Pakistan Economic Crisis: Why Pakistan's Economy Keeps Collapsing ?

Summary

The 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

00:00

🛫 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.

05:00

🏭 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.

10:01

🏠 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.

15:01

🗳️ 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.

Keywords

💡Fundamental Redesign

Fundamental redesign refers to a complete overhaul of a system or structure to address its core issues. In the video, the term is metaphorically used to describe the need for a deep structural change in Pakistan's economy, which has repeatedly faced crises and requires more than just surface-level fixes to become stable and prosperous.

💡IMF Bailout

An IMF bailout is financial assistance provided by the International Monetary Fund to a country facing severe economic difficulties. The script mentions Pakistan's reliance on IMF bailouts, highlighting its economic instability and the recurring need for external support to manage its financial crises.

💡Economic Mismanagement

Economic mismanagement denotes poor handling of a country's financial resources and policies, leading to economic decline. The video script points out that Pakistan's economic issues are partly due to mismanagement, which includes corruption, inefficiency, and lack of foresight in economic planning.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. The script highlights a record level of inflation in Pakistan, which reached 36.5% in April 2023, indicating a significant economic challenge and the erosion of people's purchasing power.

💡Privatization

Privatization is the process of transferring ownership of state-owned enterprises to the private sector. The video mentions privatization as a condition of IMF bailouts, suggesting that the state relinquishes control over certain industries to private entities, which is often part of economic reform packages.

💡Tax to GDP Ratio

The tax to GDP ratio is a measure of the proportion of a country's tax revenue relative to its Gross Domestic Product. The script points out that Pakistan has one of the lowest tax to GDP ratios, indicating a weak tax base and suggesting that the country is not effectively tapping into its economic potential to generate revenue.

💡Unproductive Elite

Unproductive elite refers to a group of wealthy individuals or classes that derive their wealth from non-productive sources, such as land, monopolies, or corruption, rather than from innovation or productive enterprise. The video argues that Pakistan's elite class is unproductive, contributing to the country's economic stagnation and lack of competitiveness.

💡Rent-Seeking

Rent-seeking is the act of trying to earn income without creating wealth or value, often through manipulation of the economic or political system. The script describes how Pakistan's elite engage in rent-seeking behaviors, which diverts resources away from productive investments and hinders economic growth.

💡Political Dynasties

Political dynasties are families that have a significant and long-lasting influence in politics, often leading to a concentration of power and perpetuation of certain interests. The video script refers to political dynasties in Pakistan, suggesting that they contribute to the country's political instability and resistance to economic reforms.

💡Geostrategic Location

Geostrategic location refers to a country's position on the globe that gives it political, military, or economic advantages. The video explains how Pakistan has capitalized on its geostrategic location to receive aid and loans from foreign powers, which has helped it avoid economic collapse but has not addressed its underlying economic issues.

💡Remittances

Remittances are money transferred by foreign workers to an individual's home country. The script mentions the significant role of remittances from overseas Pakistanis, which provide a vital source of income for the country and help support its economy.

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

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