LAST year at this time, Islamabad soothsayers had lulled us into believing that high economic growth rates are here to stay and that we are about to enter the club of middle income nations.

Yet barely a year later, we face an economic meltdown with potentially severe hardships for the common citizen. Why is the economy prone to such vicissitudes?

At the heart of the economy’s boom and bust cycles lies an inherently unstable federal budget. Given low private savings, the budget is the main driver of economic growth via the public investment programme. Furthermore, with tax revenue at a paltry 10 per cent of GDP, the public investment programme is heavily dependent on foreign assistance.

This would be fine except that we can’t seem to sustain the largesse of our foreign friends. Instead of anchoring national strategic interest in realisable economic objectives, we wander off into the quagmire of strategic depth, expensive weaponry and covert wars fought by uncontrollable and brutal non-state actors. This makes our friends nervous and they cut back the funding.

When friends pull back, we need to pare down aid funded lavish public programmes to avoid large fiscal deficits. What do we cut? Health, education and safety nets for the poor, of course, all sectors with weak political constituencies since the middle class and the rich have opted out of the public systems. This cycle has been repeated in the sixties (Ayub), the eighties (Zia) and in the 2000s (Musharraf), propelled each time by geopolitical crises on our borders.

Signs that we were heading towards the bad old days appeared a year ago. Public expenditure was rising fast despite poor capacity to design and implement new programmes. There was insufficient political accountability of programme priorities and therefore little public buy in, and tax yields were lagging far behind economic growth.

Perhaps the most egregious policy omission was the decision not to pass through international energy price increases to consumers. A workable institutional mechanism for the pass-through existed but political ambition intervened. In view of the approaching election, it was decided to burden the budget with subsidies rather than charge the consumers the true international cost of energy.

Mr Shaukat Aziz’s forbearance on the oil price pass-through has combined with an already fragile budget to bring the economy to the edge of the precipice. The implied fiscal deficit due to the oil subsidy is nearly four times what was anticipated last year. In other words, 40 per cent additional tax revenue is needed to plug the deficit in the budget due to oil price increase alone.

Because it is impossible to raise additional tax revenue on this scale in the short run, the government might be tempted to bridge the deficit by borrowing from the State Bank. This will cause a severe bout of inflation, credit for the private sector will be squeezed and economic growth will falter. Alternatively, the entire accumulated oil price increase could be passed through to the consumer.

According to some estimates, the poorest 40 per cent of the population will have to spend an extra 15 per cent expenditure on fuel, the middle class an extra 32 per cent and the rich an extra 53 per cent — in other words, all round political discontentment. An even graver source of discontentment would be the pass-through of the higher international food prices, which will push an additional eight to ten million people into the ranks of the poor. The food subsidy thus should be retained but streamlined to ensure that maximum number of poor people benefit from it.

The budgetary crisis has its counterpart in balance of payments difficulties. At current oil prices, the expenditure on exports exceeds the revenue from imports by 24 per cent ($28bn). This has bumped up the current account deficit to $9.9bn. With capital inflows, including foreign direct investment well below last year’s, the brunt is borne by international reserves. Current trends suggest that reserves will be gone by December and we will be back to ‘the lost decade of the nineties’.

This must not happen for two reasons. One is that the raging insurgency in the North West will feed on economic hardship and will spread to the settled areas of NWFP. A strong inter-connected Indus basin economic market is the best antidote to the fanatical Pakistani Taliban. The other reason is that democratic forces once again are left to clean up a mess not of their making. The return of democracy must not be associated with yet another period of hardship for the common man.

The solution lies in a two pronged strategy that (i) provides a balance of payments cushion ($10 to15bn over two to three years) to prop up international reserves and maintain critical public programmes and (ii) addresses the root cause of the problem which is the inherently unstable budget.

In the past, we turned to the IMF to bail us out of balance of payments difficulties. IMF’s rescue model rests on the assumption that it is the private sector that commits the excess via speculative bubbles and subsequent balance of payments difficulties. The recommendation thus is to cut private demand by tightening money supply. Public expenditure is also slashed to the minimum. The result is that economic growth is choked off, social expenditures paired down and there is misery all round. The excess is committed by the government and the elite that control it, and the price is paid by the common man!

Given our current political scenario, the standard IMF programme would be disastrous. Instead, we need to appeal to friends who have a stake in Pakistan’s stability and prosperity — Saudi Arabia, the oil rich Gulf States, US, UK, Japan — to put together a balance of payments support package that allows for economic growth and protects social expenditure, especially social safety nets. At the same time we should undertake to implement a reform programme to break out of the boom and bust budget cycle. Our budget reform programme should have two components, one to fix public expenditure and the other to fix tax revenues.

Greater public accountability in allocating public expenditure, increased capacity to design and implement sensible public programmes and strengthened monitoring and evaluation to ensure that programmes achieve the intended outcomes will increase public ownership of government programmes. This, combined with commitment to reform tax policy and its administration, will help in raising tax revenue.

What is proposed here is simple in concept but will take honesty of purpose, political will and technical capacity to implement. Any takers?

ijaz.nabi@gmail.com

A LEADING anti-globalisation scholar, Michel Chossudovsay, in his book, America’s War on Terrorism considers the prevailing and perpetual chaos in international politics as ‘sponsored anarchy’ by the neocons.

This is in line with the imperial doctrine of creating crises in pursuit of America’s geopolitical-strategic interests. To achieve these, the US needs ‘bogey personalities, bogey issues and bogey events’. It is in this light that one must see the unfolding events in the NWFP (Pukhtunkhwa).

Two weeks ago when the Mangal Bagh and Haji Naamdaar brigade abducted and then ‘effortlessly’ released peaceful members of the Christian community of Peshawar, eyewitness accounts reported the convergence of approximately a thousand armed vigilantes with glistening Kalashnikovs and state-of-the-art vehicles on the Surai Chowk, in the city centre. As they addressed frenzied, mostly terrified, citizens who were stranded in this mayhem, the roads remained blocked for an hour. This was in response to a missile attack against an alleged terrorist hideout in Mohmand Agency.

Subsequently the Tehrik-i-Taliban summarily slaughtered two suspected Afghan informers before a stunned crowd. As accusations were exchanged between Pakistan and Afghanistan, and Nato threatened action against cross-border militants, the political administration and both federal and provincial governments remained oblivious to the Taliban advances.

There was a shift in stance when the US administration promised an additional $400m aid for the ongoing war against terrorism, and the much reviled Richard Boucher came calling with a phalange of senators, supporting the military strongman president’s ongoing ‘war against terrorism’. Let’s also not forget the timing of the lawyers’ movement and Aitzaz Ahsan’s sojourn to the Washington DC, urging the US policy- makers for a paradigm shift in their current anti-democratic policies.

In keeping with the past precedent, when President Musharraf was threatened by the legal fraternity, the ruthless Taliban were unleashed on the idyllic Swat landscape destroying its peace. Subsequently the military operation mostly targeted civilians while sparing almost all high value Taliban leadership, including Mullah Fazlullah.

Later, the questionable ‘peace accord’ was rejected by the civil society members at the Sustainable Development Policy Institute-Action Aid-Human Rights Commission of Pakistan consultation at Peshawar, since the real representatives were not taken on board. The militants were forgiven for their excesses including the slaughtering of civilians and security personnel. The provincial minister for peace, Afrasiab Khattak did not turn up to defend the government on the peace accord.

The respectable Khans represented by former federal minister Afzal Khan, the former ruling Miangul family, Bar association and civil society members, the sizable trading and hotel industry representatives were totally ignored as the provincial ANP members from Peshawar signed the accord with the Taliban. The manner, in which the Tehrik-i-Taliban threatens to scrap the Swat peace accord, destroying scores of girl’s schools, a beautiful ski resort in Malam Jabba, colleges and police stations, speaks of a lack of guarantees and questions the credibility of the accord. “Nothing is more despicable than respect based on fear,” wrote Albert Camus. The provincial government’s evasive and wavering position confirms this fact.

The sagacious Wali Khan had openly questioned Benazir Bhutto’s first stint as prime minister in 1988, under former president, Ghulam Ishaq Khan and Mirza Aslam Beg, former chief of army staff. The PPP government had virtually no control on the Kashmir and Afghan policy and the ISI control. Ms Bhutto’s eventual dismissal was quite predictable. Earlier, when ex-prime minister Junejo, after getting a consensus from a round table conference of all political parties in Pakistan signed a durable Afghan peace accord in Geneva, he was summarily dismissed by Gen Zia. And later, when the CIA/ISI-sponsored Mujahideen takeover of Jalalabad turned into a fiasco, Afghanistan never emerged from that cauldron of hell.

The PPP-ANP-MQM acceptance of Musharraf as a de facto ruler on the instructions of the US, with virtually no control on the state apparatus since Pakistan’s unenviable embrace of the US strategic interests, would not allow an elected government to make independent decisions on economy, security and foreign policy — what Tony Benn considers, the “the purse, the sword and sovereignty”. Pakistan never possessed control of these vital matters.

Amazing but true, Mangal Bagh is vying for peace again and the political administration will predictably accept his demands, compensating him heavily for ‘damages’ during the army action primarily geared to deflect the agonised public over spiralling prices, the restoration of judges — besides, of course, to placate either a restless Nato or a choreographed rehearsal for Nato’s intruding forces — is open to speculation as there are many conspiracy theories.

The ongoing hyped operation will bear no positive results as Mangal Bagh and Haji Naamdaar took cover along with their paraphernalia, ahead of the military action; rockets raining on vacated housing. As in Swat, after a ‘truce’ and an ‘official pardon’ they will reorganise to stage more mayhem with greater ferocity.

Anything short of nabbing all belligerents including Baitullah Mehsud, Mullah Fazlullah and others would be mere hogwash to cynical observers. The security agencies, political administration, etc., responsible for the grooming of these non-entities into monsters need to take credible action rather than play a discredited media diversion.

As their lives and livelihoods get ravaged, the irony of helpless war victims is that they are being arrested under FCR in the absence of human rights bodies. Even more gruesome is the deregulation and structural adjustment regime, the hamstrung government has agreed to on Washington’s terms. Our choice to either live or even die is decided in the echelons of power far away, with billions of aid money pouring in for this so-called ‘war against terror’ amid perpetuation of poverty and hunger with the surge in fuel, food and even domestic resources like gas. There is no respite from the elected government as it is only ruled by proxy.

‘Comrades’ of the past, the ANP and PPP have sadly done a U-turn on their electoral idealism. The resolve to tame the presidency and empower the parliament has become irrelevant. What’s worse is that the electoral pledge to integrate Fata into the NWFP or grant it an autonomous status seems forgotten.

At least, the proposed constitutional amendments, such as the political parties and local bodies acts, need to be introduced to give the people a semblance of freedom, and not condemn an entire population to the marauding wahabi-sponsored brigades, on the one side, and firing squads of the military on the other. Will the UN take notice of the massacre of innocent people of Pukhtunkhwa?

adilzareef@yahoo.com

YOU can’t blame Boris Johnson or Ray Lewis for being more baffled than mortified at what has just come to pass. “What is the big deal?” the chaps must be muttering to themselves.

In the surf waves that crash in of political corruption and frequent transgressions, the scandal of the London Deputy Mayor is but a droplet. So, Lewis was investigated by the Met (three times, mind) in 1997 for alleged blackmail, then in 1999 after being accused of theft, and there were whisperings about sexual harassment. Not good for a former vicar, deputy prison governor and self-proclaimed saviour of black boys, admittedly, but was it really necessary for him to be pushed off so ignominiously?

Many don’t think so and are indignant. They include Iain Duncan Smith, Francis Maude and Stephen Norris. Lewis may have been economical with the truth but, says one friend, the man was never crooked, he just had an “imprecise view of the world”. What an imaginative excuse. The shady and shifty should use this one the next time they face stern Milords. Even Ken Livingstone, who stalks Boris like a vengeful ex-spouse, thinks Lewis, like everyone, just has a past.

Other prominent figures were self-righteously outraged when James McGrath, Boris’s chief-of-staff, departed last month after “unfortunate” throwaway (not giveaway) comments he made to a black journalist suggesting that Caribbean Britons who said they would go back “home” if Boris became mayor could freely do so. These creatures of power and influence have been swimming in polluted waters and they cannot smell, see or touch the dirt. The idea of ethics and temperance in political life has receded so far that it is invisible to their eyes. When censured, therefore, it feels to them as if they are being sharked upon by a vicious press and public.

I met Derek Conway recently and there was no tremor of culpability anywhere on the jolly old geezer. His well-paid, indolent boys are even more brazen. And now Conway says MPs should get a (pounds sterling) 200,000 salary to attract exceptional minds like his, I guess — indispensable men of character. The Wintertons are similarly blase about robbing the taxpayer by making a claim of (pounds sterling) 66,000 on a house which had no outstanding mortgage. Now we are paying for new rented quarters for this hideous couple, one a knight of the realm.

George Osborne, it has been revealed, received thousands of pounds for making a speech at a private business function. New Labour doesn’t dare to condemn “Tory sleaze” because on its watch sordid deals and favours have become the norm. Under the Blairs, corruption got worse than under the bad old Tories and Brown has not yet shown he understands how much cleaning up there is for him to get on with.

“Poor me” Cherie still can’t see why we despise her grossly excessive lifestyle and her holidays with Berlusconi. Wannabe deputy leader Peter Hain is being investigated for his fundraising methods. For some inexplicable reason, super-generous donations from friends of Israel remain unexplained. And now MPs, mainly Labour, including Jacqui Smith, and Andy Burnham and Peter Kilfolye (so-called man of the people) voted to keep all the their unfair perks, including the staggering John Lewis list. An independent commission suggested they mend their wicked ways and this lot have simply ignored it.

Remember Elizabeth Filkin, the fine Parliamentary Commissioner for Standards? They got rid of her fast because she challenged this lax political culture. She didn’t understand, apparently, that everyone was at it, the so-called “Dagenham defence”, used by Ford car workers when caught smuggling out stolen goods. In 2006, a weary Alistair Graham, chairman of the Committee for Standards in Public Life, also had to go because he took his job seriously.

In Martin Bell’s book, The Truth That Sticks, he writes: “Standards of conduct have fallen shamefully. Now the time has come for them to rise again. Reform is not only due, but overdue.” The civil service, quangos, public service trusts and charities do not flout rules and corruption is not tolerated. But politics more and more swims free from constraints, contaminating itself and good people who became MPs who still try to do the right thing. In 1995, the Nolan report defined seven probity principles: selflessness, integrity, objectivity, accountability, openness, honesty and leadership.

In 2008, this list is as archaic as the ten commandments. Anything goes in politics. That being the case, you can see why it is so very hard for Lewis and Boris, and was previously for Ken and Lee Jasper. Why punish only small fry swimming with the big fish and the tide of filth? A fair question, and one that will not be silenced by the resignation of Lewis.— © The Independent, London