Umeed

We are in Crisis. We hear this every day, we also hear why we are in crisis but seldom we think about how we can get out of these crisis. Today we will try to look into how we can overcome Ecomical Crisis.

How to get out of econimical crisis ?

Ecnomic System

An economic system determines how resources are allocated, goods are produced, and wealth is distributed among the population. Different economies (capitalist, socialist, or mixed) operate in unique ways, but certain core principles apply to all systems.

The value of money is a major factor that shapes the overall picture of an economic system. Here's how:

The value of money is primarily determined by the principles of demand and supply. When the demand for a currency is high, its value increases, and when the demand is low, the currency's value decreases. One of the major factors influencing currency demand is a country’s balance of trade—its imports and exports.

In the fiscal year 2022-2023, Pakistan's total exports amounted to 27,724.128 million US dollars, a decrease from 31,872 million US dollars in the previous fiscal year (2021-2022). On the import side, Pakistan's total imports were 55,198.449 million US dollars, significantly lower than the 80,137 million US dollars recorded in 2021-2022. This still resulted in a trade deficit, as Pakistan imported 27,474.321 million US dollars more than it exported in 2022-2023, though the deficit was reduced from 48,355 million US dollars in the previous fiscal year.

While the reduction in the trade deficit may seem like a positive sign, the sharp decline in both imports and exports highlights underlying economic challenges such as inflation, currency depreciation, and restrictive trade policies, rather than a balanced or sustainable economic strategy.

The excess demand for foreign currencies and lower demand for the Pakistani rupee causes the value of the Pakistani rupee to decrease. In other words, Pakistan's currency becomes less valuable in comparison to other currencies.

While the balance of trade plays a critical role, it is not the only factor that influences currency value. Other factors such as inflation, interest rates, political stability, and investor confidence also play significant roles in determining the value of money. However, these factors ultimately tie back to the dynamics of demand and supply in the foreign exchange market.

Analysing Imports & Exports Of Pakistan

According to the Pakistan Bureau of Statistics, a 12.77% decrease in exports and a 31.12% decrease in imports were recorded in 2023 compared to 2022. This might suggest that Pakistan is moving to balance its trade deficit, but that may not be the case. If these changes were gradual over the years, accompanied by growth in domestic trade, it could be considered a positive sign. However, the large difference is mainly due to inflation and strict external trade rules to prevent further currency devaluation. This might seem like a quick fix for overcoming the trade deficit and currency devaluation, but it could cause economic imbalance in the future.
Rather than addressing deficiencies in sectors like metals, chemicals, and machinery by locally strengthening these industries to meet domestic requirements, the government has made it difficult for people to import these goods. In a scenario where local production is promoted by blocking imports, it would be a beneficial step. However, in this particular case, where we are not domestically capable of providing alternatives yet, hindering imports just to temporarily stabilize the economy could be devastating for the country's long-term economic health.

Navigating Economic Crisis

Navigating Pakistan’s economic crisis and moving toward a self-sufficient economic system requires a well-coordinated approach that tackles both short-term challenges and long-term structural issues. The government must play a key role in this, but the private sector, civil society, and international partners should also be engaged in building a sustainable and resilient economy.
Our largest and most essential imports are petroleum, metals, machinery, and chemicals. Most petroleum imports are used as an energy source, whether for electricity production, vehicles, or other energy-based needs. There is no short-term solution or alternative to petroleum imports; however, we should draft a long-term policy aimed at shifting from petroleum-based energy sources to renewable alternatives like solar, wind, and hydro energy. In recent years, Pakistan has seen an increase in the use of solar energy in homes and factories to mitigate high electricity bills. The government could introduce low-tax policies for solar energy manufacturing industries while establishing dedicated departments for research and development in this field, making solar energy more affordable and widespread as a viable alternative to petroleum.

Pakistan significantly lacks research and development, which is a key reason why most machinery and essential chemicals are imported. As a country rich in natural resources, we also lack the proper tools to extract these resources, often relying on foreign investors who take a considerable share while we remain underdeveloped in this sector. These factors highlight the urgent need to establish a dedicated research and development department that focuses on innovation and the creation of tools, such as machinery and chemicals, that we currently import.

What Part Can We Play?

In Pakistan, there has never been a stable government, and to put all your eggs in the government's basket—hoping that one day it will think of the common people and shift its focus from short-term political gains to long-term progress—is, sadly, a false hope. The time has come for the people of Pakistan to take responsibility for becoming self-sustainable, rather than relying solely on the government.

Prioritizing Local Products over Imports

First and foremost, we need to stop relying on foreign products, especially those that can be easily produced locally but are preferred only because they carry a brand name. A perfect example of this is the recent boycott of Israeli products due to its war crimes in Palestine. In response, a noticeable spike in the production of local goods occurred, not only reducing the burden of imports but also allowing local businesses to thrive and create job opportunities. If we can maintain this mindset and continue prioritizing local products over imported ones, we stand a better chance of becoming economically stable.

Pakistan’s textile industry is an example of local potential: despite setbacks, it contributed over $16.5 billion in exports in 2022. The country also saw growth in other sectors such as food products and leather goods. Imagine if we took this a step further and expanded our reliance on locally produced goods, from everyday items to more specialized ones like electronics or home appliances. By prioritizing homegrown industries, we reduce dependency on foreign goods and give our economy room to breathe.

Empowering Small Industries

The next step is to identify small industries that can be locally established and scaled to a global level. For this, we need to take stock of the resources we already have. Pakistan is rich in raw materials, and if we capitalize on these effectively, we could create industries that meet local demands and generate significant export revenue. For instance, Pakistan is one of the largest producers of cotton, yet much of it is exported raw. Instead, by focusing on producing high-value fashion items—such as clothing, bags, jewelry, and accessories—we can tap into the $2.5 trillion global fashion industry.

Moreover, small-scale local industries have already proven their worth. In 2022, the footwear industry contributed $157 million to the national economy. A stronger push for promoting local brands could double this figure in just a few years.

Scaling and Exporting Locally Produced Goods

E-commerce has revolutionized global trade, and Pakistan should seize this opportunity to export locally produced goods. With platforms like Amazon and Alibaba opening doors for Pakistani sellers, the potential for growth in the global market is vast. For instance, Pakistan’s jewelry industry, which is deeply rooted in its cultural heritage, has untapped potential in the global market. By creating distinct brands and utilizing e-commerce platforms, small businesses could access millions of potential customers worldwide.
In addition to tangible products, Pakistan's IT sector has emerged as a promising avenue for economic growth. With a young and tech-savvy population, the IT industry contributed $2.6 billion in exports in 2022, a figure that continues to grow. We can leverage this momentum by exporting not just software and computer programs but also developing expertise in areas like Artificial Intelligence, cloud computing, and blockchain technology. By further investing in skills development and promoting IT exports, Pakistan has the potential to capture a significant share of the $6 trillion global IT market.

A Call to Action

Becoming economically self-sufficient is not just a governmental responsibility but a collective effort. The people of Pakistan need to prioritize locally produced goods and create small-scale industries that can compete on a global level. By focusing on fashion, IT, and other sectors where we have a natural advantage, we can create jobs, reduce imports, and build an economy that stands on its own feet. The journey toward self-sufficiency is long, but with a collective mindset and the right strategies, it is entirely achievable.