PAKISTAN’S economy received several nasty jolts in the last several months. Some were delivered by the developments over which the country’s policymakers did not have any control. These included the inexorable increase in the price of oil which has affected all oil-importing countries including Pakistan.

There has also been an increase in the price of agricultural commodities Pakistan must import to meet domestic demand. These include wheat and oil seeds.

There were other jolts to the economy for which policymakers must take full responsibility. These include the shortage in the generation of electric power which has resulted in load-shedding that is taking a heavy toll in terms of both lost output and great discomfort to the citizens. Most affected by this shortage are the less well-to-do segments of society who cannot afford to buy alternate sources of electric supply such as portable generators.

These shortages should have been estimated by the previous administration and appropriate investments should have been made. Instead, for eight years, Pakistan did not make investments in electric power generation while the demand for electricity continued to increase at nearly seven per cent a year. This has left the country with a demand-supply gap estimated by the government at 4,000 megawatts.

Compounding these problems were the decisions taken by Islamabad to spend carelessly in order to help the party in power in the elections of Feb 2008. Public expenditure was allowed to increase way beyond the resources available to the government by way of tax and other revenues. The result was a ballooning of fiscal deficit estimated at 9.5 per cent of GDP by Ishaq Dar who was the minister of finance in the first coalition government to take office after the elections.

A significant part of this deficit was financed by borrowing from the central bank which added to the inflationary pressures already present in the economy. This produced price increases without precedence in Pakistan’s history. Once again it is the poor and the not-so-well-off segments of society that are suffering. Unless help arrives soon, Pakistan may begin to see political and social pressures building up. Considering the weak state of institutional development in the country, it would be hard to contain these strains.

The new set of political leaders, who have come to power, is being advised to adopt adjustment measures to deal with the pressures under which the economy is labouring these days. The prescriptions being offered are the usual ones: contain government expenditures by cutting spending on both current and development parts of the government budget, raise resources by expanding the tax base, provide relief to the poor by giving them cash transfers and by creating jobs for them by starting rural and urban works programmes, take advantage of the fall in the value of the rupee by encouraging exports, and make non-essential imports more costly.

In a report released by the new Lahore-based Institute of Public Policy that I chair, the government was also advised to transfer greater authority to the provinces and to the institutions of local government. This will help with the process of adjustment since it would bring economic governance closer to the people. We also advised the government to make sure that the design of adjustment policies ensured that future growth was not compromised. This was done in the 1999-2002 period when, following the advice of the International Monetary Fund, the then administration applied hard breaks to the economy.

This, as indicated above, is the standard advice given to most governments dealing with difficult economic situations. Pakistan, however, needs to do much more than follow the standard prescription. It needs to adopt an approach and develop a strategy that lessens the grip on the economy of several powerful vested interests. Over time, the Pakistani economic elite has increased its influence on the making of public policy.

The extent to which this has happened is clearly shown by some simple calculations. The latest World Development Indicators published by the World Bank provide estimates for all countries of the share in national income of various segments of the population. In Pakistan, the top 10 per cent of the population claims 26.3 per cent of the total national income while that of the bottom 10 per cent is only four per cent. This is one of the sharpest differences in the developing world: the rich receive 6.8 times the amount of national income that accrues to the poor.

However, a comparison of the shares in national income does not fully reflect the amount of real inequality between different classes of people. The rich have much better access to public services than the poor; the state generally looks after their interests much more than it does for the poor.

What makes these income differences even more problematic is that they are widening as a consequence of the growth model followed by the Musharraf government which favoured the rich. The sectors that flourished under President Musharraf did little for the poor while they provided large amounts of incomes and asset appreciation for the rich. The recent price increases in food commodities have added further insult to the injury inflicted by the pursuit of the growth model.The poor’s real income will decline significantly if food and fuel prices are allowed to eat into their disposable incomes. Not only is the price increase hurting the poor, the latter are also being affected by the various shortages that have appeared in the economy against which the rich can protect themselves but the poor are left to fend for themselves.

In fact, the rich have succeeded in creating large cocoons around themselves, thus isolating themselves from the less fortunate citizenry. They have built gated communities, protected by private security companies; they send their children to expensive private schools that provide education of reasonable standards; they go out over the weekends to shop in the malls of Dubai and go for summer vacations to various watering spots in Europe.While one should not grudge this lifestyle, it cannot be sustained in the midst of great and growing poverty. And it must not be sustained at the expense of the poor. Public policy must address this problem to ensure not only sustained economic growth but also social and political stability.

ON Saturday morning, Xu Ziwen strode through the gap the police had forced in the ranks of waiting parents and said the words that, even if no one believed him, everyone wanted to hear: ‘No problem. It was easy.’

Behind him a horde of track-suited teenagers poured out of the examination halls into the pale sunshine of Beijing.

Xu had just done the first part of an exam taken by the most people ever at one sitting, the Chinese school leaving exams or gaokao. This weekend more than 10 million 18-year-olds across China sat through four critically important papers. Now, they will celebrate –– or simply sleep. ‘A piece of cake,’ bragged Xu Ziwen as he cycled off.

But with only six million university places, many risk disappointment. In today’s increasingly market-oriented China, where high school and university are now the norm for urban populations, the results posted online at the end of the month will decide not only who will go on to further education but can also determine the future of the students and their families.

‘The gaokao now sets up your future life and your future social status,’ said Professor Lao Kaisheng, one of China’s top education specialists. ‘If you are poor, it can make you rich. If you are rich, it can make you poor. The exams are one of the very few ways to change your life in modern China. They are critical to social mobility.’

The exams are certainly important enough for Beijing’s main Buddhist temple to be packed last week with parents or friends of candidates seeking divine aid. Spinning prayer wheels, Shang Bing and Shi Yue, 17, said they were already worried about their exams next year. ‘There are more and more candidates and so there is more and more pressure,’ Shi Yue said. ‘The exam is the step that begins your life. You can’t afford to set off in the wrong direction.’

The gaokao is important in other ways too. With China’s social welfare system at an embryonic stage and the old safeguards of the centrally planned economy long dismantled, many parents are looking to their offspring to support them in later life. As most of those sitting the exams are only children –– a result of China’s long-standing one-child policy –– the responsibility laid on 18-year-olds’ shoulders is even heavier. Some families will have invested huge sums.

Authorities do their utmost to ensure the exams run smoothly. The papers are classified as ‘top secret’ –– upgraded this year from ‘secret’ –– and are kept under armed guard. Leaking information about the test attracts heavy prison sentences.

In Beijing’s Haidian district, more than half a million text messages were sent to residents reminding them not to distract students by shouting or using car horns, while authorities stop traffic to allow candidates to get to and from exam halls. The Education Ministry has also ordered universities to set aside places for students from Sichuan and Gansu, where the exams have been delayed following last month’s earthquake.

‘The gaokao is the heart of the whole educational system, which is in turn at the heart of the whole government system,’ said one western expert working in Beijing. ‘If the education system cannot provide for ordinary people to lift themselves out of poverty through hard work and raw talent, then that seriously undermines the legitimacy of the Chinese Communist Party. Equally, the party is plugged into the education system all the way through and uses it to draw in the best and the brightest to manage the country. It relies on the education system as much as anybody does.’

The importance of the tests is underlined by the likes of Cathy Huang, a 23-year-old who came first out of 100,000 candidates in Fujian. She is now at Beijing University’s Business Studies Centre, one of the most sought-after faculties in the most prestigious university, and has already been taken on as an intern by major Western banks.

Her parents, a policeman and a worker in one of China’s remaining state-owned factories, invested much of their slim salaries paying for extra tutors. ‘I come from a simple background,’ Huang said. ‘Because I did well, I get a scholarship for my first four years of further education.’

Yet some resent the ability of wealthier parents to pay for extra tuition or for the costly foreign language schools whose pupils, prized by the universities, are often taken regardless of their results. And for those who can afford it, there is always the overseas option.

‘I am not too worried,’ said Li Bing, a 50-year-old manager turned legal academic, who was standing outside the Renmin University High School as the first day of exams drew to a close. ‘My daughter is a bright girl, but if she doesn’t do well I’ll send her to Hong Kong or the USA.’ Around him, other parents paced nervously, volunteers dispensed cups and an ambulance crew waited discreetly. Mothers swapped stories of their nervous children waking them at 3am, unable to sleep. When Li Bing’s daughter finally emerged, long-faced, it looked very much as if she would be heading to America.

There is much criticism of the exam as a test of memory that neglects creative thinking. ‘Students just learn what is tested,’ said Qu Husheng, 52, a teacher at No. 13 Middle School in Wuhan in central China. ‘It isn’t at all imaginative.’

Yet questions in the gaokao, coloured by centuries of civil service tests for mandarins, reveal a mix of current concerns and traditional influences. Last year students were asked to write an essay on ‘a mother tongue as the bearer of a people’s culture’, on the statement that ‘the drizzle dampens clothes but cannot be seen... flowers fall to the ground without a sound’, or on the proposal that ‘life is like climbing a mountain... even a small step ahead is a new height’.

The vital Chinese composition test sat simultaneously by the 10.5 million candidates on Saturday was based on a philosophical example involving a tumbler holding water, sand or pebbles. Students had to answer the question whether the glass was half full or half empty.

––The Observer, London