Pakistan Economic Crisis: Why Pakistan's Economy Keeps Collapsing ?
Summary
TLDRThe video script discusses Pakistan's economic struggles, comparing its frequent financial crashes to an airplane in need of redesign. It highlights the country's reliance on IMF bailouts, low tax revenue, and unproductive elite, which contribute to a stagnant economy. The script also criticizes Pakistan's political system, military involvement in business, and skewed agricultural policies that favor the elite over sustainable economic growth. It concludes by questioning the country's future, suggesting that without significant reforms, Pakistan may face an inevitable economic collapse.
Takeaways
- 🛫 The script compares Pakistan's economy to an airplane that has crashed multiple times, indicating a need for fundamental redesign.
- 📉 Pakistan has faced economic crises multiple times in the last 75 years, with 23 IMF bailouts and a current GDP growth rate of only 2%.
- 🔝 In the 1980s, Pakistan was richer than India, China, and Bangladesh on a per capita basis, but is now the poorest among them.
- 💔 Pakistan's economy is described as 'impossible to fix' with a record 36.5% year-on-year inflation in April 2023, the highest in nearly 60 years.
- 💸 The country is characterized as an 'IMF addict', with bailouts that do not resolve the primary economic issues, including unproductive elites and a broken decision-making process.
- 🏦 Pakistan's federal government is effectively bankrupt, with interest and pension payments exceeding net revenue, leading to reliance on foreign debt.
- 💼 The elite class in Pakistan is unproductive, with wealth concentrated in land, housing, and sugar industries rather than innovation and exports.
- 🚗 The automotive industry in Pakistan is protected but uncompetitive, resulting in high consumer prices and minimal exports.
- 🏠 The real estate industry is favored by the elite and middle class for investment, leading to under-taxation and a lack of productive enterprise.
- 🗳️ Pakistan's political system is broken, with a history of military involvement and a lack of representation from the middle class.
- 🌍 Pakistan's survival has been due to its geostrategic location and remittances from overseas Pakistanis, rather than structural economic reforms.
Q & A
Why is the comparison of Pakistan's economy to an airplane that crashes multiple times used in the script?
-The comparison is used to illustrate the recurring pattern of Pakistan's economic failures and the need for fundamental changes, similar to how a fundamentally flawed airplane design would consistently lead to crashes.
How many times has Pakistan's economy required an IMF bailout in the last 75 years according to the script?
-Pakistan's economy has required an IMF bailout 23 times in the last 75 years.
What was Pakistan's economic status in the 1980s compared to India, China, and Bangladesh?
-In the 1980s, Pakistan was richer than India, China, and Bangladesh in per capita terms.
What is the most recent estimate of Pakistan's gross domestic product (GDP) growth?
-The most recent GDP growth estimate for Pakistan was only 2%, which is barely sufficient to keep pace with population growth.
What record did Pakistan's year-on-year inflation hit in April 2023?
-Pakistan's year-on-year inflation hit a record level of 36.5% in April 2023, which is the highest increase in nearly 60 years.
What are the main reasons for Pakistan's economic crisis as mentioned in the script?
-The main reasons for Pakistan's economic crisis are high global oil prices, rising agricultural imports, and economic mismanagement.
What does the script suggest is the primary issue in Pakistan's economy?
-The script suggests that the primary issue in Pakistan's economy is the unproductive elite and a broken decision-making process in the country.
How does the script describe the tax to GDP ratio in Pakistan?
-The script describes Pakistan's tax to GDP ratio as one of the lowest, at just 10%, with less than 1% of the population paying income tax.
What are the consequences of the unproductive elite in Pakistan according to the script?
-The unproductive elite has resulted in one of the lowest investment rates in the world and has over the years destroyed Pakistan's economy through practices such as cornering the domestic market and avoiding competition.
What is the script's view on the role of the military in Pakistan's political and economic system?
-The script views the military's role as problematic, with a history of involvement in running the country, often replacing corrupt politicians to sustain its own power base, and extending its influence into business, creating a corporate empire.
How does the script explain the reliance of Pakistan's economy on overseas remittances and geostrategic location?
-The script explains that overseas remittances from Pakistanis in the Gulf region and the West, as well as financial aid due to its geostrategic location, have been crucial in keeping Pakistan's economy afloat, despite the lack of structural economic reforms.
Outlines
🛫 Economic Struggles and IMF Reliance
The video script discusses the recurring economic crises in Pakistan, likening the situation to an airplane that repeatedly crashes, indicating a need for fundamental redesign. Pakistan's economy has faced 23 crashes since its inception, requiring International Monetary Fund (IMF) bailouts each time. The country was once wealthier than India, China, and Bangladesh in the 1980s but has since become the poorest, with a recent GDP growth of only 2%. The current crisis is exacerbated by high global oil prices, increased agricultural imports, and economic mismanagement, leading to a record 36.5% inflation rate in April 2023. The script suggests that Pakistan's economy is 'impossible to fix' due to the unproductive elite and a broken decision-making process, which results in a cycle of bailouts without addressing the root issues.
🏭 Unproductive Elite and Economic Challenges
This paragraph delves into the nature of Pakistan's elite, who are unproductive and contribute to the country's economic woes. The elite earn from land, housing schemes, and industries like sugar, rather than from innovation or export. The script points out that the richest Pakistanis have made their fortunes overseas or through crony capitalism and corruption. Economic privileges for the elite, including tax breaks and preferential access to capital, amount to 6% of the country's economy. The unproductive nature of the elite, coupled with political and military influence, has resulted in low investment rates and a lack of innovation, leading to a stagnant economy that favors the elite at the expense of the nation's growth.
🏠 The Impact of Unproductive Investments
The script highlights the preference for unproductive investments, particularly in the real estate sector, which is under-taxed due to political reasons. This leads to a lack of investment in technology, innovation, and export-based sectors. The real estate 'mania' is not limited to the elite; even the middle class prefers to invest in land for capital gains, which are essentially untaxed. The script also criticizes the auto industry, which is heavily protected by the government, resulting in high prices, limited alternatives, and no exports. The lack of competition and innovation in various sectors, including automotive and real estate, contributes to Pakistan's low productivity and economic stagnation.
🗳️ Broken Political System and Geostrategic Survival
The final paragraph addresses the broken political system in Pakistan, where parties lack professionalism, long-term plans, and representation from the middle class. The National Assembly is composed of feudal landlords, political dynasties, and business elites who are more interested in short-term gains than in creating a productive economy. The military's involvement in politics and business further complicates the situation, with a corporate empire that includes real estate development and other ventures. Agricultural policies also favor the elite rather than promoting a stable economy. The script concludes by noting that Pakistan has survived due to its geostrategic location, receiving aid and loans from foreign powers, but emphasizes that this is not a sustainable economic strategy.
Mindmap
Keywords
💡Fundamental Redesign
💡IMF Bailout
💡Economic Mismanagement
💡Inflation
💡Privatization
💡Tax to GDP Ratio
💡Unproductive Elite
💡Rent-Seeking
💡Political Dynasties
💡Geostrategic Location
💡Remittances
Highlights
The analogy of Pakistan's economy to an airplane that has crashed 23 times, requiring IMF bailouts.
Pakistan was once richer than India, China, and Bangladesh in the 1980s but is now the poorest.
Pakistan's GDP growth estimate was only 2%, barely keeping pace with population growth.
Pakistan's year-on-year inflation hit a record 36.5% in April 2023, the highest in nearly 60 years.
Pakistan is described as an 'IMF addict' with a history of bailouts but no fundamental economic fixes.
The primary issue in Pakistan's economy is the unproductive elite and a broken decision-making process.
Pakistan's federal government is effectively bankrupt, with debt and pension payments exceeding net revenue.
Pakistan faces a $25 billion external debt payment, about three times its foreign exchange reserves.
Pakistan has one of the lowest tax-to-GDP ratios globally, with less than 1% of the population paying income tax.
The elite in Pakistan earn from unproductive enterprises like land and sugar, unlike more innovative economies.
Pakistan's automotive industry is protected but fails to export or innovate, maintaining high consumer prices.
The real estate industry in Pakistan is undertaxed, incentivizing investment over more productive sectors.
Pakistan's political system is broken, with a history of military involvement and political instability.
The military's corporate empire includes top companies and real estate development, often benefiting from tax breaks.
Agricultural policy in Pakistan favors the elite rather than creating a stable economy, leading to food imports.
Pakistan's survival has relied on geostrategic location and foreign aid, rather than economic reforms.
The ruling elite's incentives do not align with long-term development goals, focusing on short-term returns.
The need for Pakistan to build a more productive and inclusive economy to avoid potential collapse.
Transcripts
if an airplane took off a dozen times
only to come crashing down each time the
only logical conclusion would be that
the aircraft requires a fundamental
redesign Pakistan's economy like the
airplane has crashed 23 times in the
last 75 years each time requiring an
international monetary fund bailout it
wasn't always so during the 1980s in per
capita terms Pakistan was richer than
India China and Bangladesh today however
Pakistan is the poorest its most recent
gross domestic product growth estimate
was only 2% barely sufficient to keep
Pace with population growth currently
Pakistan is facing an economic crisis
fueled by high Global oil prices rising
agricultural Imports and economic
mismanagement Pakistan's year-on-year
inflation hit a record level of
36.5% Pakistan's year-on-year inflation
hit a record level of
36.5% in April 2023 and this is the
highest have increase in nearly 60 years
in line for another IMF bailout it is
clear Pakistan is an IMF addict and the
IMF is a Pakistan addict Pakistan's
economy seems to be impossible to fix
the symptoms of each bailout are very
much the same Pakistan runs out of
dollars goes to the IMF for a bailout
which the IMF gives on the condition
that the IMF program will include
privatization of state-owned Enterprises
austerity and a broadening of the tax
net none of these issues actually
resolves the primary issue in Pakistan's
economy which is the fact that
Pakistan's elit are unproductive and the
decision-making process in the country
is broken as a result after finishing
one IMF bailout Pakistan usually starts
its next in this video we will analyze
the Deep rooted structural defects which
are slowly leading to the demise of
Pakistan
first let's take a look at why Pakistan
is the IMF world champion with a record
23 bailout packages Pakistan is
chronically short of dollars for various
surface level reasons the federal
government is effectively bankrupt and
has been for a very long time last year
the sum of interest payments due on the
government's debt obligations and
pension payments owed to retired
employees was more than the federal
government's net revenue the entire
government Machinery which is severely
bloated is running on borrowed money
that borrowed money is not in Pakistani
rupes which is easier to manage but in
foreign currencies Pakistan faces $25
billion of external debt payments in the
fiscal year starting July about three
times its foreign exchange reserves for
most of Pakistan's history the majority
of tax revenues are allocated to debt
servicing defense and civil
Administration additionally Pakistan has
to import both both food and fuel so
after paying debt defense Administration
and importing food and fuel Pakistan has
nothing to spend on large scale asset
Creations such as dams canals power
plants or even education or public
health Pakistan also has one of the
lowest tax to GDP ratios at just 10%
with less than 1% of the population
paying income tax these imbalances are
worsened by the fact agricultural income
real estate and retailers are hardly
taxed for political reasons which we
will explore later for a very long time
now Pakistan has not been able to
generate enough tax revenue to meet its
growing appetite for expenditure and
therefore usually borrows even more
money at even higher interest rates to
run the country for another year so on
average every four years Pakistan is
alarmingly short of Foreign Exchange and
goes to the IMF for a bailout the IMF
often provides Pakistan with the generic
advice it provides most countries to
increase tax revenues tighten monetary
policy and try to have a fiscally
disciplined budget although this might
help Pakistan it does not solve the root
cause of the issue which is that
Pakistan is one of the most unproductive
countries in the
world there sits an elite class at the
Apex of every economy as a rule of thumb
the more productive and entrepreneurial
the elite the more dynamic and robust an
economy is if the elite becomes more
productive everyone gains India's Elite
such as Mukesh shambani and G madani sit
at the head of vast corporate industrial
Empires America's Elite innovate and
create entirely New Economic Fields such
as space travel whilst Pakistan's Elite
earns from unproductive Enterprises such
as land housing schemes and
sugar just take a look at the list of
the richest pakistanis in the world they
have either made their Empires overseas
such as Shahed Khan who created a world
leading automotive parts manufacturer in
the US or they sit at the head of
political dynasties like Naas Sharif who
earned their Fortune from crony
capitalism and Corruption even the
industrialists on Pakistan's rich list
are unproductive and usually make their
Fortune through cornering Pakistan's
domestic markets which is protected by
high tariffs in Industries such as
Ceramics textiles or cement as opposed
to exporting or innovating a recent un
development report cited the yearly
economic privileges going to Pakistan's
Elite groups including feudal landlords
the political class and the country's
military adds up to 17.4 billion dollar
or roughly 6% of the country's economy
these privileges take the form of tax
breaks cheap input prices and
preferential access to Capital is almost
impossible to scale back since most
political parties I draw candidates from
these Elite groups thus the moneyed
elite tip the scales of the market in
their favor through unfair business
practices tax evasion and preferential
access to power the unproductive
rent-seeking Elite has given Pakistan
one of the lowest investment rates in
the world and over the years destroyed
Pakistan's
economy think about it why would you
invest in new machinery and try to
export goods when you can Corner the
domestic Market with relative ease and
use your position in society to ensure
competitors are kept out a prime example
of Pakistan's lazy and unproductive
industrial Elite is the Auto industry as
part of an import substitute policy the
automotive industry is heavily protected
by the government which to some extent
has worked as Pakistan only imported
$1.26 billion worth of cars last year
where the policy fails is in exporting
Pakistan ranks 100 25th in the world for
automotive exports with a measly $1
million in car exports nor has this
policy been able to provide consumers
with automobiles on par with the rest of
the world there is a complete lack of
competition in the automotive industry
with a near duopoly from Honda and
Toyota which has resulted in high prices
additionally Pakistan's Imports are
still high as ever as although cars are
not being imported the input materials
to manufacture aut automotives are thus
a small section of society is earning a
fortune by cornering the automotive
Market providing consumers with high
prices limited Alternatives and more
importantly no exports all the while
importing billions of dollars of
intermediate Goods such as Metals
plastic and rubber to manufacture the
cars at the expense of the national X
cheer perhaps the worst of Pakistan's
productivity wos is in the form of the
real estate industry instead of
investing in Technology Innovation and
export-based sectors to support the
economy and create opportunities for the
middle class businessmen invest their
capital in buying Urban Land and turning
them into housing societies the real
estate industry in Pakistan is hardly
taxed due to political reasons which
will be discussed in the next section
but by under taxing properties
Pakistan's tax system incentivizes the
elite to invest invest in urban property
as opposed to more productive
Enterprises just how undertaxed is
Pakistan's real estate industry well
Punjab province in Pakistan with a
population of over 100 million collects
less Urban property tax than the city of
chenai in India which is home to about
10 million people the real estate Mania
is not just limited to the elite
middleclass pakistanis would rather
invest in a plot of undeveloped Land
wait for the value to increase and sell
earning from the capital gains which is
essentially untaxed as opposed to
investing in the stock market or a
productive job creating
Enterprise this unproductive Elite and
plot investing middle class further
burdened the exer since Pakistan has
very high levels of consumption for a
country in its Financial predicament
Pakistan Imports every luxury item in
the world at the behest of the Elite
Class children of Judges bureaucrats and
feudal landlords have an import heavy
diet of branded attire imported phones
and cosmetics as a result dollars go out
of the country and import bills touch
the skies this year alone no less than
$8 billion was squandered on the import
of non-essential Goods whilst the
world's business Elite are colonizing
space building electric cars and
investing in green energy Pakistan's
billionaires are competing with one
another in building housing societies
and this is slow killing
[Music]
Pakistan why you might ask does Pakistan
not start taxing unproductive sectors of
the economy and use the revenue to fund
more productive
Enterprises and here lies the real issue
with Pakistan Pakistan's political
system is completely broken political
parties are not professional don't have
long-term plans or visions nor do they
create manifestos or have representation
from the middle class the Pakistan
National Assembly is largely made up of
feudal landlords political dynasties and
business Elite who instead of trying to
create a more productive economy with
more competition believe in lottery
tickets that will magically fix all
their problems such as developing guad
cek and finding oil to add to this
Pakistan's military has a history of
involvement in running the country
whether through military dictatorships
or by pulling the strings behind the
scenes thus to be a politician in
Pakistan you do not have to develop a
Manifesto and deliver for the public as
most of the time the military simply
replaces one set of corrupt politicians
with another in order to sustain its own
power base take a brief political
history of Pakistan where no prime
minister has ever completed a term naaz
Sharif was forcibly removed from power
in 1999 by military dictator perves
mushara who ruled until
2007 after a short interval Naas Sharif
regained power in
2013 however was removed in what can be
called a soft coup in
2017 where the military pulled strings
to jail shareif and install Imran Khan
as prime minister in
2018 Imran Khan's rule lasted until 2022
where he was removed in another soft
coup when the military withdrew support
for Khan's government in favor of you
guessed it Naas sharif's Muslim League
party led by his brother shabas Sharif
and daughter Mariam naaz aside from the
political instability which deters
foreign direct investment Pakistan does
not have a system that punishes
incompetent politicians who refuse to
enact change in the country as long as
they are on good terms with the military
regardless of performance they will be
elected the military's involvement goes
beyond politics and extends into
business as well years of military rule
have allowed the Pakistan Army to create
a corporate Empire boasting revenues of
billions of dollars this Empire includes
two of the top 10 companies by market
capitalization on the Karachi Stock
Exchange foui fertilizer and marig gas
the Crown Jewel of the Pakistan
corporate Empire is its real estate
developing business the Defense Housing
Authority operated by the military is
the leading real estate developer in
Pakistan handling the most desirable
properties in laor Islamabad and and
Karachi the business enables the
military to acquire land at low costs
often from the government it overseas
and sell it at a huge profit which is of
course barely taxed and is mostly then
invested overseas or spent on Imports
something as simple as agricultural
policy is also skewed to benefit the
elite as opposed to creating a more
stable economy despite having millions
of Acres of arable land Pakistan is a
net Food importer due to extremely low
agricultural productivity and backward
agricultural policies for instance sugar
cane which is one of the most water
intensive crops is grown on nearly 2.5
million Acres of arable land in Pakistan
this makes no economic sense for a
country with a very serious water
shortage as well as a country that has
to import food but because many sugar
mill owners sit in the National Assembly
and profit from Pakistan's highly
protected sugar Market nothing can be
done thus why would the military and
political Elite which is profiting
billions of rupees from Pakistan's
unproductive economy allow this system
of easy money to change the incentives
of the ruling Elite do not align with
long-term development goals and are
entirely focused on maximizing
short-term returns unfortunately it is
this ruling Elite Nexus of politicians
land owners businessmen and the military
which refuses to allow Pakistan to
become a more robust and productive
economy you may be wondering how
Pakistan has managed to survive this
long and narrowly avoided economic
collapse multiple times this is not due
to structural changes or policy
initiatives but due to the fact that
Pakistan has been able to repeatedly
monetize its geostrategic location for
instance during the 1980s to 1990s the
Soviet invasion of Afghanistan allowed
Pakistan to earn billions of dollars in
US Aid to to fight off the Soviets once
the Soviets withdrew the US stopped
giving Aid and Pakistan's economy began
to crumble Again by 2001 on the brink of
collapse the US invaded Afghanistan and
began providing billions in Aid again
more recently China has been providing
billions in loans to try to strengthen
Pakistan as a check against India
additionally millions of overseas
pakistanis in the Gulf region and the
West send billions of dollars in
remittance is keeping the economy afat
however hoping for a bailout or Miracle
is not an economic strategy and
eventually Pakistan will have to take
steps towards building a more productive
and inclusive
economy the only question is will it be
too late I've been your host Albert if
you have enjoyed the video leave a like
And subscribe until next time
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