Unveiling the Hidden Costs of Economic Inefficiencies in Pakistan

Contents

• Acknowledgment
• Preface
• Executive Summary
• Cost of Contesting Elections from Multiple Constituencies
• Cost of Protectionism
• Cost of Federal Lawmakers
• Cost of Lost Talent
• Cost of Government Interference in Agricultural Markets
• Cost of a Non-Competitive Economy

Acknowledgment

Dr Nadeem ul Haque, Vice Chancellor, PIDE, deserves all the credit for conceiving this idea, offering valuable feedback, and providing unwavering encouragement that brought this report to life.

Preface

Throughout Pakistan’s history, the economic landscape of the country has been plagued by inefficiencies and financial burdens. This report, “Costonomics: Unveiling the Hidden Costs of Economic Inefficiencies in Pakistan,” embarks on a critical journey, not just to quantify these hidden costs but to catalyze meaningful change rooted in the context of the complexities of our nation’s economy.

The Stakes Are High: Across various sectors, from electoral processes to protectionist trade measures, the financial strain on Pakistan’s economy has been quite significant. Along with the drainage of public resources, these inefficiencies have stymied economic progress and stability. Further neglecting to examine these critical issues will only aggravate Pakistan’s economic woes and impede progress toward stability and prosperity.

Unmasking the Causes: Systemic issues in policy execution, combined with insufficient accountability have further exacerbated these economic inefficiencies. The substantial costs associated with federal lawmakers, unchecked emigration of skilled talent, and excessive government control in agricultural markets, exemplify the areas where reforms need to be immediately implemented. Understanding these costs in the backdrop of Pakistan’s unique path to development is key to driving progress.

The Path Forward: Tackling these challenges necessitates a thorough overhaul of existing policies. It is imperative to alleviate the burden of protectionist practices, induce an economic environment conducive to competitiveness, minimize government interventions, and rationalize the expenditure on lawmakers and elections. Fostering further research is crucial – by dissecting economic costs within our domestic context, policymakers can become equipped with actionable insights to address pertinent inefficiencies, thereby leveraging untapped potential and opportunities, and helping Pakistan embark on a path toward sustainable development. 

A Call to Action: While the quantification of various costs in Pakistan, may prove to be quite challenging, particularly given the sheer paucity of data, it is for this very reason that such an endeavor must be undertaken. Even partial insights can illuminate the way forward. “Costonomics” is more than just a term; it’s a movement – an overarching vision for reshaping Pakistan’s economic destiny.

It is hoped that those in positions of authority recognize the urgency of these challenges and take decisive steps to address them.

Abbas Murtaza Maken

Executive Summary

This report provides an in-depth analysis of the economic costs incurred by Pakistan due to various systemic flaws and policy inefficiencies. Drawing from extensive research and data analysis, this report captures the financial impact of these issues and outlines potential pathways for efficacious reforms.

• Cost of Contesting Elections from Multiple Constituencies:
  • This section analyzes the financial impact of allowing candidates to contest elections from multiple constituencies.
  • There has been a precipitous increase in the expenses associated with conducting elections, especially in recent years. A major contributor has been the practice of candidates, contesting and winning multiple constituencies and vacating other seats, resulting in re-election expenses for those vacated seats. In the 2024 elections, these costs amounted to PKR 1.99 billion.
  • Reforms to streamline the electoral processes can significantly help cut this unnecessary expenditure and improve the efficiency of the overall electoral process.
• Cost of Protectionism:
  • This section assesses how Pakistan’s continued imposition of high tariffs and non-tariff barriers, results in substantial economic costs.
  • The implementation of excessive protectionist measures, in a world moving towards greater trade liberalization, has only served to distort market dynamics, raise costs for industries and consumers, diminish competitiveness, and stymie economic growth.
  • These protectionist policies resulted in substantial economic inefficiencies of approximately PKR 1.77 trillion, reflecting the inflated cost of imports for consumers and businesses alike.
  • Through a shift towards more open and facilitative trade policies, the high financial burden associated with imports can be significantly lowered.
• The Cost of Federal Lawmakers:
  • This section examines the financial burden of maintaining federal lawmakers, including their salaries, allowances, and related expenses.
  • In Pakistan, the maintenance of federal lawmakers accrues a significant financial cost to the national exchequer, totaling to an annual cost of PKR 27.67 billion.
  • Yet despite these high costs, the productivity of federal parliamentarians remains low, aggravated by a lack of accountability and high absenteeism.
  • Adopting measures to boost fiscal responsibility and transparency will help ensure judicious use of public funds.
• The Cost of Lost Talent:
  • Focusing on the brain drain phenomenon, this part of the report captures the economic impact of skilled professionals emigrating from Pakistan.
  • Brain drain is one of the foremost economic concerns for Pakistan because it leads to disproportionately high losses in innovation and productivity.
  • From 2014 to 2023, the emigration of skilled and highly qualified individuals imposed a whopping cost of PKR 8.06 trillion on the country’s economy.
  • Strategies to retain and attract talent urgently need to be devised and implemented to minimize the loss of human capital and harness local expertise.
• The Cost of Distortions in Agricultural Markets:
  • Evaluating government interventions in agricultural markets, particularly in wheat, water, and storage, this section highlights the inefficiencies and financial burdens imposed by such policies.
  • Throughout the country’s history, substantial government intervention in agricultural markets, particularly in the wheat sector, has created considerable inefficiencies and imposed heavy financial burdens.
  • The cumulative cost of such interference is estimated at PKR 2.56 trillion, reflecting the unsustainable nature of current policies.
  • Market-oriented reforms are crucially needed in these markets to boost overall productivity and sustainability in the agriculture sector.
• The Cost of a Non-Competitive Economy:
  • The deleterious effects of isolationist policies, such as high import tariffs and export subsidies, on domestic industries are probed here.
  • Non-competitive economic practices, supported by these isolationist policies, come at an estimated annual cost of PKR 1.67 trillion to the economy. This underscores the high distortions and inefficiencies caused by these measures.
  • Removing these barriers through a phased reduction could significantly enhance domestic production, exports, and tax revenues and foster a competitive economic environment.