THE big electoral win in Greece for the anti-austerity, far-left party Syriza is hardly surprising. After years of wanton economic management and fiscal excesses that included not taxing the rich elite and living off debt and transfers from abroad (sound familiar?), Greece’s party popped. A staggering sovereign bailout package was put together on the back of a gut-wrenching programme of fiscal austerity.

A centrepiece of the austerity package is massive retrenchment of the bloated, inefficient and overpaid public sector in Greece. Jobs have been slashed, and wages and pensions have been drastically cut. A relatively well-off middle class comprising teachers, university professors, civil servants etc. has been down-shifted to a hand-to-mouth existence for many — while new entrants to the job market, most with university degrees, have little or no hope of finding employment within Greece, with many having been forced to emigrate.

A significant difference between how Greece was allowed to go kaput and its bailout drawn up by the troika of the IMF, ECB and EU, and the more frequent but much smaller bailouts for Pakistan (and Egypt), is that Greece does not earn ‘geopolitical rents’, and hence was required to pay ‘full price’. As noted by Ehtisham Ahmed and Azizali Mohammed in a recent paper, the easy availability of external assistance and grants has served as a form of ‘Dutch disease’ for Pakistan and held back serious reform.

The other difference, of course, is that Greece has to deal with Germany. To the free-spending Greeks, the Germans appear to derive Teutonic pleasure from being austere. (In a delicious coinage, the Financial Times had dubbed German Chancellor Angela Merkel as the ‘Ayatollah of austerity’ a few years ago!). The German’s ‘no free lunch’ ethic is diametrically opposed to some of the southern European countries thinking on the subject — and dare I say, appears to be blasphemous to most of the pious denizens of the Islamic Republic as well.

The discourse in Greece regarding reform, fiscal austerity and economic growth is not dissimilar to Pakistan.

Returning to Greece, and its somewhat eccentric new finance minister’s still-sketchy proposal to convert its sovereign bailout-related debt into some form of ‘growth bonds’. On the face of it, this proposal is intuitively appealing. It will effectively restructure Greece’s rather large external debt, providing a ‘haircut’ to existing creditors and extending the maturity of the loans. Softer repayment terms will ease the budget constraint, while also allowing Greece to opt out of painful austerity. Under this narrative of hope, the resulting return of higher economic growth will be beneficial for everyone — ordinary Greeks, the cash-strapped Greek government, and perhaps the debt holders who may be able to ‘participate’ in Greece’s promised prosperity.

Until, of course, the next crash of Greece’s economy. The problem with narratives of hope is that, not unlike a second marriage, they are invariably the triumph of hope over experience. Even if Greece can manage, under the new government’s proposed programme, to kick-start its moribund economy, without the necessary underlying reforms which the country has been successfully avoiding for decades, it will run full circle and end up at the same dismal starting point within a few years. An episode of economic growth will serve to temporarily camouflage the underlying weaknesses and fault lines, but left unaddressed, these will soon exert their influence and interrupt the growth trajectory once again.

The recent discourse in Greece regarding reform, fiscal austerity and economic growth is not dissimilar to Pakistan. The conventional wisdom in Pakistan, exalted to a deeply held article of faith, is that a return to high levels of growth is the panacea for the country’s wounded economy. If this comes from debt-fuelled binges, or a ‘mega-development’ project that could well be laying a train track to the Pamirs, so be it.

As in the case of our fiscal cousins, the Greeks, our narrative and discourse are marked by a fundamental misunderstanding of fiscal ‘austerity’, and an obsessive fixation with economic growth. Economic growth, by itself, is not going to solve Pakistan’s, or Greece’s, problems. Growth is a necessary, but not sufficient, means to an end (a stage of development) — not an end in itself. How economic growth is achieved — either on the foundation of institutional and structural reform, or via a wanton accumulation of debt — will determine both its durability as well as its ‘quality’.

Similarly, the notion of fiscal austerity in Pakistan generally implies one thing only: the slashing of the public-sector development programme. For this we have to thank poorly conceived and badly designed IMF programmes. In its ‘true’ interpretation, fiscal austerity refers to raising tax revenue from under-taxed or untaxed sectors of the economy, as well as curtailing non-prioritised, wasteful expenditure (such as pork-barrel projects of politicians).

Our application of fiscal austerity has been the exact opposite of what it is designed to achieve. As under the current IMF programme, we are burdening existing taxpayers with notices and demands, while starving many good initiatives and government programmes of even relatively small amounts of funding. At the same time, unnecessary, vote-grabbing pet projects of the ruling party are protected from budgetary cuts and fully funded.

With this warped sense of economic priorities, is it any wonder that we have the money (Rs50 billion) in the budget for completing the metro bus project, but not opening letters of credit for oil imports? Or, that the government couldn’t accommodate Rs5bn in the budget for subsidised gas to Tuwairqi Steel Mills, a state-of-the-art plant — a joint venture of investors from Saudi Arabia and South Korea — which has since closed down, with the loss of 1,100 jobs?

As Greece’s election result shows, the preferred fiscal state of voters worldwide is for low taxes and high spending. If vision-less politicians pander to this notion as well, a Greek tragedy is never far away.

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.

Published in Dawn, February 6th, 2015

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