 1990) are those that derive a substantial share of
national revenues from renting indigenous natural or strategic resources to external clients. In
Pakistan’s case, this has primarily involved a national-security-centric orientation of the state whereby
the country’s geo-strategic location has been leveraged for securing military, economic and political
aid and support from global and regional powers. This has meant a persistent prioritization of narrow
military security over development goals like economic security, employment and education; an
orientation that has, ironically, substantially undermined the physical security of society and the state
over time. Further, Pakistan has also tried to earn rents from its vast supply of unskilled labor through
state-promoted migration particularly to Gulf states – a phenomenon known as global labor arbitrage
- which has led to a partial dependence on remittances for growth from the 1970s onward.
The Pakistani state’s rentier orientation has fundamentally affected the country’s economic trajectory.
The availability of substantial external rents from strategic location (what some have referred to as a
‘geo-strategic curse’) and labor migration has meant that the mobilization of a strong domestic
production and revenue base has not been a state priority; multiple governments, both military and
civilian, have chosen to continue to leverage the state’s utility as a ‘security’ service provider – to
states like the US to Saudi Arabia - to shore up finances rather than take on the challenges of taxing
the elite or creating a strong productive base. The national security orientation of the state has also
had a direct effect on the country’s external finances – despite being a poor economy and long
experiencing sluggish growth, Pakistan is the 9th largest arms importer in the world, with arms
imports next to oil as the country’s biggest import.13
Furthermore, the instability and insecurity that has been a consequence of the state’s national security
orientation has further inhibited the development of the formal institutions and productive capacities
that are the foundations of sustained economic progress. For example, the state’s single-minded
pursuit of ‘security’ objectives in Afghanistan and Kashmir since the 1980s has led to militant groups
proliferating across the length and breadth of the country, often undermining the rule of law violently
and severely reducing investment and economic activity required for enhancing the productive base.
The Pakistani state’s rentier logic is perpetuated within the country through networks of patronage
that permeate all aspects and levels of state, society and economy. Multiple military and civilian elites
have pursued strategies of economic and political accumulation that involve the capture of public,
financial and natural resources for extracting rents, capture that is maintained through both coercion
and the accommodation of economic and social groups by providing preferential access to captured
resources.
These dynamics of clientelism mean that government oversight in the pursuit of the protection of the
working population’s rights and interests has consistently been subordinated to the needs of more
powerful clients. So, for instance, massive deposits of coal in Thar, and the gold and copper of
Saindak and Reko Diq in Balochistan are exploited largely by state elites in conjunction with
multinational firms. The deals struck in this regard are typically opaque, and offer foreign investors
unimaginable margins, while the needs of local communities sitting atop such precious resources are
paid lip service. Perhaps the most glaring such ‘arrangement’ was acknowledged in the upper house
of parliament in late 2017 when the Federal Minister for Shipping and Ports noted that China would
receive 91% revenues from Gwadar Port leaving the government of Pakistan – not to mention the
province of Balochistan – with only 9%.
13
Express Tribune, 2018. ‘Pakistan listed 9th largest arms importer in the world by SIPRI’. Published in the
Express Tribune on Mar 13, 2018.
10
The real tragedy of this rentier strategy is borne by the people of Pakistan who in principle ought to
be the major beneficiaries of the country’s natural resource endowments. Pakistan’s peripheral
regions are particularly well endowed – Balochistan, Sindh, the mountainous zones of KP, GB and
Kashmir, and even the former FATA regions all possess significant mineral deposits which could be
the basis of a sustainable and substantial domestic manufacturing base. Yet till this day, these
deposits, and the people of peripheral regions have also been subject to a narrow, extractive logic.
This rentier orientation of the state has also led to large sectors of the economy being dominated by
military-run companies including transport, freight and logistics (NLC), infrastructure (FWO), housing
(Defense Housing Authority), agriculture (Fauji fertilizer), banking and insurance (Askari bank and
Askari insurance) construction (Fauji cement), telecommunications (SCO, with its monopoly in Gilgit-
Baltistan), and recent exploration into the oil business, among many others. While official figures are
hard to come by given a lack of transparency, the military’s total business investments have been
estimated by experts as anywhere between 25-100 billion.14 Free market principles of competition
are rarely applied to military-run businesses which manage to make use of preferential access to
state resources and decision-making, leaving anything but a level playing field in the economic arena.
As scholars of the military economy (or milbus as some term it) have documented, this permeation
of the military in the economy has not improved economic efficiency or resource distribution in any
way, has made functioning difficult for regular enterprises in the presence of military-run companies’
clout and access to resources, and has diverted state resources toward subsidizing for-profit military
ventures.
Pakistan’s repeated return to the IMF is a damning indictment of its rentier state strategy for
development. As the global economy has slowed, relations with the US have soured, military and
economic aid has dried up and Gulf economies have begun to look inward, state elites have cultivated
new benefactors rather than acknowledging the rentier strategy’s inherent contradictions. As always,
the state and its colluding private elites continue to secure their own narrow interests, while the
fallouts of a weak base of domestic production and neglect of public services continue to be borne
by Pakistan’s working poor, underrepresented ethnic-nations, and women.
5.2. Premature de-industrialization and the crisis in domestic production:

Pakistan’s huge current account deficit is in part a measure of the state’s inability to foster and expand
domestic production to meet both domestic consumption and export needs. The bulk of Pakistan’s
exports remain low-value agricultural raw material or semi-processed commodities, while most
processed oil, value-added manufactured goods and capital goods and inputs consumed in the
country are imported, creating a severe crunch in foreign exchange earnings and downward pressure
on Pakistan’s perennially weak currency. Today, Pakistan exports only half of what it imports, and the
situation is not improving. Imports have continued to rise at a breakneck pace (before the current
currency devaluation), particularly from China, which now exports goods worth $15b to Pakistan per
year.15 But even more critically, the problem is stagnant exports - Pakistan’s exports in goods and
services grew only 36% or so from 2005 to 2015 whereas those of once similarly placed economies
like Bangladesh, Vietnam and India have increased by 313 %, 473 %, and 277 % respectively in
the same period.16
14
Asia Times, 2019, ‘Pakistan Army moves into the oil business.’ March 8, 2019; Euromoney, 2019, ‘A quiet
sort of military might’. March 29, 2018.
15
Especially since the Pakistan-China Free Trade Agreement in effect from 2006.
16
Tahir, A. 2018. ‘Troubled Exports’. Published in Dawn on 22 Jan 2018.
https://www.dawn.com/news/1384407
11
Figure 1 Pakistan's deteriorating current account and trade balance (Source: PBC)
Why has this happened? In the sustained absence of concerted state interest or stewardship in
building a productive manufacturing base – in large part because of the rent-seeking orientation of
the state - Pakistan’s economy has undergone what some have termed ‘premature de-industrialization’,
characterized by an extensive expansion of the service sector at the expense of industrial
manufacturing.
This trend is in part also a result of global neoliberal policies and processes, whereby financialization,
deregulation, privatization, and outsourcing have transformed production and consumption across the
world in recent decades.17 While these policies have globally benefitted a small percentage of the
population in the finance, healthcare, law and technology sectors, a huge part of the global labor
force has had to shift over time from the relative stability of settled agriculture and Fordist
manufacturing to precarious, low-wage and informal work. Much of global manufacturing has
predominantly been shifted to countries in the South and East Asia such as China, Vietnam,
Bangladesh and India whose economies have grown due to the new arrangements through policies
that have developed productive manufacturing bases; albeit benefits gained largely through export
earnings from global labor arbitrage.
In Pakistan, the neoliberal policy framework, implemented by multiple governments but most
forcefully under the dictatorship of General Musharraf in the early 2000s, has largely resulted in the
rapid consumption-fueled growth of the service sector. Today, services constitute 60% of the
Pakistani economy’s annual output, compared to 22% for agriculture and only 18% for manufacturing.
This has fundamentally affected Pakistan’s current account crisis as much of manufacturing and
export remains concentrated in lower value agro-industries and semi-processed goods like cotton,
textiles, rice, sugar and leather.
In terms of employment, while this shift to fragmented services has benefitted a section of the
workforce able to find employment in multinational companies, it has further perpetuated the
weakness of the industrial base. With a lack of capital, infrastructure, technology and policy support
for manufacturing, speculative investment in non-productive and non-labor-intensive sectors like real
estate and retail has mushroomed (see section 5.4 on land below). A protracted energy crisis and
instability from extremism and violent conflict has further compounded the problem, leading to
closures of existing manufacturing units and a reduction in productive capacity.
17
These policies were designed to undermine the twin power of organized labor in the developed world and
Third World resistance to colonialism and imperialism in the post-WWII era. Neoliberal policies helped ensure
that mobile capital flows disciplined working classes by relocating to countries with surplus labor, and lax
regulations, and debt disciplined the third world by incorporating them in the financial system and ensuring
their markets were opened for capitalist goods from the developed world.
12
This situation has been catastrophic for large sections of the workforce, as the economy is increasingly
characterized by severe underemployment, service sector informality and limited upward mobility.
Instead of large manufacturing units, contractors dominate the sector, often operated through clan
and kin networks, with no application of labor laws and a large percentage of disguised unemployment.
Short-term tenancies and agricultural wage labor are increasingly the norm in the agriculture sector
– implying increasing precariousness for both urban and rural workers. The state-led destruction and
erosion of trade unions over decades since the Zia dictatorship has meant there has been little
worker resistance to the erosion of the manufacturing base; less than 3% of the current (mostly
fragmented and informally-employed) labor force is unionized and hence, unable to organize to prevent
de-industrialization. Real wages in Pakistan have been stagnant since the 1990s (See section 5.6 on
Pakistan’s workers)
More generally, it is estimated that a majority of Pakistan’s workforce is self-employed. With small
and large urban centers growing rapidly due to mass rural-urban migration, and the formal
manufacturing sector unable to absorb the semi and unskilled workers flowing into the urban space,
self-employment – often coupled with informal wage work – represents the only survival strategy for
many. As with so much else in Pakistan’s policymaking circles, exhortations about the need to
promote small and medium enterprises rarely extend beyond hollow rhetoric, with little meaningful
action taken to cater to the mass of self-employed Pakistanis living in conditions of extreme
precariousness.
For years now, the IMF has pushed a mantra of a ‘post-industrial’ age, according to which economies
need no longer rely on manufacturing for growth and can develop on the backs of services
(particularly new digitized services like Uber, Careem, Netflix, Airbnb, etc). This thinking has led to
some developing countries believing they can develop while domestically focusing on services and
importing manufacturing products from the developed world. In fact, they cannot, Pakistan’s
domestic production, employment and balance of payments crises are a prime example of why this
is not possible.
Services are of course important and continue to drive growth and productivity (and need to be
supported in countries like Pakistan through improved payment gateways and greater connectivity);
however, manufacturing continues to be critical for economic growth, for several reasons. One, there
are still no examples of developing countries that have achieved economic development without a
healthy domestic industrial base (with the exception of oil rich states); two, manufacturing has a
greater impact on employment, productivity growth and innovation than any other sector; and three,
there is reason to believe that fears about manufacturing jobs being replaced by automation and
artificial intelligence are as yet negligible (in developing country contexts, the number of jobs
estimated to be at risk from automation are just 2-5%, and this includes services sector jobs).18
Pakistan needs a concrete industrial policy to shift capital away from speculative enterprise and
informal services to labor-intensive, ecologically sensitive manufacturing. This needs to involve rural
land and agricultural reform to ensure land ownership and increased productivity for the rural
majority to generate agricultural surpluses; an institutional strategy to funnel and direct agricultural
surpluses into manufacturing; urban land reform to limit non-productive speculative trading in real
estate and finance; and tightly-regulated financial markets that that can support the development of
this productive base. This needs to be accompanied by concerted public investments in human capital
and improved wages and labor standards that can foster worker well-being, creativity and innovation
and improve worker productivity (all of these interventions are elaborated upon in the sections
below).
18
Hauge, Jostein. (2018). ‘Manufacturing still matters: five reasons why the IMF is wrong’. Published in The
Conversation on June 19, 2018.
13
There is also a need to re-evaluate WTO-led trade liberalization to reinstate trade barriers - both tariff
and non-tariff – to protect domestic industry as well as push growth in state-led industrial production,
in the footsteps of Asia’s most successful economies. However, the mistakes in state-led
industrialization from the 20th century need to be avoided; instead of bureaucratic control over
industry, production needs to be guided by a model of cooperative ownership and worker control over
firm management and profit allocation, as well as an ecologically conscious industrial approach that
is carbon-neutral, integrates the regeneration of our deteriorating natural resources and enables a
transition for workers in terms of skills and opportunities for a knowledge-intensive green economy.
These principles must be applied most urgently to the mineral export/mining sectors. Instead of selling
off mineral extraction rights - which as earlier noted are present in great abundance throughout the
peripheries - to foreign companies, Pakistan’s iron ores, gold, silver and copper, and even coal
resources could be the basis of a well-planned process of industrial development, based on sustainable
rates of extraction that support the development of the manufacturing sector, directly through
processing, and indirectly through better input prices for other industries. This will also help to
address our current account difficulties by reducing imports and increasing our exports. Most
significantly, minerals resources are part of the commons and could help transform the lives of
Pakistan’s most marginalized ethnic-nations and classes. State led mining and processing can, if the
requisite political will exists, ensure worker safety, rights, and adequate compensation as well as
ecological sustainability. Ultimately we will have to reduce reliance on resources such as coal, as is
being done all over the world. On this matter too a coherent and thoughtful long-term policy can be
formulated so long as the state’s rentier logic of extraction is transcended (See also the section 5.8
below on shifting from non-renewable to renewable energy sources).
Finally, Pakistan needs to prepare itself for the Fourth Industrial Revolution – technological
breakthroughs associated with robotics, artificial intelligence, the ‘Internet of Things’ and 3D Printing
– by investing heavily in research and science and technology. This will also need to involve large
scale investments in human capital and the overhaul of the education system from its current
regressive, anti-critical foundations to one based on science, critical inquiry and openness to
knowledge (see section 5.6 below on investing in Pakistan’s workers).
5.3. The crisis in public finance:
Pakistan’s huge fiscal deficit is in part related to the fact that it has one of the lowest tax-to-GDP
ratios in the world, at around 9% in 2018. Tax collection has historically been weak in Pakistan, with
large-scale tax avoidance by elite groups and tax mobilization strategies that rely on regressive taxes
that disproportionately affect the poorest and the salaried. Some of the most powerful sectors of the
national economy – large agribusiness, real estate, banking and finance, milbus – all well represented
in the established structure of power, are taxed far below their potential, while the bulk of the tax
burden is placed on ordinary working people through indirect taxes on fuel, electricity and every
items (which constitute 75% of taxes collected), income taxes on salaried workers and import tariffs.
Agriculture accounts for one fifth of GDP but yields only 1% of public revenue; services accounts for
more than half of GDP but generates only a quarter in taxes.19
Hundreds of billions in tax revenues are also lost through the issuance of SROs (Statutory Regulatory
Ordinances) by tax authorities for tax concessions, waivers and exemptions to powerful industrial and
financial interest groups. Once in power, every government (including the current one), announces
various kinds of tax amnesty schemes, which have the effect of allowing the powerful to legitimize
19
Zaidi, A. 2015. ‘Issues in Pakistan’s Economy: A Political Economy Perspective’. Oxford University Press: Pakistan.
14
ill-gotten gains for one-time payments, but resulting in little long-term increases in the tax net. A
depleted, ill-equipped and unaccountable system of tax administration that functions in connivance
with powerful economic interest groups has compounded the problem. According to some estimates,
the country loses close to $10.8 bn annually to exemptions, evasions and loopholes.20 As admitted
by the FBR itself, the country has a tax gap of 80% (the difference between potential revenues and
actual revenues).21
On the expenditure side, the two

biggest budget items include
debt repayments and defense –
in many ways the elephants in
the room that nobody wishes to
debate. More than a quarter of
the federal budget is set aside
for defense and another quarter
for debt servicing. This spending
is disproportionate in terms of
our GDP, considering that
spending on public sector
development, health and
education is compromised as a
result of this.
As other countries around the

Figure 2. Tax loss as % of GDP. Source: World Economic Forum world have done, there is a need
to conduct an audit of all our
outstanding debt with the express purpose of restructuring our liabilities – including extending the
repayment period of all debt - as well as seeking debt relief, particularly of loans acquired during
military dictatorships. This would not just require negotiations with international financial institutions
but also domestic accountability of past military borrowing with a view to restructure and repay part
of the debt from the revenues of military corporations that have benefitted from it - in sectors like
steel, real estate, FMCGs, fertilizers, cement and so on.
Pakistan is the world’s 20th largest military spender, despite having only the 40th largest economy, an
incongruence that has a considerable developmental impact. Pakistan’s own security is undermined
when its fiscal space is too limited to meet people’s basic needs and pay its own bills and debts. To
ensure more meaningful national and human security for the population, the needs of development
and economic growth must finally take precedence over security, including in terms of budgetary
allocations. There is a need to audit and rationalize the defense budget to ensure that wasteful, non-
combat expenditures in particular are reduced in a transparent manner. In the long run, this will require
a thorough overhaul of the state’s foreign policy with so that we focus on regional economic and
political cooperation, which will reduce the need for huge military build-ups that lead to large scale
regional impoverishment.
Pakistan’s broken and regressive tax system has not just meant the state is unable to manage its
cost of operations. It has also meant that the state has not been able to effectively perform its
redistributive function; inequality in Pakistan has continued to rise, with an unhealthy Gini coefficient
of 0.68 compared to 0.40 in India, 0.46 in Malaysia and 0.51 in China.22
20
Myers, J. 2017. ‘Which countries are worst affected by tax avoidance?’. World Economic Forum.
21
Ibid
22
Khaliq, A. 2016. ‘The scourge of rising inequality – A case of Pakistan’. CADTM.
15
To achieve any measure of economic success, Pakistan needs to completely overhaul its tax system
on a progressive basis and integrate it with an economic plan for growth in domestic production. This
can only happen through the generation of political will and popular support for tackling powerful
tax evading business interests, a concerted countrywide effort to document the economy and assets,
separating tax policy from administration, equipping, empowering and capacitating tax collection
officials and systems (through, for instance the formation of a dedicated Revenue Service), returning
the authority for granting tax exemptions and waivers to Parliament and provincial assemblies and
making tax administrators directly democratically accountable to the people.
This needs to be accompanied with a comprehensive plan for public sector reform of Pakistan’s state
institutions. For decades, the constant refrain from IFI and domestic private interest groups is to
privatize ‘wasteful’ and ‘inefficient’ privatized public assets into efficient private hands; however, past
privatization attempts are testament to the futility of this doctrine. From banking, to energy, to
telecommunications, privatization attempts have achieved little in terms of economic growth and
improved services, while causing increased unemployment, and rising costs for the public. PTCL is
the most obvious example; since its privatization in 2006, the organization has laid off more than
30,000 workers and seen its market value plummet by 75%, which has resulted in a loss of US$3
billion to the government. PTCL was a profit-making enterprise before its sale, which makes a
mockery of the claim that the privatization policy is designed to enhance revenues and
performance.23
Even in cases of loss-making state owned-enterprises, privatization is not a one-size-fits-all solution,

especially not in states like Pakistan that are ill-equipped to adequately regulate or discipline the
private sector. Instead, as evidence from effective public sectors around the world tells us, the best
performing public sectors and welfare states are those in which institutions are backed by democratic
accountability to citizens. The public sector must be re-organized, with workers given representation
in management and public managers made democratically accountable to the public that state
institutions are supposed to serve. This must be accompanied by efforts to improve public
transparency, with the help of technology and radical right to information legislation.
More generally the fact of the Pakistani state’s colonial inheritance cannot be understated. For more
than seven decades, the administrative, security and judicial institutions of the state have time and
again demonstrated scant regard for the basic needs and freedoms of the country’s long-suffering
people. Indeed, the basic precepts of the modern social contract whereby the state and its authority
are a trust of an empowered citizenry remain unfulfilled. Established economic policymaking practices
– propagated both by domestic elites and the IFIs – have and continue to understate the neo-colonial
character of Pakistani state institutions, in much the same way as the broader political economy of
global capitalism is conspicuous by its absence in mainstream economic analyses and policy
prescriptions (detailed above). The articulation and implementation of a progressive economic
agenda through an effective system of public finance therefore, is part of the longer-term process of
democratizing Pakistani state and society, and indeed, the world at large.
5.4. The question of land:
Pakistan’s unhealthy relationship with land is at the core of its economic woes. Evidence from around
the world, including Asia, tells us that comprehensive efforts to redistribute land have been a central
23
Munir, Kamal, 2012. ‘Privatization of PTCL: A lesson for policymakers’. Published in Express Tribune on 13 March
2012.
16
component of successful development strategies. Pakistan’s historical land reform efforts have been
limited at best and successfully circumvented by rural and urban elites in connivance with the civil-
military bureaucracy and religious clergy. Hence, Pakistan has one of the world’s largest landless rural
populations (over 30 million by some estimates24), leading to inhibited agricultural productivity,
widespread absentee landlordism, and large-scale rural-urban migration as landless farmers have
flocked to cities in search of employment (by most estimates Pakistan is now the most urbanized
society in South Asia, despite having the lowest economic growth rate).
Pakistan’s rural inequalities have reproduced themselves in our cities through the rapid rise of a huge
real estate sector, particularly since the early 2000s. This growth is also driven in part by global
processes of financialization, whereby large tracts of public, agricultural and common land are rapidly
commodified by the state and private capital and converted into financial assets for speculative
trading.
A similar process of land acquisition and concentration has taken place in Pakistan, resulting in a real
estate market one of the fastest growing in the world (with a growth rate of 112% between 2012 and
2017). The sector’s growth is closely tied to global financial flows, mushrooming during periods of
high American aid and patronage, particularly during the military dictatorships of Zia and Musharraf.
Since 9/11, the sector has also grown on the backs of remittances, as Pakistani migrants in the West
and elsewhere funneled their savings into real estate in Pakistan, accompanied by increasing
domestic social aspirations of securing plots and homes in gated communities. Unsurprisingly, the
sector also became an attractive destination for parking black money.25
However, Pakistan’s real estate market is one of the most unregulated and least transparent in the
world, leading to it becoming a favored destination to park ill-gotten wealth and engage in
speculative investment. For years, the state maintained a ‘no questions asked’ policy about the source
of capital in the sector, without any meaningful taxation introduced until 2014. Even today, despite
the sector boasting assets estimated at over $700 billion, the sector garners barely Rs. 23 billion in
annual tax.26 Even the values on which property is taxed are determined far below the market price,
at pre-determined ‘DC’ rates, leading to consistent under-valuations of tax liability.
A lack of effective regulation (or rather, active collusion) by the state has led to the rampant trading
of land as a speculative commodity rather than a usable asset in Pakistan. Land owning bureaucracies,
elite politicians and large corporations like DHA and Bahria Town regularly cooperate to commodify
agricultural land and introduce it into the market, mainly to secure windfall speculative profits. This
has driven up land prices by over 152% in the last five years and made housing unaffordable for the
majority, as 50% of the urban population now lives in katchi abadis (informal settlements), while a
small number of real estate barons accumulate acres of valuable urban land without occupying it or
employing it for productive purposes.
However, this is not just a question of meeting revenue or housing needs, worthy ends in and of
themselves. Real estate in Pakistan has also become a capital trap. It absorbs billions in national
savings as well-off households increasingly prefer the safer and higher returns of real estate ‘plots’
rather than financial savings, severely limiting the pool for bank lending and investment. Ever since
the property boom under Musharraf’s dictatorship in the early 2000s, financial savings (i.e., savings
in the banking sector) in the Pakistani economy have dropped to below 30% (when they were as high
24
Prosterman, R. 2012. ‘Planting Prosperity in Pakistan’. Published in Dawn on 19 July 2012.
25
Asghar, A. 2018. ‘Regulating the Unregulated Real Estate Sector’. Pakistan Economist, 24 September 2018.
26
Express Tribune, 2018. ‘Booming real estate sector contributes just Rs. 23 billion in taxes’. Published on
Aug 13, 2018.
17
as 45% in the 1990s). The lucrative, untaxed returns offered by real estate have hence severely
limited the growth of Pakistan’s savings pool and inhibited already low bank lending.
Our unhealthy paradigm of land

development has also been a
disaster for local eco-systems. The
incentivization of suburban sprawl
has placed immense stress on our
already depleted water resources
and led to an unnecessary
permanent infrastructural buildup
on our cities whose costs will
accumulate into future fiscal years,
which could have been avoided
through densification and planned
vertical growth. This land regime
has also been incredibly wasteful in
terms of distribution and use. In
Karachi, it was estimated in 2017
Figure 3. Financial savings as % of total national savings. Source: SBP Staff
that 62% of the city lived on just
Notes (2016)
23% of the land, while over
250,000 plots and 68,000
apartments remained empty. In Punjab, as well, over 250,000 plots were estimated to be empty in
27
major cities in 2016.
The redistribution of land and real estate is critical to achieve sustainable economic progress and
resource use and distribution in Pakistan. The state needs to consciously encourage a shift away from
the treatment of land as a speculative commodity and ensure a more productive, judicious and
efficient use of a scarce resource that carries immense economic, social and ecological value and
enormous revenue potential. A mix of regulatory, taxation and zoning policies need to be applied to
stimulate a transition of capital from large inefficient concentrations of land toward more productive
and ecologically-sustainable uses, including housing, manufacturing, basic services provision,
expanded common use and mixed-use development.
The key instrument in this shift needs to be in the form of a land value tax, which applies to the value
of unimproved real estate that has not been built upon. A land value tax is considered one of the
most progressive tax instruments in the world, which solely targets rich landowners, functions as a
bulwark against wasteful speculation, prevents the accumulation of land in a few hands and
incentivizes more productive land use.
The other pillar of this land reform is to limit the highly unfair and inequitable concentrations of
urban land and property ownership through instituting a ceiling on the maximum urban land a single
individual can possess and reform of building and zoning regulations to ensure minimum densities,
prevent segregated housing and ensure land development is distributed in a way that fulfils the
needs of the majority.
This needs to be accompanied by an effort to move beyond individual land ownership and introduce
new forms of community-based ownership; recognize housing as a constitutional right, upgrade
27
Dawn. ‘Karachi’s 13m people live on 23pc of residential land, moot told’. Published on Dawn.com on 17
April 2017.
18
existing katchi abadis or informal settlements (rather than create new homes from scratch); create
models of incremental public housing; and decentralize urban planning out of the hands of
unaccountable civil-military bureaucrats, real estate barons and political elites. This will help
transform our cities, generate revenue for sub-national governments and lead to an urbanization that
benefits the many, not just a few.
5.5. Addressing agricultural inequality and productivity:
Agriculture has long been a mainstay of the Pakistani economy, still employing a plurality of the
country’s workers (42%), contributing 19.5% to the GDP and making up 65% of exports (including
agri-business). However, an endemic mix of falling state support, inequality in land and input
distribution, poor extension services, and technology and productivity deficits have combined to
induce a decline.
Pakistan’s contemporary issues with agriculture stem in the first instance from its inability to undertake
substantive land reform. The inheritance of a feudal system entrenched by British colonialism and the
inequality in land distribution post-partition set the stage for the disparity between Pakistan’s small
farmers and large farm owners, as well as between farm tenants and landowners, which remained
largely undisturbed, other than the limited reforms that took place under Zulfiqar Ali Bhutto’s
government in the early 1970s. Today, a mere 5% of large landholders in Pakistan are said to possess
a massive 64% of the total farmland, while 65% of small farmers hold only 15% of the land (Nazeer
2015). A mere 300 extended families own an estimated 45% of cultivated land.28 These unequal
patterns of ownership have deeply affected farmers’ access to essential resources, including water,
irrigation canals, seed inputs, farm technology and extension services, and inhibited farm output and
productivity.
The Green Revolution in the 60s and 70s led to increases in agricultural output, but in the absence
of land reforms, it mostly benefited large farmers. Much of the technology associated with the Green
Revolution was very expensive and inaccessible for small farmers without subsidies. While farmers
were facilitated through subsidies for a time in the 70s and 80s, the dictatorship of General Zia-ul-
Haq, in line with the dictates of the neoliberal Washington Consensus, dramatically slashed subsidies,
hurting mainly small farmers who were unable to benefit from technological advancements to
improve output and income.
Pakistan has also witnessed the increasing monopolization of seed inputs by multinational seed
corporations, which has posed enormous challenges for small farmers. Since the introduction of
hybrid seeds in the Green Revolution, biodiversity in agricultural seeds has reduced considerably, as
local varieties (which could be reused and were adaptable to the environment) were replaced by
‘super varieties’ in staple crops like wheat and rice (accounting for 90% of rice growing area by the
1990s). Whereas earlier there was a large public sector for seeds, with provincial seed corporations
that developed seeds on a not-for-profit basis, today seed production has been entirely privatized
and monopolized.29
In recent years, with the so-called ‘Gene Revolution’, the technology of genetically modified crops
(like Bt Cotton) is being advanced in Pakistani agriculture and elsewhere with the objective of solving
the crisis of world hunger and food scarcity. However, this new technology comes with a hefty price
tag – in addition to the expensive seeds that local farmers will be forced to buy every season due to
28
29
For more on this, see Ali, Nosheen, 2017. ‘Seed policy in Pakistan: The impact of new laws on food
sovereignty and sustainable development.’ The Aga Khan University.
19
the monopoly of the corporate seed companies, they will also have to pay for the increased inputs
these seeds require, such as extensive irrigation and costly fertilizers and pesticides, which are already
known to have severe negative consequences for the quality and productive capacity of the land and
soil.
Increasingly, the Pakistani government has legislated to protect the monopolies of seed corporations
and made it harder for farmers to develop their own seeds. Through acts like the Seed Act 1976,
Seed (Amendment) Act 2015 and Plant Breeders Rights Act 2017, corporate control over seed
production has been institutionalized and certification and registration procedures introduced to
protect corporate patents. Legislation that allows land grabbing by foreign entities and encourages
commercial GM seed activity is already in progress, while farmer and ecologically friendly clauses
that deals with biosafety and resource conservation has been watered down.
Pakistan’s historical agricultural context thus primarily features an undisturbed concentration of

agricultural land, elite capture of water and natural resources and a transfer from public involvement
to private monopolies in its seed sector. This, along with an absence of concrete extension and
regulatory services, and wasteful and unequally distributed irrigation systems, has been extremely
harmful for agricultural productivity and biodiversity in the country. Pakistan’s average yield of wheat,
cotton, rice, maize and sugarcane is 70%, 53%, 61%, 82% and 60% lower, respectively, than the
average yields obtained internationally.30 Lower harvests translate into low industrial production,
higher costs, and a higher import bill. Inadequate infrastructure remains a massive concern; up to
50% of agricultural products are wasted in Pakistan due to unavailability of sufficient cold chain,
logistics and processing facilities.31
Evidence from around the world describes how the agriculture sector can be an engine of growth
provided governments engage in wide-ranging land reform and well-planned extension support by
the public sector. Pakistan needs a comprehensive national agriculture policy should be formulated
which supports the rights of small farmers and women farmers, outlines targeted land reforms, and
fair price regulations. The policy should have the redistribution of arable land to millions of landless
rural families its principal priority – even a redistribution of 2% of the land of the 300 biggest
landowning families could help 4 million families become owners of small farming plots that could
greatly improve agricultural productivity.32
The policy should also protect food sovereignty as well as the protection and documentation of
traditional agricultural knowledge. There is an urgent need to shift from wage-based relations of
agriculture to one based around secure tenancies and peasant production through cooperative
farming. Further, labor laws must be implemented in agriculture given the growing prevalence of
wage labor in agriculture.
Seed banks – state, farmer-run, private, or NGO-led – should be supported as a policy priority. Public
and private investments need to be pushed in processing, storage and transport, particularly in high-
output agricultural sectors like milk and dairy, rice, cotton, wheat and edible oils. Crucially,
agribusiness oligarchies that patent regional expertise and market single usage seeds and
monocultures need to be dismantled in favor of an agriculture that relies less on chemical fertilizers,
pesticides and excessive water but instead makes use of indigenous expertise and experience. The
Seed (Amendment) Act 2015 as well as the PBR legislation should be withdrawn, and rethought with
30
Aslam, M. 2016. Agricultural productivity current scenario, constraints and future prospects in Pakistan.
Sarhad Journal of Agriculture, 32(4): 289-303.
31
Express Tribune, 2016, ‘Pakistan’s Agricultural Productivity among lowest in world’.
https://tribune.com.pk/story/1616347/2-pakistans-agriculture-productivity-among-lowest-world/
32
20
the active input and prioritization of the needs of small farmers including women farmers. Any future
PBR legislation should be formulated with farmers, farmer associations, academics, local seed
providers, agricultural experts and civil society members, and should protect farmers against
unintentional infringement and contamination.
5.6. The crisis of labor productivity and well-being:
Few mainstream discussions on the Pakistani economy consider the question of investments in
human capacity as relevant to the economic sphere, preferring instead to relegate questions of
education, health, and so on to the ‘social’ sphere of entitlements. However, Pakistan’s crisis of
domestic production is tied closely to the abject state of labor productivity in the country, which is the
consequence of the state’s historical inability to invest in its population and workers.
A country’s ability to improve its standard of living in the long run depends almost entirely on its ability
to raise output per worker. Pakistan has witnessed falling labor productivity since the 1990s, falling
far behind countries it was once ahead of. In the 1980s, labor productivity (defined as GDP divided
by the employed labor force) grew at 4.2 per cent per annum. By the 1990s this had plummeted to
1.8 per cent, falling further to 1.3 per cent during 2000–15. Since 2007, it has been growing at just
1 per cent. By way of comparison, labor productivity in India as grown at well over 5% while China’s
has grown at a rapid 8.8%. Low labor productivity has prevented Pakistani firms from being able to
compete in international markets, has led to manufacturing closures owing to lack of trained workers,
and has prevented the adoption of technology in all sectors of the economy.
Figure 4. Pakistan's stagnant labor productivity. Source: International Labor Organization (ILO)
At a fundamental level, productivity is a question of the knowledge, skills and capacities of workers,
what economists euphemistically refer to as ‘human capital’. Pakistan’s low productivity levels are a
symptom of the state’s long-standing inability and unwillingness to invest in the knowledge, skills and
well-being of its working population, particularly as they relate to education, health and working
conditions.
For decades, Pakistan has spent an insufficient fraction of its GDP on education, with the result that,
despite recent attempts at reform, literacy remains at an abject 58%, over 22 million children remain
out of school and 50% of primary students in Pakistan’s public education system drop out before
secondary school. After decades of state neglect of public schooling, a largely unregulated private
sector now caters to up to 40% of Pakistani students.
21
The rot extends to higher education. Pakistan spends a paltry 0.3% of its GDP on higher education,
ensuring that less than 9% of students have access to it. We have just 173 public private higher
education institutions for over 120 million people under 30 & over 55% of our districts have no
universities. This is reflected in global rankings; no Pakistani university features in the world’s top
200, while only 3 are in the top 800. The QS higher education system rankings in 2018 placed
Pakistan last out of 50 countries surveyed (26 places below India). Funds from higher education
budgets are regularly siphoned off for non-educational projects (including 60% of the HEC
development budget in 2017). Even prior to the finalization of the IMF agreement, reports are rife
that the HEC budget for next year is due to be halved as part of austerity measures, which will further
take higher education out of the reach of the majority of the working poor.
But even beyond resource constraints, the design, pedagogy and curricula of Pakistan’s education
system fail to impart any of the critical components of a quality education needed for creating a
productive 21st century workforce – including critical thinking, creativity, collaboration,
communication, flexibility and media and technological literacy, among others. Instead, educational
institutions, egged on by paranoid and authoritarian state policies, have become increasingly hostile
to critical thought and expression and have actively fostered extremism instead, as exemplified in the
campus murders of Mashal Khan and Professor Khalid Hameed, among others. Any attempts to
reform such tendencies are successfully opposed or reversed by the religious right and parties that
pander to them. Student unions remain banned for over 35 years, with students legally barred from
resisting the rapid deterioration of the public education system.
The poor quality of Pakistan’s public health system also plays a significant role in stagnant labor
productivity. Chronic deficits in nutrition result in over 66% of children suffering from stunting or
anemia, and 177,000 children’s deaths every year from malnourishment. Apart from the moral
repugnancy of such a nutrition catastrophe, the economic consequences of under-nutrition to
Pakistan (based on estimates of lost future workforce, lower school performance, and productivity)
have been estimated at $7.6billion per year.33
A modern, skilled and productive workforce cannot be built on such brittle education and health
foundations. Pakistan needs increased and accountable investment in public education systems from
primary to higher education levels and an overhaul of curricula, content and teaching pedagogies, to
promote critical scientific thought, pluralism, creativity, cooperation, problem-solving, and
technological skills. Beyond public schooling, firms must be regulated and legally mandated to invest
in the professional capacities of their workers and pool their resources to help finance educational
and vocational skills programs for the population as a whole. It also needs concerted investment in its
public health system, targeted to ensure universal access to basic services and adequate nutrition for
the low-income population and children in particular.
Also relevant to Pakistan’s productivity crisis is the abject work conditions in most economic sectors.
Research from around the world has demonstrated the link between working conditions and
productivity; workers with living wages, humane working conditions and access to basic services and
social insurance tend to be more productive than those without them. (Niemela, 2002; Polek, Duraj
2013). However, in Pakistan, working conditions have continued to deteriorate. According to
research by Munir, Naqvi and Usmani (2015) real wages have seen either decline or stagnation since
the 1990s, while workers in ‘vulnerable employment’ are now estimated at 62%.34 This decline in
33
World Food Programme. 2017. ‘Malnutrition costs Pakistan US$7.6b annually, new study reveals’. WFP:
Pakistan.
34 Munir, K, Naqvi N, and Usmani, A; 2015, ‘The Abject Condition of Labor in Pakistan’. International Labor
and Working-Class History · March 2015
22
workers’ wages and conditions accelerated as liberalization reforms took hold, essential social and
agricultural subsidies were slashed, speculative urbanization was accelerated, and the hard-won
workers’ rights and social safety nets of the 70s were gradually stripped away.
Figure 5. Labor Market outcomes in Neoliberal Pakistan. Source: Munir Naqvi and Usmani (2015)
The terms of work have also worsened spectacularly as a result; a recent study of power loom factories
in Karachi found that none had a formal contract; 90 percent were working 12-hour work days; 93
percent did not have paid weekly holidays; and 99.8 percent were not paid overtime wages; and
only 2 out of 1,000 respondents were registered at the state-run Social Security Institution and
Employees Old-age Benefit Institution.35 The abject state of workplace safety can be gauged from
the fact that some of the bloodiest industrial accidents in Pakistan’s history — from Baldia Town to
Sundar to Gadani — occurred in the space of the last seven years. None of these incidents have been
accompanied by any meaningful attempt at employer accountability or worker protection. The labor
departments that are supposed to uphold labor laws and regulations have little in terms of resources
or manpower to do so. The number of sanctioned positions for labor inspectors have been unchanged
for decades. even in 2017-18 the budget allocated to labor matters in Punjab for a workforce of
over 35 million was a mere Rs 187 million.36 Further, industrial policies have worsened this situation,
such as the 2003 Industrial Policy which suspended factory inspections, weakened oversight over
working conditions and allowed enterprises to determine wages and social security.37
To address the endemic crisis of productivity, Pakistan must reverse its historical neglect of the
knowledge, skills and well-being of its workers, in terms of resources and policy priorities. This will
require the will to undertake an evidence-based reorganization of the education and health systems,
the effective mobilization of finance by governments and educational institutions for ensuring
35 Ibid
36 Rashid, Ammar, 2017. No country for labor. Published in Daily Times on May 1, 2017.
37 Munir, K, Naqvi N, and Usmani, A; 2015, ‘The Abject Condition of Labor in Pakistan’. International Labor
and Working-Class History · March 2015
23
education access, quality and relevant curricula, a concerted adult education program to upgrade
workers skills, particularly for the information age, across sectors and a proper enforcement
infrastructure for labor documentation, wage control and regularization.
Working conditions must be improved on a priority basis across all sectors of the economy through
the introduction of a living wage of Rs. 30,000 and establishing a regulatory body that monitors and
ensures fair compensation for a fair day’s work. Critically, the right to unionize, the basis of all
recognized workers’ rights in history, must be reasserted and trade unions allowed in all sectors of
the economy. In particular, workers in the vast informal economy must be documented and organized
on an urgent basis to create a solid basis for improved conditions and social security in those sectors.
5.7. The question of women’s stifled potential:
The story of Pakistan’s economy cannot be told without addressing the question of the wasted
economic potential of half its population. Pakistan has one of lowest female literacy rates (48%) and
one of the lowest female labor force participation rates in the world at 24% (compared to 60% in
China, 40% in Bangladesh and 74% in Vietnam). Even among women with a high level of education,
labor force participation is low – only about 25% of women with a university degree work outside
the home.38
Embedded patriarchal norms and values ensure that tens of millions of Pakistani women do not
contribute to the formal economy. About 40% of women who are not working report that the main
reason for this is that male family members do not permit them to work outside the home.39 Mobility
restrictions also play a huge role in restricting female labor force participation.
Women’s difficulties in the economy aren’t just restricted to low participation. Pakistani women face
widespread discrimination in terms of access to and ownership of property, including land and
inheritance. While women have the legal right to own property, the vast majority of women do not
own property in their name, and even fewer are allowed to control land.40 The lack of access to land
and inheritance means that few women are able to rely on assets to ensure economic security without
dependence on male family members.
Pakistani women on average earn 38.6pc less than men, with the pay gap persisting even if both
sexes have the same level of education and are doing the same work. The vast majority of working
women work as low-waged laborers in agriculture or domestic employment, with no labor protections
or minimum wages. The vast majority of adult and minor women are engaged full time in unpaid care
work at home. Hence, most women are structurally kept in a position of economic disempowerment
and poverty despite the fact that they engage in so much labor - the value of Pakistani women’s
unpaid domestic labor alone has been conservatively estimated by some studies at tens of billions
of dollars a year.41
Along with occupying low-paying jobs, women are typically less mobile in their respective
professions. Harassment at the workplace and a social context in which women remain secondary
38
ADB. 2016. ‘Policy brief on female labor force participation in Pakistan’. ADB Briefs No. 70. ISBN 978-92-9257-
625-7 (Print)
39
Ibid
40
Khattak, SG, Brohi, N, and Anwar, W. 2010. ‘Women’s Land Rights: Research Findings from Pakistan’. Project
Report Series No. 18. SDPI.
41
Arshad, Z. 2008. ‘The economic contribution of Pakistani women through their unpaid labor’. Society for
Alternative Media and Research and HealthBridge.
24
workers irrespective of the nature of their occupation and earning capacity serve as disincentives to
work.42 Harassment isn’t just restricted to workplaces; 85% of working women report being harassed
on public transport.43 Women’s insecurity is furthered by widespread impunity for sexual and gender-
based violence (SGBV) in Pakistan – harassment is still not treated as a serious crime while an
estimated 70% of perpetrators of violent crimes against women go unpunished.44
Ensuring equality and freedom for women is fundamentally a question of justice – but it is also a
critical Pakistan cannot hope to achieve economic progress while wasting the economic potential of
such a huge proportion of its labor force. Targeted gender-based affirmative action in education, health
and employment needs to be undertaken to enable Pakistani women to secure their rightful access
to resources, improve both their social and economic well-being and drive sustainable growth. The
state needs to ensure all redistributive programs also facilitate a transfer of land, wealth and other
assets to women to redress structural imbalances in asset ownership. Public investment and
legislation also need to be undertaken in public transport and public spaces to make them more
accessible and friendly for women workers. This needs to be accompanied by countrywide efforts to
challenge and transform patriarchal norms that prevent women’s access to assets, basic educational
and health services, employment and public spaces.
5.8. Making banking & finance work for the people:
The state of the financial sector in Pakistan is a testament to the failure of neoliberal policies of
privatization and deregulation. In the 1990s and 2000s, in line with IMF-imposed structural
adjustment, large scale privatization of Pakistan’s banking sector took place to reverse Bhutto’s
nationalization from the 1970s. The rationale was to turn the ‘lethargic, corrupt and inefficient’
nationalized banks into dynamic and profitable privately-owned institutions that benefit the economy.
However, the consequences of this large-scale privatization could not have been more different to
what was envisaged. The privatized banks were supposed to increase lending for productive
enterprise; however, in the decades since privatization, bank lending to the private sector, including
in manufacturing, agriculture or small and medium enterprises (SMEs), has actually shrunk in real terms.
Loans to private businesses as a percentage of GDP in Pakistan plummeted from 25% in 2000 to
16% in 2015, its lowest level since 1963. By way of comparison, the same credit-to-GDP ratio is
50% in India and 112% in Malaysia. Instead of lending capital where it is needed, banks have instead
chosen to expand a relatively less-risky array of consumption loan products.
42
Majid, H. 2017. ‘Where are the women?’ Published in Dawn on 23 January 2017.
43
ADB. 2016. ‘Policy brief on female labor force participation in Pakistan’. ADB Briefs No. 70. ISBN 978-92-9257-
625-7 (Print)
44
Mustafa, Z. 2017. ‘Violence in Pakistan: A Gendered Perspective’. Research Society of International Law. June 20,
2017.
25
Figure 6. Declining share of lending for manufacturing in Pakistan. Source: ZTBL
However, despite not engaging in capital lending, banks have remained profitable themselves,
primarily by investing in high-yielding, risk-free government securities instead. The chronic borrowing
needs of governments because of persistent fiscal deficits have perpetuated this clientelist
relationship, even as high rates by commercial banks have further increased the government’s debt
burden. Under the liberalized financial regime of General Musharraf and Shaukat Aziz, banks were
further obliged by reducing their tax rates from 56% to 35%, which have since been reduced to
30%.45
Furthermore, following bank privatization and deregulation, Pakistani banks have managed to
maintain a huge difference between lending rates and deposit rates (known as ‘spread’). Between
2004 and 2015, spreads in Pakistan averaged over 6% (compared to 2% in Korea and 3% in
Malaysia for the same period) with lending rates going up from 7% in 2004 to a high of 14% in
2011 (currently around 12.25% after the recent SCP hike), while deposit rates on savings have
remained low - negative when adjusted for inflation.46
Low interest rates on deposits have also contributed to a steep reduction in financial savings, which
have fallen from a high of 45% in the 1990s to around 27% today (State Bank of Pakistan, 2018).
Low financial savings have also been exacerbated by the growth of the real estate sector as a lucrative
avenue for parking savings, with rates of return far outstripping those that private banks and
government savings schemes can offer. The financial savings pool in Pakistan has hence stagnated,
severely diminishing the sector’s capacity to finance productive enterprise and foster economic
development.
Pakistan’s limited growth in productive lending also continues to be hindered by chronically low
financial inclusion. Only 21% of the adult population (and a mere 7% of adult women) has a bank
account (compared to 80% in India, 74% in Sri Lanka, and 45% in Nepal). The vast amount of money
circulated in the country continues to be in the undocumented economy, contributing to low access
to credit, savings and payments, and hence, stagnant growth.
Privatization in banking did not do much to improve competition either, despite this being one of
the major stated aims. The banking sector still remained highly concentrated, with the five largest
45
Munir and Naqvi, 2018, ‘Privatization in the land of believers’. Modern Asian Studies 51, 6 (2017) pp.
1695–1726. Cambridge University Press 2018.
46
Munir, K and Naqvi, N. 2014. ‘After denationalization.’ Published in Dawn on 9 January 2014.
https://www.dawn.com/news/1079372/after-denationalisation
26
commercial banks accounting for 60 percent of deposits and 80 percent of profits in the banking
sector until only recently.47
The principal function of the banking sector should be a developmental one - to support productive
economic activity in the country. However, the privatization and deregulation of Pakistan’s banking
sector has singularly failed to achieve this aim, as lending has stagnated and inclusion has remained
limited, while short-sighted governments have colluded with banking interests to ensure their profits
are not affected by regulation to increase savings or extend affordable credit to the public or small
enterprises.
Evidence from developing country contexts around the world, including in Asia, is clear – the most
successful instances of economic progress are the ones where states enact policies to protect
themselves against the shocks of global-capital flows, and make sure their financial institutions serve
the country’s long-term development ends by funneling surpluses into productive activities, rather
than just serving the short-term interests of financiers. To kickstart robust and equitable economic
progress in Pakistan, it is this collusive state-finance nexus that will have to be broken to create a
genuine well-regulated banking and finance sector that can foster growth in savings as well as labor-
intensive and value-added manufacturing and SMEs. Crucially, public sector banking needs to be re-
structured, strengthened and re-prioritized to ensure a pro-development approach can be followed –
this can be done through the formation of a National Investment Bank that seeks to promote and
funnel savings into manufacturing growth.
5.9. Sustainable energy for pro-people growth:
Pakistan’s energy crisis is among the main factors that have crippled growth in industry and other
sectors of the economy. The popular myth, peddled by the likes of the IMF, World Bank and
government elites, suggests that the energy crisis is essentially a product of user subsidies, stealing
of electricity and distribution losses. The reality is that rather than users, it is private producers who
have been generously subsidized and that is where intervention is needed if we wish to reverse the
rot.
Pakistan’s energy production has suffered enormously from neoliberal privatization policies that have
deeply impeded Pakistan’s energy self-sufficiency and prevented the development of adequate
generation and distribution capacity. Until the mid-1980s, Pakistan’s energy needs were met by the
Water and Power Development Authority (WAPDA) and Karachi Electric Supply Company (KESC)—
the two public-sector organizations responsible for the generation, transmission, and distribution of
electricity. Both produced electricity primarily through hydropower, and were faring well, as costs of
production and demand were both low.48
In the late 1980s, as WAPDA/KESC began to struggle to keep pace with increasing demand, resulting
in power outages. However, instead of increasing public power generation capacity, Pakistan decided,
on the advice of the World Bank to privatize the sector. In 1994, Pakistan announced its privatization
policy and invited investors to set up generation capacity; however, since then, the country has
continued to face even more chronic shortages and increasing tariffs.
47
Munir, K and Naqvi, N 2018, ‘Privatization in the land of believers’. Modern Asian Studies 51, 6 (2017) pp.
48
Munir and Naqvi, 2018, ‘Privatization in the land of believers’. Modern Asian Studies 51, 6 (2017) pp.
27
Among the foundational reasons for this were the generous terms of the investment; investors were
provided guaranteed returns of 15-18% per annum, over the 25-30 year period of the power
purchase agreement. This was further backed by sovereign guarantees from the government of
Pakistan. The Independent Power Producers (IPPs) were to be paid every month in two parts, namely
a ‘capacity payment’ and an ‘energy payment’. The ‘capacity payment’ reimbursed the IPP for all the
fixed costs of the power plant, including debt servicing and provided the investor’s equity return on
top. These payments are made irrespective of whether or not the IPP is asked to produce electricity.
The ‘energy payment’ reimbursed the IPP for all variable costs of production, such as fuel costs,
regardless of the type of fuel employed and its market price. Furthermore, IPPs were exempted from
corporate income tax, customs duties, sales tax, and other surcharges on imported equipment.
Permission was also granted for power-generation companies to issue corporate bonds and shares
at discounted prices (Fraser, 2005).
The privatization policy was problematic for a number of reasons. While it offered generous returns,
it did not provide incentives to make the plant design efficient. The policy was also fuel blind, which
meant investors were free to set up expensive furnace oil-based thermal IPPs (with the government
covering fuel cost). And crucially, with guaranteed returns by the government, there was no
competition in the market. The reason such a damaging policy was pushed through was simple; the
World Bank told the government that any loans would be conditional on privatization.
The outcomes of energy privatization have been predictably catastrophic. For every power plant, the
government ended up paying $21 million more than it would for a public sector plant. With the rise
of thermal units, the country became ever more hostage to the whims of oil prices – leading to
massive debts that needed to be covered through borrowing.49 The destructive privatization terms
have turned into a public finance crisis; in 2018, the government’s ‘capacity payment’ bill to IPPs
stood at a huge Rs. 644 billion, despite domestic demand having fallen.50
The move also changed the country’s fuel mix; in the 1980s, the country’s electricity generation relied
on a fuel mix of 60% hydropower versus 40% thermal. This changed dramatically over subsequent
decades to 30% hydropower and 70% thermal by 2010. The plants were also not efficient as the
privatization policy had envisioned; as research by Munir and Khalid (2012) has demonstrated, the
average blended cost of public sector plants was actually lower than the IPPs.
Unfortunately, as a result of the policy, over time 52% of power came to be purchased by the
government from high-cost IPPs. The downstream effect of shortages and higher tariffs has been
significant. By 2011, industrial output was down by up to 37%, with numerous factories and
businesses closing down due to shortages and the excessive cost of deploying small generators.
About 95% of manufacturing firms report power outages and figures for financial losses due to
outages have risen rapidly. Apart from direct costs, taxpaying citizens suffered indirect costs through
power shortages and drying up of credit.
While multiple governments have worked on adding generation capacity to the national grid, there
has been insufficient attention to or investment in transmission and distribution capacity, which has
failed to keep pace with generation, resulting in rolling blackouts. Other than lack of investment, the
fragmentation of the energy regulation system (leading to distortions between different sources of
energy and an unclear distribution of responsibilities), a lack of human resource capacity for
government oversight, and prevalence of informal patronage in electricity distribution also impedes
effective solutions.
49
For a detailed analysis, see Munir and Khalid (2012)
50
Business Recorder, 2019. ‘Capacity Payments: the elephant in the room’. Published in Business Recorder
on 16 May, 2019.
28
The Global Competitiveness Report 2014/15 ranked Pakistan at 133 out of 144 in terms of quality
of electricity supply, even below its overall infrastructure rank of 113. As a result, despite large scale
outages, the price of power is much higher than it need be under this monstrous policy, thereby
exacerbating the problem of theft, non-payment and feeding into “circular debt”, which has increased
rolling blackouts, uncertainty and risk in the energy sector, while making us reliant on ecologically-
destructive forms of energy.
To overcome this man-made energy crisis that has crippled industry in Pakistan, we need to reverse
the ill-advised privatization policies that have made us dependent on expensive thermal energy on
terrible terms. IPP contracts need to be revisited and a sovereign guarantee-backed power sector
financing fund needs to be created to refinance IPP debt. Non-renewable energy needs to be phased
out completely by 2030 in favor of solar energy, wind energy, and to a smaller extent hydropower,
to reduce input costs as well as our carbon emissions.
.
29
6. An alternative to austerity – stimulating and restructuring the

Pakistani economy
6.1. Short-term measures:

In the immediate term, Pakistan will need to reckon with the short-term effects of structural
adjustment under the new program: massive devaluation of the rupee and rising inflation from the
rise in the costs of imports. This will reduce both effective demand and output, which will be further
reduced as the government reduces developmental spending amidst fiscal austerity. Attempts to
control inflation by increasing the interest rate (as the government has recently done), it will lead to
further contractionary pressures, further reducing economic output and fiscal revenue, continuing the
vicious cycle.
1. To address this crisis, Pakistan will have to re-undertake intervention in the currency markets
and not allow the IMF-imposed principle of a free-floating currency to continue to subject the
working population to unending amounts of back-breaking inflation and the prospects of
speculative short-selling and predatory assaults on a free-floating Rupee.
2. To support the population in this difficult time, the upcoming budget must include new direct
taxes on wealth, assets and higher incomes, an end to SROs, rationalized reduction in defense
expenditure as well as measures for subsidizing essential food commodities.
3. In view of the fact that Pakistan faces impending debt repayments of over $30 billion over
the next 2 years, which will be impossible to pay in the current circumstances, the Pakistani
government must immediately negotiate with creditors for restructuring of, and substantial
relief from, its debt obligations.
However, none of these measures will succeed without the Pakistani state undertaking some
fundamental transformations in the structure of its state, economy and society.
6.2. Medium-to-long term measures:
1. Undertake a shift from a securitized, rentier state development strategy to a one where economic
development and social welfare take precedence over security imperatives in matters of policy and
resource allocation.
- Ensure all economic, political and foreign policy decision-making is predicated primarily on
the basis of its contribution to sustainable and equitable economic development and the
socioeconomic needs of the majority of citizens rather than military-centric strategic
considerations.
- Legal and constitutional measures to ensure citizen-led accountability for military and civilian
elites and prevent the capture of public land, natural resources, economic resources or the
state’s law enforcement apparatus for rent-seeking and corruption.
- Legal reforms to ensure that the fundamental basis of mineral, water and other natural
extraction and other natural resources must be their use value to local communities and the
wider working public; in particular, halt the established practice of selling rights to mineral
and other resources to multinational mining companies and prioritize it as a domestic, locally-
owned industry (see next section).
30
2. Begin a consolidated national economic programme to build a domestic production base in labor-
intensive and green manufacturing. This must include:
- The generation of agricultural surpluses through wide-ranging land reform to create
widespread land ownership, enable more efficient and equitable farming and strengthen
extension services, marketing and infrastructure
- Make ecologically sustainable processing of minerals into a priority sector, laying the
foundation for growth in the manufacturing sector, as well as a long-term shift away from
fossil fuels more generally.
- Direct agricultural and mineral surpluses, and speculative enterprise into labor-intensive,
high-value manufacturing that is ecologically-sustainable and worker-managed.
- Tight regulation of finance to enable financial inclusion and savings and ensure lending for
productive enterprise in manufacturing
- Re-evaluation of WTO rules to reinstate tariff and non-tariff trade barriers to protect targeted
domestic industries and prevent dumping.
- Pursue a strategy of regional economic integration in South Asia to enable domestic
industries to make use of nearby markets.
- Renegotiate Pakistan’s free trade agreement with China that has negatively impacted our
manufacturing base, led to dumping of goods and fueled the trade deficit and re-evaluate
CPEC contracts which are fostering indebtedness and not contributing to sustainable, labor-
intensive and equitable economic progress.
- Invest in research, science and technology to prepare Pakistan’s economy for the information
age and the Fourth Industrial revolution.
3. Create a progressive, sustainable system of public finance:
- Create a system of progressive taxation that targets the tax avoidance and evasion of the
elite, particularly in real estate, large agribusiness, military businesses and banking and
finance, among others
- Conduct an audit of all tax exemptions, waivers and holidays granted through SROs to
understand where revenue losses are occurring and eliminate them as necessary, while giving
authority for future SROs to parliament.
- Undertake a comprehensive audit of past international debts and restructure and renegotiate
debt obligations in accordance with its results.
- Audit and rationalize defense expenditure to reduce unnecessary expenses and imports and
create fiscal space for development expenditure
- A comprehensive public sector reform plan for all civilian and military state institutions with
a view to overhauling their neo-colonial character and reorganizing them to make them
democratically accountable and transparent.
4. Generate productive capital currently lying in land:
- A land value tax levied on the market value of unbuilt urban land, to generate revenue, limit
speculation, undermine individual land accumulation, encourage construction and incentivize
productive land use.
- Put in place an effective system of housing rent control to prevent unfair exploitation.
- Create a documented urban land registry to ensure speculation and tax avoidance by
landowners can be eliminated
31
- Decentralize land development and planning and take it out of the hands of unaccountable
civilian and military bureaucrats, political elites and real estate barons
- Dis-incentivize the phenomenon of absentee landlordism and urban land hoarding and
actively incentivizing, also through reform of banking and industrial regulation, the transfer
of capital from unproductive large landholdings into financial savings.
5. Improve resource distribution and productivity in agriculture:
- A comprehensive agricultural policy that includes land reform and redistribution and
strengthened extension support, which protects food sovereignty, supports the needs of
small farmers, women farmers, and ensures fair prices
- Protect and document traditional seed knowledge and end the monopoly of seed
corporations
- Support the development of public and not-for-profit seed banks
- Undertake public investment in processing, storage, transport and marketing particularly for
key agricultural industries with high growth potential like milk and dairy, rice, cotton, wheat
and edible oils
- Support the development of important elements of the agricultural supply chains in key
agricultural industries to benefit small producers and reduce import dependence.
- Reduce reliance on expensive fertilizers, pesticides and excessive water usage.
6. Improve the knowledge, skills and working conditions of Pakistan’s workers:

- Increase spending on education to 5% of GDP and health to 4% of GDP and restructure
education and health systems to make them functional and accountable, with affirmative
action for students from poorer and under-developed regions
- Overhaul education curricula according to the needs of the information age and fourth
industrial revolution, and undertake an adult education program to create a productive
workforce with 21st century skills
- Recognition of the right to organize and form unions in all sectors of the economy, including
in the informal sector
- Increase budgetary allocations for labor protection and empower inspectors to monitor and
enforce labor regulations and improve working conditions
- Increase the minimum wage to Rs. 30,000, and encourage through policy, a shift from
precarious work to formal contracts with social security
7. A countrywide program to improve knowledge, skills, wages, protections and working conditions
for women
- Affirmative action, including dedicated allocations and quotas, for women in education,
higher education, health and employment to advance women’s role in the work force and
economy.
- Target land reform and other redistributive mechanisms to ensure a transfer of assets and
wealth to women, particularly in rural areas
- Legislation and administrative reform to create safer, more conducive working environments
for women, including strong anti-harassment laws
32
- Regulate banks and financial institutions to create affordable credit for women farmers and
small and medium enterprise owners.
- Invest in public systems and institutions for the social provision of childcare and incentivize
a fairer distribution of household labor through paternity leaves and grants
- Ensure women’s reproductive health and autonomy through targeted provision of safe and
quality reproductive health and family planning services as a fundamental right.
8. Regulate banking and finance to play a developmental economic role:
- Create and strengthen a national investment bank that promotes savings and funnels
agricultural and service sector surpluses into manufacturing
- Invest in and strengthen institutions for the regulation of banking and finance.
- Make banks engage in lending for productive, labor-intensive manufacturing
- Reduce banking ‘spread’ between savings and lending rates and make affordable lending for
basic needs possible.
9. Generate sustainable energy for pro-people development:
- Revisit energy privatization policy and wasteful IPP contracts to minimize losses from fixed
capacity payments and exemptions for unregulated private producers
- Reduce reliance on thermal energy through increased public and private investment in
generation through renewable sources like hydropower, wind and solar
- Create a sovereign guarantee-backed power sector financing fund to refinance IPP debt
- Create a national plan to build public sector transmission and distribution capacity and
eliminate losses from public infrastructure deficits
- Consolidate and strengthen a uniform regulatory framework for energy which reduces
distortions between the gas and electricity sectors.
33

AWP Position Paper (Pakistan)

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AWP Position Paper (Pakistan)

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Economy of Debt:

Alternatives to Austerity and Neoliberalism in Pakistan

Ammar Rashid, M. Nawfal Saleemi and Aasim Sajjad Akhtar

2. The International Monetary Fund (IMF)

Neoliberalism was basically an acquiescence to capitalist demands; a conservative reaction to

However, actually existing neoliberalism – David Harvey distinguishes between neoliberalism as a

4. What will an IMF program entail?

5. What hinders Pakistan’s economy?

5.1. A rentier state development strategy

5.2. Premature de-industrialization and the crisis in domestic production:

5.3. The crisis in public finance:

On the expenditure side, the two

As other countries around the

Even in cases of loss-making state owned-enterprises, privatization is not a one-size-fits-all solution,

5.4. The question of land:

Our unhealthy paradigm of land

major cities in 2016.

5.5. Addressing agricultural inequality and productivity:

Pakistan’s historical agricultural context thus primarily features an undisturbed concentration of

5.6. The crisis of labor productivity and well-being:

5.7. The question of women’s stifled potential:

5.8. Making banking & finance work for the people:

Figure 6. Declining share of lending for manufacturing in Pakistan. Source: ZTBL

5.9. Sustainable energy for pro-people growth:

6. An alternative to austerity – stimulating and restructuring the

6.1. Short-term measures:

6.2. Medium-to-long term measures:

6. Improve the knowledge, skills and working conditions of Pakistan’s workers:

8. Regulate banking and finance to play a developmental economic role:

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