Written By: Dr. Ashfaque H. Khan
THE relationship between national security and economy has been examined in many countries over the last three and a half decades. Of late, Pakistan has also given importance to national security and accordingly has established a National Security Division, headed by a senior officer of the Ministry of Foreign Affairs. National security and economy is closely linked with each other. A strong economy can ensure strong defence, which in turn, enhances a country’s power and strengthens national security. Economic backwardness, on the other hand, generates violence, social conflicts, political turmoil and hence, weakens national security. Accordingly, economic security/strength is essential for strengthening national security. As shown in Fig. 1, the chain of causation runs from strong economy to strong defence to strong national security. Strengthening of national security leads to more power, more power leads to more prosperity and more prosperity may generate more power which will further strengthen national security. Hence, the virtuous cycle continues.
National security is essential for countries to ensure that their people reside without fear. National security has three aspects. Firstly, it deals with protection from external threat for which the countries require hard power (military hardware). Secondly, it deals with winning “hearts and minds” of the people across the globe through soft power (political and cultural diplomacy). Soft power in fact complements hard power and/or even provides substitute for it. Thirdly, it deals with economic security essential for promoting the well-being of the people and providing resources for strengthening hard power. In today’s global environment, economic security also promotes soft power, that is, it can win ‘hearts and minds’ of the people across the globe. A weak economy not only weakens the country’s hard power but also fails to strengthen soft power. For example, if a country’s economy grows at the rate of 3.0 – 3.5 percent per annum, it will be regarded as a problem/basket country for others; even ‘friendly countries’ would avoid dealing with problem/basket country. Their foreign policy stance viz the problem country would be different. But if a country’s economy is growing by 8-10 percent per annum, the country would be regarded as opportunity country, which is having opportunity to do business. Such a country would command global respect and will be invited to join the rich-men club (G-7, G-8, G-20 etc.). The foreign policy stance of rest of the world would be more accommodating and hence will win the ‘hearts and minds’ of the people across the globe.
Thus, all the three aspects of national security are closely linked with each other. In other words, these three aspects of national security recognize that the long term security of nations depends greatly on having a vibrant and growing economy. These aspects of national security can best be described in a simple language as “what good is protection from a future threat when millions are unemployed? “What good is ‘economic prosperity’ if people are dead in a terrorist attack?” “What good is development of country when it is overrun by enemy?” Hence, there exists a close relationship between national security and economy. Strong defence capability, an independent foreign policy, an economically prosperous society, and a dynamic and contended democratic order, all flow from economic strength and economic management by intelligent, visionary, fiercely independent, and brutally honest leadership. Power and national security are the major by-products of the economic strength.
Having discussed the relationship between economy and national security, let me turn to the current state of Pakistan’s economy and its implication to the national security. Economic elements linked with national security are both broad and complex. For this article, I chose to concentrate on at least four economic elements, namely economic growth, budget deficit, public debt and foreign exchange reserves which have strong bearing on the general well-being of a country’s population and its national security.
Preamble on Economic Performance
Pakistan’s economy is passing through the most difficult and challenging phase of its economic history. The landscape of its economy has changed dramatically since 2007-08. Seven years of managing the economy with weak and frivolous economic team have not only damaged the economy but also weakened the key economic institutions. The current state of the economy has also emerged as a serious threat to national security.
The major economic challenges facing the country today include slow economic growth, investment and saving rates decelerating, rising unemployment and poverty, growing civil unrest and social chaos, deteriorating fiscal situation and rising public debt at a threatening pace, economy entering in a deflationary phase, private sector not borrowing to expand their businesses, government borrowing recklessly from commercial banks, faltering domestic resource mobilization effort, rapidly declining exports, foreign investors exiting Pakistan, building foreign exchange reserves through expensive borrowing, human capital deteriorating partly on account of inadequacy of funds and partly due to bad governance, physical infrastructure crumbling, rising scale of corruption and misgovernance, weakening of state institutions and most importantly dwindling writ of the state.
Though the on-going IMF Programme was a necessity for Pakistan as it had reached at the verge of default by September/October 2013, the programme has suffocated the economy because of its “stabilization first and growth later” approach. It has played an important role in further slowing the pace of economic activity. Its austerity driven policy has forced Pakistan authority to manipulate statistics and in the process the current economic team has destroyed key economic statistics (namely economic growth, tax collection, expenditure, budget deficit, unemployment etc.)
Economic Performance During 2008-15: A National Security Issue
As will be shown in the ensuing pages, the way Pakistan’s economy evolved during the last seven years created serious national security issues. The economy and its key institutions have been weakened to the core. Pakistan’s dependence on international institutions has increased considerably, thereby weakening its ability to manage its own economy prudently. The quality of Pakistan’s economic team is much desirable which itself has weakened its ability to negotiate with the IMF.
Managing Economy During 2008-13
Between 2003 and 2007, Pakistan witnessed an impressive economic turnaround and emerged as one of the fastest growing economies in the Asian region. The economy had grown at an average rate of almost 7.0 percent annum resulting in reduction in unemployment and poverty. The country’s fiscal balance improved as reflected by the sharp reduction in budget deficit, averaging less than 4.0 percent of GDP. Accordingly, the country’s public debt burden reduced from 75 percent in 2002-03 to 55.2 percent of GDP by 2006-07. The country’s external balance also witnessed considerable improvement. The current account deficit averaged 1.3 percent of GDP, the country’s foreign exchange reserves reached a comfortable position and Pakistan’s exchange rate remained stable for a fairly long time. Improvement in the country’s economic fundamentals made it a favourable destination for foreign investment and also encouraged the country to tap resources from the international debt capital market. Pakistan’s social indicators also improved during the period (See Table 1).
Then it all went wrong. The onset of global financial turmoil, the astonishing rise of oil and commodity prices and political instability sent the economy reeling. By the end of 2007-08, Pakistan was facing four major challenges: a drop in economic growth; rising inflation; widening of fiscal and current deficits; and rapidly depleting foreign exchange reserves. The worsening of fiscal and current account deficits were largely the results of external shocks of extraordinary proportions accompanied by policy inaction during most of the year 2007-08. The growing fiscal and external imbalances were financed by unprecedented borrowing from the central bank and drawing down of foreign exchange reserves from $13.2 billion to $3.4 billion – a loss of almost $10 billion in just one year.
While the rest of the world was taking corrective measures and adjusting to higher food and fuel prices, Pakistan was lurching from one crisis to another. Despite peaceful election of 2008 and a smooth transition to the new government, political instability continued to persist. For protracted periods there were no finance, commerce, petroleum and natural resources and health ministers in the country. It gave the impression of having little sense of direction and purpose. A crisis of confidence intensified as investors and development partners started to walk away; capital flight set in, foreign exchange reserves plummeted and Pakistan rupee slumped in value by a third. Pakistan’s macroeconomic vulnerability had grown unbearable. It had no option but to return to the IMF for a bailout package in October/ November 2008.
As a result of five years of economic misgovernance, the complexion of Pakistan’s economy changed altogether. Economic growth slowed to an average of 3.0 percent per annum during 2008-13 as against an average of close to 7.0 percent per annum during the previous five years (2003-07), investment rate plummeted to 50 years low at 12.5 percent of GDP, domestic saving rate reached at 6.0 percent of GDP – the lowest in the country’s history, and industrial growth slowed to an average of less than one percent. Slower economic growth failed to create ‘enough’ jobs for the new entrants and as such the pool of unemployed kept on ballooning, creating civil unrest and social chaos in the country. In the absence of credible statistics it is presumed on the basis of economic theory that both unemployment and poverty must have risen by definition.
Fiscal indiscipline had been the hallmark of 2008-13 period with budget deficit averaging over 7.0 percent of GDP and reaching as high as 8.8 percent of GDP in 2011-12. Accordingly, public debt tripled during the period (from Rs. 5 trillion to Rs. 15 trillion in five years). During the period, Pakistan added $20 billion in external debt to $61 billion and foreign investment nosedived to just $1.6 billion in 2013 from a peak of $8.4 billion in 2007, reflecting deteriorating sentiment of foreign investors (See Table 1). Pakistani rupee lost 42 percent of its value as a result of weak economic fundamentals. Power sector mismanagement continued with government providing over Rs. 2 trillion of subsidies to this sector and most importantly, the country reached to the point of external payment default by May/June 2013. Above all, the government weakened the core economic institutions like Ministry of Finance, Planning Commission, SBP, and all the regulatory bodies (SECP, OGRA, NEPRA, PEMRA etc.)
What caused such a deterioration? There are several factors that contributed to the worsening of economy and state institutions. These include intensification of war on terror, deteriorating security environment, weak and non-serious leadership at the helm of affairs, absence of credible economic team, height of fiscal indiscipline, widespread corruption and misgovernance, economy remaining out of radar of the government and most importantly, personal prosperity overtaking national prosperity. It has also weakened national security.
Managing Economy During 2013 Onward
The present regime, prior to taking charge of the state of affairs after the May 2013 election, claimed to have a competent team of ministers fully aware of the challenges. In doing so, they raised expectations of the people who had already suffered severely from the mismanagement of the previous regime (2008-13). There is no doubt that the present regime inherited an extremely fragile economy, a nervous private sector; declining investment – both domestic and foreign; slower economic growth, rising unemployment and poverty, and growing income inequality. A large fiscal deficit owing to faltering resource mobilization effort on the one hand and reckless spending on the other with consequential rising debt-burden, a looming debt repayment crisis with country headed towards external debt default, rapidly declining foreign exchange reserves, rising circular debt and a severe energy crisis. These were indeed formidable challenges by any standard, and required extraordinary courage on the part of the leadership to take unpleasant decisions, called for a strong economic team, and demanded focused attention of the political leadership in addressing these challenges. Sadly, the leadership has disappointed the people (few opine that it has resorted to massive data manipulation) to show a false sense of economic prosperity. After completing two years at the helm of affairs, sadly enough, it appears that in reality economy has not improved much and there is less emphasis on long term sustainable measures. The government is more relying on borrowings from IMF than investing on taking genuine measures for improving country’s GDP. The key to economic security only lies in actual economic growth.
Element 1: Economic Growth
Pakistan’s economic conditions by end June/July 2013 reached to a level where it needed an IMF bailout programme. The programme, though was a necessity for Pakistan as it had reached to an almost default position, was a 1980s vintage of “Stabilization First” programme. The key elements of ‘Stabilization First’ programme were reducing fiscal deficit, controlling public debt, keeping inflation low, building foreign exchange reserves and maintaining a flexible exchange rate. Tight fiscal and tight monetary policy were the instruments of ‘Stabilization First’ programme.
Pakistan continued to pursue, by and large, the ‘stabilization first’ or ‘austerity’ programme since 2008 in one way or the other. Such a prolonged period of ‘austerity programme’ has severely constrained the country’s growth potential and has caused serious socio-economic problems in the country. Pakistan’s economy is growing in the range of 3.0 – 3.7 percent for the last seven years (2008-15), as a result of the continued pursuance of ‘austerity programme’.
Since this level of growth is considered “too little” for a country like Pakistan, it is safe to suggest that it cannot grow “more” any time soon. It appears that a growth rate in the neighbourhood of 3.0 – 4.0 percent has become a “new normal” for Pakistan. If this is the case, then the governments who ruled the country since 2008 have made the people of Pakistan permanently poor. The economy may not be seen growing back to 7-8 percent level any time soon. The slower growth syndrome of last seven years has caused deficient demand which in turn, has caused deficient supply. Why should investors or producers produce more in an environment of depressed domestic demand? The growth of large scale manufacturing has remained stagnant for quite some time despite the efforts of the Pakistan Bureau of Statistics to produce idiosyncratic statistics. Since the country’s production is stagnant, its exports is facing supply side structural bottlenecks and are on the decline (exports are four year low in 2014-15). The long slump has hurt the economy’s productive capacity and hence has lowered the long-run growth path.
Slower economic growth is failing to create enough jobs. People in general and youth in particular, are finding it difficult to get jobs. People remaining unemployed for a longer duration are becoming unemployable with all its social and economic consequences. Youth (15-19 years) unemployment rate has increased from 8.7 percent in 2007-08 to 11.7 percent in 2013-14 (the latest number available from government sources). Unemployment rate for the age bracket of 20-24 years (prime age) has also increased from 6.8 percent to 9.9 percent during the same period. Rising unemployment among the youth and prime age workforce are a matter of serious concern for political stability, social harmony, and national security (See Table 2).
Even more worrying development is that youth and prime age persons, after remaining unemployed for a long period, have become unemployable. They have stopped searching for jobs. This phenomenon is known as “discouraged worker phenomenon” where the labour force participation rate falls. The government statistics suggest that the labour force participation rate for male youth (15-19 years) has declined from 53.9 percent in 2007-08 to 49.7 percent in 2013-14 – decline of 4.2 percentage points (See Table 2). In other words, half-a-million male youth has stopped looking for a job or they are out of the job market. Similarly, the labour force participation rate for male prime age (20-24 years) has also declined from 85.1 percent in 2007-08 to 81.7 percent in 2013-14 – a decline of 3.4 percentage points. In other words, slightly over 0.5 million male prime age workforce has gone out of job market or not seeking job any more.
This is a dangerous development as the country is witnessing educated youth or prime age people turning into ruthless killers (remember! Safoora Goth Incident), taking revenge from the society. The country is also witnessing civil unrest, social chaos, and youth willing to burn everything which comes in their way. This is nothing but the social cost of ‘austerity program’ which the nation is paying. It has created a serious threat to national security as the unemployed youth and prime age people have emerged as potential targets for anti-state elements to entice them for their ulterior motives. Slower economic growth therefore, is not only failing to create ‘enough’ jobs, it is also failing to mobilize ‘enough’ resources to strengthen the country’s hard and soft powers with adverse consequences for national security.
Element 2: Budget Deficit
A sound fiscal position is vital for achieving macroeconomic stability, which is increasingly recognized as being critical for sustained economic growth and poverty reduction. Over a period of time the governments have maintained a large budget deficit, averaging over 7.5 percent of GDP over the periods, and accordingly more than tripled the country’s public debt. Unwillingness to mobilize resources on the one hand and reckless spending with wrong spending priorities on the other together with (politically motivated) 7th NFC Award have all thoroughly damaged Pakistan’s fiscal balance. Fiscal indiscipline has been one of the principle reasons for Pakistan’s current economic ailments.
Adequate level of resource mobilization is sine qua non for public policy to meet expenditure obligations. In Pakistan, domestic resource mobilization has remained ineffective due to the inherent weaknesses in the tax system and inefficient tax administration. As a result, Pakistan’s fiscal effort has remained stagnant for a fairly long period of time. Tax-to-GDP ratio – a measure of tax effort, remained stagnant in the range of 10-11 percent of GDP over the last 8 years.
Why has Pakistan’s tax-to-GDP ratio remained stagnant over the years? Pakistan’s tax machinery has collapsed; no amount of reform would improve its functioning unless there is a strong will on the part of the political leadership to collect tax from the rich and powerful. Pakistan’s tax system suffered from several weaknesses. Firstly, the tax base is not only narrow owing to a number of exemptions/concessions but it is punctured as well and thus encourages tax evasion. Secondly, tax rates are pitched at high levels (e.g. sales tax rate ranges from 17-45 percent) which have created a vicious cycle of tax base erosion and higher tax rates. Thirdly, there is an issue of multiplicity of taxes with an individual firm facing numerous types of taxes. Fourthly, there is over dependence on indirect taxes (on average 62% of total taxes) and if withholding taxes (whose effects are indirect in nature) are included the share of indirect taxes jumps to as high as 80 percent of total taxes. Fifthly, the tax system is complex and tedious which, along with high rates, has bred corruption and encouraged evasion. Sixthly, non-availability of reliable statistics from the businesses made it difficult for tax administration to assess the potential taxes to be collected.
Seventhly, the structure of the economy itself has made it difficult to impose and collect taxes. For example, large share (22%) of agriculture in output (income originating from agriculture is exempted from income tax) and employment (42%), low share of wages in total income, large informal sector, low literacy rate and poor human capital have been the major hindrances in enhancing domestic resources through taxation. Furthermore, the structure of the economy along with low literacy, low human capital and gross mismatch of qualification (a large number of medical doctors are working in tax administration) of staff and their job requirements have made it extremely difficult to develop a good and efficient tax administration. When the staff of tax administration is not well educated and well trained; when use of modern communication network is limited; when there is no accountability in tax administration and when there is little or no political will of the leadership to collect-taxes from the rich and powerful, then it is difficult to create an efficient tax administration. In addition when economic and political powers are concentrated to those who either do not pay taxes or pay much less than what they should have been paying themselves, it makes the task of the tax administration more difficult to collect taxes.
Situation on expenditure side is not much different from revenue. Large revenue-expenditure gaps (fiscal deficits) during 2008 onward were largely a result of public expenditure growing unsustainably fast – much faster than the tax revenue. Poor governance and a lack of accountability of the public sector have contributed to inadequate control of government expenditure and failure to ensure that expenditures are allocated efficiently and equitably to serve society’s priorities. Another reason for unsustainable growth in public expenditure has been the political leadership’s love for prestige projects (e.g., metro bus), or spending that rewards politically powerful groups often to the detriment of expenditure on basic social-services. Losses of Public Sector Enterprises (PSEs) and across the board power sector subsidy have also emerged as important components of public expenditure and thus have contributed in a major way to the rise in fiscal deficit during the last seven years.
The current structure of expenditure is not at all conducive for growth and development as well as not consistent with enhancing the country’s hard and soft power. Bulk of the expenditure (80-85%) is recurring in nature and within it, interest payment accounted for over 28 percent. Defence spending exhibited a persistently declining trend at a time when the country was fighting a war against terrorism. It averaged 15.4 percent of current and 12.3 percent of total expenditures during the post 2008 period.
Apart from failure to mobilize adequate resources to meet growing expenditure requirement there is a general consensus among independent economists that the 7th NFC Award finalized in April 2010, has promoted fiscal indiscipline and thus contributed immensely in damaging Pakistan’s economy and national security. The Award was based more on political consideration and lacked economic foundation. It was finalized in haste, no proper homework was carried out, and the revenue projection for the Award was grossly unrealistic.
A broad-based orderly and well-managed fiscal decentralization is expected to improve public service delivery and hence improve the living conditions of the people. Unfortunately, fiscal decentralization implemented through the 7th NFC Award was too extensive, too fast and managed in a disorderly environment (post 2010-11 period), promoted financial corruption and fiscal indiscipline in provinces as well as at the federal level.
A massive amount of resources (Rs. 6.7 trillion in five years under the Award versus Rs. 2.6 trillion in five years prior to the Award – two and a half time more resources were transferred to provinces under the Award) were transferred to provinces in too short a period and without sufficient consideration given to their fiscal or financial discipline and capacity to spend this money prudently (See Table 3). Accordingly, it not only aggravated Pakistan’s economic conditions and promoted corruption but also adversely affected the provision of public goods and service delivery – a key expectation from the public in the event of financial decentralization. Most of the key social indicators pertaining to education, health, safe drinking water (after 18th Amendment, these are the responsibilities of the provincial governments) have deteriorated at the national and provincial levels. Where have these monies gone?
Element 3: Public Debt
Fiscal indiscipline has been the hallmark of the successive government since 2008 onward. Their failure to mobilize adequate resources to meet the country’s growing expenditure requirements have forced them to borrow extensively from within and outside the country with pride and pleasure. Accordingly, public debt (both rupee and foreign exchange components of debt) rose astronomically from close to Rs. 5 trillion in 2007 to Rs. 17.4 trillion by 2015. Explaining in a simple language, Pakistan accumulated total debt amounting to Rs. 5 trillion in the last 60 years (1947 – 2007) but added almost Rs. 13 trillion in just 8 years to reach close to Rs. 18 trillion by 2015 – more than tripled in such a short period. This is nothing but the evidence of fiscal indiscipline of the governments since 2008 onward. In percentage of GDP, public debt rose to 64 percent in 2015 from 55 percent in 2007 – a rise of 9 percentage points of GDP (See Table 1).
As a result of the sharp increase in public debt, interest payment more than tripled in the last 8 years, rising from Rs. 387 billion in 2007 to over Rs. 1300 billion in 2015. Defence spending was almost two-third of interest payment in 2007, declined to almost one – half by 2015. In other words, budgetary spending on enhancing hard power, instead of rising, has become a victim of rising interest payment at the back of heightened fiscal indiscipline.
Reckless borrowing with pride and pleasure continued in external sector as well. Pakistan accumulated additional $25 billion debt during the last 8 years – rising from $40 billion in 2007 to $65 billion by 2015. Extensive borrowing from external sources the country to compromise on soft power (diplomacy) as well as on hard power. No nation can build hard power on borrowed resources.
Pakistan has been in the midst of longest unconventional war that it has fought since its inception in 1947. A war that began in 2001 is still continuing with greater pace and intensity. Pakistan’s security environment along its eastern and western borders has deteriorated in recent years. These developments require relatively larger budgetary share to shore up both soft and hard power. Slower economic growth, fiscal indiscipline, wrong spending priorities, the on-going NFC Award, and weak economic team and institutions are not at all consistent with the country’s requirement for shoring up soft and hard power. Developments on economic front over the last 8 years have in fact weakened the country’s soft and hard power and as such has emerged as the national security issues for the country.
Element 4: Foreign Exchange Reserves
Foreign exchange reserves reflect the overall developments taking place in external balance of payment of any country. In addition, the country borrows externally to build foreign exchange reserves. Pakistan’s foreign exchange reserves (the SBPs reserves) stood at $13.2 billion by end-June 2007, it declined to $6.0 billion by end-May 2013 – a loss of over $7.0 billion in six years. By September/October 2013, forex reserves declined to a dangerously low level at $3.0 billion. Imagine a country with nuclear and missile power having forex reserves as low as $3.0 billion – sufficient to finance three/four weeks of imports. Can a country strengthen its soft and hard power with such meagre forex reserves? This answer is no.
Injection of external resources from the IMF, the World Bank, Asian Development Bank, the debt capital market (floatation of Euro bond, Sukuk etc.), selling the country’s assets (through privatization), grants from friendly countries and generous releases of Coalition Support Fund from the United States contributed to the building of forex reserves to $13.5 billion today. Bulk of these inflows are borrowed resources which will have to be repaid by the government in few years’ time. Exports – one of the critical sources of foreign exchange earnings is in shamble for the last four years. Foreign Direct Investment – yet another source of foreign exchange earnings is on the decline from over $5.5 billion in 2007 to $0.7 billion in 2015. Accordingly, our reliance on borrowed resources has increased to build forex reserves. Borrowing from external sources to build forex reserves is nothing but postponing the current balance of payment crisis to future dates as these debts will have to be repaid by someone.
Notwithstanding the claims of economic success, the fact is that our economy is growing at an average rate of 3.2 percent per annum for the last seven years, industrial growth is stagnant at 1.1 percent, agriculture is growing at 2.5 percent, private sector is not borrowing to expand their businesses, exports are falling, foreign direct investment is declining rapidly, foreign investors are leaving the country, tax collection performance is dismal, unemployment, particularly youth unemployment is rising, people are getting out of the job market (not looking for jobs), corruption is all time high in the country, the country is witnessing civil unrest, social chaos, the breakdown of law and order, and absolute failure of governance.
These developments have emerged as national security issue and demand urgent attention from all concerned. Sooner we realize the gravity of challenges the better it is for the country and its security.
What Needs to be Done?
Firstly, the leadership will have to change its style of governance. Managing economy should be at the forefront of the leadership. The present trend of managing economy through media management and data management is not a solution to our deep rooted problems. Pakistan has far more talent and expertise to compose a successful economic advisory and leadership team.
Secondly, Pakistan has pursued austerity programme for the last seven/eight years which has severely damaged the economy. A change in fiscal policy stance is needed. Pakistan needs more investment in physical infrastructure and human capital (education, health, vocational training etc.) and less tut-tutting about fiscal deficit. The time has come to move out from “Stabilization First” policy to strike a balance between growth and stabilization. Prolonged period of ‘austerity’ has caused human sufferings in Greece. Do we want to become another Greece? We Should act before it is too late.
Thirdly, Pakistan urgently needs wide-ranging structural reforms in tax system and tax administration, power sector, industries, agriculture, exports, financial sector, and overall governance. We have simply talked about reforms thus far without undertaking any credible reforms. The IMF for its political motive, has always stated that Pakistan’s reforms programme is ‘broadly on track’. In so doing, it has bred complacency on the part of the government.
Fourthly, the key economic institutions like Ministry of Finance, Planning Commission, the Central Bank, the Federal Board of Revenue, Pakistan Bureau of Statistics, the Security and Exchange Commission of Pakistan (SECP) and all the regulatory bodies have been weakened to the core. Accordingly, the economic policy making has been shifted to the IMF and other IFIs as well as to domestically powerful vested interest group. The government needs to drastically overhaul some institutions and strengthen the others by inducting high calibre professionals as well as empowering them to undertake decisions.
Fifthly, the current NFC Award has been disastrous for the financial stability of the country. Without making corrections it will continue to damage Pakistan’s fiscal stability. How to correct the weaknesses of the current NFC Award is well documented in Ashfaque H. Khan, “7th NFC Award: Has it Worked?”, Development Advocate Pakistan, Vol. 2, Issue 2, June 2015 (a publication of the UNDP Pakistan.
The time is not on our side. The sooner we realize the gravity of challenges the better. The ongoing military operations in Waziristan and the Rangers’ Operation in Karachi have considerably improved the country’s security environment. The China-Pakistan Economic Corridor has improved the country’s perception abroad and low international price of oil has reduced pressure on the balance of payments. The government should consider these developments as a window of opportunity, bring good economic team, pursue good policies, introduce wide-ranging structural reforms and improve governance to capitalize on these positive developments. This will be good for the economy and national security.