Reconfiguring Institutional Framework for Economic Diplomacy in Pakistan

Abstract

For the past 72 years, some of the main pillars of Pakistan’s economic diplomacy have been seeking IMF bailouts, World and Asian Development Banks projects, bilateral assistance, securing preferential access on grounds other than the quality and innovative character of Pakistani products and its export potential, grants from friendly countries, and foreign loans. Our economic diplomacy has become so lackluster that Pakistan, a nuclear power, even contemplated to get itself declared a least developed country, like Bangladesh. Much energy and reforms have focused on addressing external concerns, such a price and therefore, devaluing currency, providing incentives or unsustainable rebates to the exporters, creating new bureaucracies (authorities) to deal with the inertia in the existing bureaucracy and if nothing else paid off, let us reform the civil service over and over again.

Pakistan has done this for better part of its history and that too, over and over again, the results haven’t been different. What we have not done is to look at how we operate institutionally. What ails our coordination, why one part of Pakistan’s bureaucracy is hell bent on proving that it is better than the other part, why part of our institutional arrangements are breeding grounds for rent seekers, why are we siloed, do we have the right expertise, are we equipped to handle the challenges that the 21st century poses. Little or no discussion has been done from the perspective of institutional arrangements that underpin Pakistan’s economic diplomacy. Are we organized to utilize the full spectrum of diplomatic tools available with the country to actually deliver on this critical aspect of the country’s foreign policy?

This question becomes even more important when we witnessed the tectonic shifts happening around us. The world is metamorphosing into fourth industrial revolution. It stands on the brink of a technological upheaval that will change the way we live, work, and even manage our human and sovereign relationships. It is that 24/7 connected world where Pakistan needs to now fit and find the pivots for its economic growth.

Pakistan is spending more on imports than it receives on exports, with its current account deficit having risen from $2.7 billion in 2015 to $18.2 billion in 2018. Pakistan’s rupee has shown its continued decline against dollar, which increased Pakistan debt by a whooping USD $7.9 billion. The massive depreciation in the rupee has had virtually no impact on its export which remain stagnant and in real terms decline.

This state of affair is not a result of short-term economic mismanagement but a continuous long-term economic decline that Pakistan economic managers have failed to arrest. While, there is no dearth of economic analysis and the kind of structural reforms needed for macro-economic stabilization, the existing institutional arrangement, which are part of the rot that afflicts the country, has received scant attention.

This paper concludes that our institutions arrangements have failed to understand the market dynamics as well as find the right prescription to overcome the challenges. Our institutions lack the ability to create conditions where Pakistan could generate exportable surplus as well as diversify exports. Another glaring institutional failure has been the focus on a few markets due to our traditional bias and presence of financial and banking linkages. We have not really succeeded in penetrating new ones and our institutions even failed where they had an absolute advantage such as CPEC and China or improving our global competitiveness rankings. Indeed, there are other contributory factors including poor governance, corruption, dysfunctional legal system and unfair tax regime etc.

This paper proposes a two-step approach. First, re-energizing the existing arrangements by enhancing cohesion and coordination. An effective inter-ministerial mechanism will be central for economic diplomacy to succeed, we must also start utilizing the Ministry of Foreign Affairs as linchpin of our external relations. We should be mindful that Pakistan’s resources are limited. We cannot afford large bureaucracies or institutions that China, the US, Malaysia or Indonesia may be following. We need to evolve an indigenous model. We need to utilize our diplomatic strength with our economic strength. In this spirit and in the second phase, this paper proposes to mainstream economic diplomacy into the foreign policy: by establishing a Ministry of Foreign Affairs, Trade and Investment.