May 22, 2006	Monday	Rabi-us-Sani 23, 1427

THE coming budget is likely to be the second last to be presented by the present regime, given the possibility of new elections, as provided by the Constitution. It will therefore, at best, try to prepare the way for cosmetising the economy to enamour the electorate to vote for the incumbency.

The new budget could also provide the prime minister, who continues to oversee, if not always direct, the government’s economic management strategy, to review his six-year stint as the regime’s financial wizard.

The presentations made and the (inevitably polite) discussions that followed at the recently-concluded Pakistan Development Forum, which is primarily intended to woo the donors for the continuation of the indispensable financial support since 9/11, make it clear that it is not going to be a smooth sailing for the economy in the next few years, unless radical changes are made in the way the economy is being driven now.

An emerging worry is the likelihood of a severe drought and widespread shortage of water, although the government remains in denial of this threat. If it does come about, as seems more than likely, it would adversely affect the performance of agriculture, which has played a key role in Pakistan’s growth story in the recent past.

The theme of this year’s PDF, “Drivers of economic growth – unleashing the potential of the private sector”, made it quite clear who our economic managers and their foreign partners, wished to take the driver’s seat.

The economy is being driven increasingly with the interests of domestic and foreign business in mind, while the public interest, including that of the poor, has been left, by default, largely at the mercy of a weakened, ill-equipped and corruptible bureaucracy, supplemented by the meagre, if laudable efforts of a nascent, amorphous and inconsequential civil society.

Most independent economic analysts, seem to agree that the last three years’ economic performance has resulted from a confluence of favourable domestic and external factors which cannot be sustained in the medium-term without giving further rise to macroeconomic imbalances in foreign trade, inflation, exchange rate stability and foreign exchange reserves, that have started emerging in the economy and which have been highlighted, among others, by many prominent delegates, especially of lending and donor agencies, to the PDF.

What then are the apprehensions about the sustainability of Pakistan’s fleeting tryst with economic fortune which was anchored in its waning geo-political importance? Pakistan’s recent (2002-05) growth experience can well be categorized as an unstable “growth acceleration” which Prof. Dani Rodrik of Harvard has discovered in many episodes of developing country experience, which are not based on any fundamental changes in underlying economic factors, but are the result of favourable domestic or external shocks. Consequently, they can’t be relied on to sustain the momentum of growth in the long-term.

What stands in the way of the sustainability of long-term growth and development in Pakistan are the existence of a number of critical political, economic and social inadequacies, which have given rise to a pattern of unbalanced development that has become a chronic barrier to national progress.

The most glaring political deficit is the credibility gap of its ruling classes, which has dissipated the energy and enthusiasm of the masses who look with disbelief at the disconnect between the grand designs of the government and the unchanging, even worsening, conditions of the common people. It has also provided, one hopes unwittingly, the fuel to fan the unceasing fire of religious and sectarian violence.

The absence of political democracy at the national level and its substitution by surrogate institutions of decision-making lacking in legitimacy, which have resulted in the emergence of a democratic deficit contributing to the unbalanced patterns of development, devoid of public ownership.

On the economic front, which is more pertinent to the present discourse, there are numerous instances of emerging imbalances in various spheres which threaten to stall the forward movement of the economy and the process of development.

The three that I shall focus on are: the equity-growth imbalance; the private-public imbalance and the regional imbalance. Many other imbalances, emerging as well as abiding in nature, such as the rural-urban, the savings-investment and fiscal-monetary imbalances, inflation and external balance would require much more space than available at present. Moreover, they have received considerable attention in the press in the wake of the State Bank’s recent much-acclaimed quarterly report.

Pakistan’s economic managers have always found it much more comfortable to drive (a metaphor that has become particularly apt as it vividly depicts the urban landscape crowded with new credit-financed automobiles) on the high road of growth than in the dreary, dusty alleys of equity and social justice, paved with little else but good intentions.

Growthmanship, born and bred in the neoclassical wonderland of “turnpike theorems” of the 1960s, which had for a time been put on a back-burner, has started to stage a comeback in the perennial search for a short-cut to economic development, which, as economic historians are fond of reminding, doesn’t exist.

Growthmanship did not deny the need for equity, but claimed that it provided the best and shortest way of achieving it. Let the cake become bigger, before asking for an equitable share, otherwise we will have nothing but poverty to share.

But the trickle down was painfully slow and although the national cake kept getting bigger, the poor didn’t get a substantial slice in lieu of the bread on whose lack the modern Marie Antoniettes of the world advise them not to make much fuss about.

Unfortunately in Pakistan, we awakened to the problem of poverty and inequality rather late in the day. There was ample evidence since the 1970s about the seriousness of the poverty and inequality issues, but our economic managers, belated responded not by reversing the policies that were leading to this grievous situation, but by conducting studies and manipulating data in a way that would justify the past policies.

Poverty and inequality studies became a numbers game, instead of providing guidelines for action and reversal of policies that gave rise to these imbalances in the first place.

Instead of waging a war on poverty, the elite engaged in internecine battles to carve out the fruits of growth among themselves. There is no doubt a lot of awareness and research on these issues than in the past, but it has been used more as a smokescreen to avoid radical public policy measures in the desired direction.

Our growth policies have made neither any significant dent on poverty nor any breakthrough in achieving greater equity in the distribution of the fruits of growth, transfer of incomes or redistribution of assets. As the presentation of the Planning Commission to the PDF candidly admitted, Pakistan is far from being on track in achieving the main MDG targets, contrary to the claims often made at the highest level of the Government.

A second emerging imbalance has been the declining role of the state in development and the dominance of the private sector, especially in crucially important areas where public goods play an important role, such as social sectors, including health and education, and public utilities, as well as key and heavy industries.

No country in the South Asian region has jumped on the Washington Consensus bandwagon, especially in regard to privatisation, so hastily and uncritically as Pakistan. In some cases the Pakistani economic managers, in their zeal to obey their Washington mentors, have tried to outdo the latter, who themselves are beginning to be critical about the former’s “laundry list” approach to reforms. In Latin America, long considered to be America’s dependable backyard and for whose redemption the Washington Consensus was originally conceived, is now openly defiant with Bolivia nationalizing its energy industry.

It is ironical that while we are far from achieving the target of achieving a 25 per cent investment to GDP ratio, we are busy disinvesting from some of the key sectors needed to strengthen our fragile industrial base. The foreign investment we are attracting is being channelled to buy our undervalued assets, rather than in making new investments.

While UAE continues to resist the US pressure to open its telecom sector, we have allowed its national monopoly to buy our national telecom flag carrier. The fire sale of our national assets would have made some sense when we were under heavy debt burden or if its proceeds (whose use is shrouded in secrecy) were earmarked for poverty reduction or education.

Instead, while our resources are being used to build mega infrastructure projects in the misplaced hope of attracting FDI, which is inhibited mainly by political and other factors, we are massively privatising the social sectors, especially education and health, which are going to create enormous imbalances in our society. The government’s privatisation agenda needs to be revisited, its rationale redefined and its contours reconfigured.

The most unsavoury and potentially disuniting effect of the economic policies followed in the current decade is the emergence of regional imbalances in development, which are manifesting themselves in unprecedented regional tensions since the creation of Bangladesh.

There is a widespread perception, though not yet adequately documented, that the present economic boom in Pakistan is largely restricted to its largest province.

Unless the government makes a paradigm shift to take account of the emerging imbalances, it is hard to see how the present growth momentum can be transformed from a transitory phase to a process of sustained development over the long-run.

sm_naseem@hotmail.com