Imran Khan recently lauded his team for supposedly ‘turning around’ the Pakistani economy, proclaiming openly that it was on the mend. Foreign direct investment (FDI) has supposedly risen by 111.5% and foreign private investment by 194%, whilst the current account deficit is at a 41 month low, due to a reduction of $259m. Remittances have purportedly risen by 17% with exports rising by a mere 5.9%. With this data, the government claims to have averted the crisis!
However, it seems Imran Khan’s team are referring to a very different set of statistics. In particular, whilst the central bank of Pakistan has reported an increase in FDI, the Prime Minister failed to mention how FDI has actually decreased by 3% from the previous year. This manipulation of figures detracts attention from the long-term ill-health of the economy owing to declining Chinese investment by 226% this year due to political uncertainty unto the short term investments made by the likes of Norway who spent a one-time $253.2m in September 2019.
Furthermore, the improvement of the current account (by approximately 64%) has been in exchange for a sharp reduction in the value of the rupee, which has failed to make any noticeable impact on exports. Instead this has sharply reduced the amount of imports into the country, which has slowed economic activity. In fact, the reduction in the deficit has been at the expense of double-digit inflation, simply moving around the very structural issues faced by the Pakistani economy.
In addition to this grim reality, sovereign debt continues to grow exponentially, with Imran Khan accumulating a record RS 7,509 billion in public indebtedness during his first year in power. In fact, the government projects this to increase by 47% in five years, that is over 78% of GDP according to the IMF, from who PTI desperately sought funds.
If this miserable condition is hailed as a success, the Muslims do not wish to see what Imran Khan and his team deem a failure. This regime has proven its inadequacy time and time again. We must look to an alternative economic order that will fix those systemic problems existing rulers have hitherto not even attempted to resolve, let alone fail at doing so.
On these particular issues, Islam would bring real change where others have evidently failed. Consider for instance foreign investment. Pakistan can no longer be highly dependent on attracting capital inflows at the expense of the masses, rendering the nation vulnerable to the sentiment of those abroad who are often influenced by geopolitical factors or speculation. Pakistan is rich in domestic resources and industry, with the potential to transform its economy into an export-led nation built around domestic strengths. By investing funds from the state (collected by a far more efficient taxation system), the Islamic Economic System could sharply improve the demand for goods and reduce its dependency on foreign investment in the domestic industry.
The Khilafah would also usurp the existing monetary system so that the people do not have to watch in frustration as their incompetent rulers sacrifice the value of their money in exchange for improving their current account; a well known tradeoff created by the fiat system.
Instead, bimetallism would return price stability and improve foreign trade due to its retention of value. Further still, with a new tax-revenue generating system, the state would collect vast sums to cease its dependency on foreign aid and debt, which have hitherto inhibited progress. In fact, upon inspecting the hoarders of wealth within the country, calculations suggest a 2.5% surplus wealth tax on only the top 35 richest men (including Asif Ali Zardari, Nawaz Sharif, Bilawal Bhutto and Imran Khan himself, in addition to the other elites) – would raise $4.2b dollars with ease. This, coupled with 2.5% of the average $4.5b that is estimated to have been lost to tax exemptions by the elite every year (Oxfam 2015), the state could raise approximately $5b from obligatory tax revenues alone from just one stream of the Bait ul-Mal.
Islam would also tackle a number of other structural issues currently plaguing Pakistan’s economy.
To prevent wealth circulating among the elite, the tax system needs to be operational and efficient. Wealth-based taxation is the most effective way to achieve this, as taxing higher rates on a larger number of lower incomes is less efficient than low rates on the vast surplus wealth of a few elites. Islam would also solve inequality in other areas. For instance, land in Pakistan is hoarded by the elite and vast hectares are left uncultivated (which is perhaps the greatest contributor to inequality and poverty along with the hoarding of capital). In fact, 50% of the country is arable, albeit in 2010 it was revealed that private holders with less than 5 acres of land made up 67% of privately-owned firms and countrywide only 6% of privately-owned farms were over 25 acres. Ergo, land ownership is highly concentrated among the elite. The caliphate would seize any land whose benefit was not extracted for three years due to what Umar ibn Al-Khattab said: “The one who circles a land has no right in it after three years” which was agreed as Ijma’a. This would reduce inequality by redistributing land to lower-median households who would then extract the benefit and bolster growth with greater agricultural output.
The Islamic Economic system made it a duty on the rulers neck to ensure that not one man is without his basic necessities. Uthman ibn Affan reported that the Prophet (ﷺ), said, “There is no right for the son of Adam other than these things: a house in which he lives, a garment to cover his nakedness, a piece of bread, and water.” (Tirmidhi). This is the antithesis of the arbitrary measures of living standards defined by the UN as a dollar a day, under which most people live in any case. Islam would direct food to the 60% who struggle to find it, clothing and shelter to the 20 million without it, so as to raise their prosperity to a well-defined level – and this is primarily funded by the revenues from zakat.
With the loss of value in the rupee, resulting in inflation and volatile exchange rates; the Islamic economy system would introduce a new monetary standard that will serve as a basis for prosperity. The bimetallic standard, as indicated by Islamic evidences, will keep inflation to a low and improve long-run price stability as its supply is not prone to manipulation by central banks.
Islam would put a swift end to corruption, which perhaps is the greatest contributor to budgetary mismanagement – where politicians are effectively bought and sold by elites at the expense of the people – most of whom make fake promises only to take out IMF loans to bail themselves out of the mess they created. In response to a poor fiscal revenue, they have enslaved the people with austerity in exchange for absolutely nothing at all. Prophet Muhammad (ﷺ) said: “The one who takes people’s wealth intending to pay it back, Allah will pay it back for him, and the one who takes it intending to waste it, Allah will waste him.” (Bukhari).
The recent IMF loan and those before it are a prime example of wasting the people’s wealth as 1/3 of the budget will go to servicing this debt and most of it will be on interest alone. As Pakistan now holds over $100b of external debt, the people’s wealth will continue to be wasted on servicing it.
Under an Islamic Economic System the caliph would cancel any colonial debt that existing rulers have accumulated at the people’s expense. As for the remainder, it will pay what it sees fit and negotiate the remainder without the interest. As a permanent alternative, the state would institute a multipurpose fiscal budget which will be used as a resource allocation and accounting mechanism whose revenues, range from the zakat, to the kharaj on land whose benefits are owned by the people and the ushr on land whose benefits and title are owned by the people, which would earn the state what is estimated to be sufficient to even cover the existing budget for over a year. There are several more revenues that are simple but efficient streams of state income (such as the Jizya, Faî, Rikaz, etc.) that PTI have failed to derive from the complex and weak taxation system.
For its expenditures, the Bait ul-Mal has specific streams that are outlined in the Shariah and there is no ambiguity therein. These are comprehensive in that they cover certain areas of the economy that will always receive funding from the state and they involve zakat; there are eight categories mentioned in the Quran:
إِنَّمَا الصَّدَقَاتُ لِلْفُقَرَاءِ وَالْمَسَاكِينِ وَالْعَامِلِينَ عَلَيْهَا وَالْمُؤَلَّفَةِ قُلُوبُهُمْ وَفِي الرِّقَابِ وَالْغَارِمِينَ وَفِي سَبِيلِ اللَّهِ وَابْنِ السَّبِيلِ ۖ فَرِيضَةً مِّنَ اللَّهِ ۗ وَاللَّهُ عَلِيمٌ حَكِيمٌ
“The alms are only for the Fuqara’ (the poor), and Al-Masakin (the needy) and those employed to collect (the funds); and to attract the hearts of those who have been inclined (towards Islam); and to free the captives; and for those in debt; and for Allah’s Cause, and for the wayfarer (a traveller who is cut off from everything); a duty imposed by Allah. And Allah is All-Knower, All-Wise” [Al-Tawbah-9:60].
In addition to zakat, other areas of spending involve financial support, allowance for state workers, welfare, public utilities, emergency reserves, etc. More importantly, if the state veers from the defined areas of expenditure (say for instance funding a US war in Afghanistan, funnelling money into tax havens, wasting it on useless projects) then the ruler would face the full force of the Court of Unjust Acts due to the many hadith including: Men who spend out the property of Allah without due right will go to the Fire on the Day of Judgement (Bukhari).
The Islamic Economic System would purge the market of monopolies and oligopolies that have dominated Pakistan. These small but powerful companies with high market shares are titans in their industry due to the hoarding of extremely inelastic goods that the people are deprived of. Such firms retract supply to charge higher prices and derive supernormal profits. These are companies with a share of 80-90% in sectors such as telecoms, water, railways, sugar, electricity, oil, etc. Islam would be quick to end them due to what the Prophet (ﷺ) said: “No-one monopolises except the wrongdoer” (Bukhari). In doing so it would sharply reduce prices that have been raised iniquitously and improve the supply of inelastic goods, which would increase the overall welfare of society. Islam clearly defines what can and cannot be owned, with a clear separation between private, public and state goods. In fact, goods that are often monopolised by the government, which they then charge for, such as water, electricity and the like are protected in the hadith: “Muslims are partners (associates) in three things: in water, pastures and fire” (reported by Abu Dawud). Anas (ra) narrated the same from Ibn ‘Abbas adding, “and its price is Haram (forbidden).”