THE implosion of the Greek economy, the rise of Syriza and the implicit blaming of Greece’s creditors for the country’s woes present important lessons that should be drawn upon. The danger is that many people, including in Pakistan, are preparing to draw the wrong set of lessons.

Greece got itself into a mess by not taxing sufficiently its richest elites, and by overspending on a bloated, overpaid and underworked public sector. Poor choices by politicians for decades, fully supported by a complicit populace that was only too happy to condone the perpetual postponement of serious structural reform, have finally caught up. Despite the massive and heartrending current suffering of ordinary Greeks, the foregoing is the sorry story of the saga which is unfolding in southern Europe. (In the villains’ roll call, one cannot not include the ever-willing ‘banksters’ who continued to bankroll Greece’s free-spending. But Greece created the conditions for borrowing, not the other way around.)

We have a number of similarities with the Greek situation. Consider:

Greece got itself into a mess by not taxing sufficiently its richest elites.

Only 0.3pc of the pious denizens of the Islamic Republic pay their taxes — or around 500,000 people among 189 million. The result: a combination of poor services, low ranking on social indicators and high levels of public debt. While Greece has a fairly respectable tax-to-GDP ratio, at around 22pc according to the World Bank, the similarity with Pakistan lies in how its elites are taxed — or not taxed.

Before the crisis, the tax evasion of a globetrotting, jet-setting Greek elite was, there is no other word for it, Olympian.

Shipping magnates, some of the wealthiest individuals in the world, enjoyed tax exemptions, concessions and waivers (as did the Greek Orthodox Church), on the one hand, and state support on the other. Some of the glitziest properties, with Olympic-sized swimming pools, had owners and residents who did not appear on the country’s register of taxpaying citizens.

When the Greek authorities launched the now-famous tax survey of 2010, satellite photos of wealthy Athens suburbs revealed 16,974 swimming pools — against 324 claimed in tax filings. In a survey of the top 150 doctors with clinics in the trendy neighbourhood of Kolonaki, more than half claimed income levels below the average monthly rent.

In Pakistan’s case, the minuscule list of taxpayers includes even those running global mega scams and paying just Rs22 a year in income tax, as well as many leading politicians with token contributions. Many of the country’s top doctors and lawyers, among others, shamefully fail to make it into the directory of the country’s taxpayers, while most that do, appear to be living hand-to-mouth judging by their tax returns.

An important corollary to the quantum of tax collection is the expenditure priorities of government. Here too both Greece and Pakistan appear to have made choices that have made their countries more indebted rather than more prosperous. In Pakistan’s case, the spending has generally benefited an already affluent elite — the ones that are not bothering to pay their dues — more than all the other sections of society.

The combined effect of low tax revenue and high levels of misdirected government spending (and corruption) is a mounting public debt burden. Greece’s debt at 175pc of GDP is 2.5 times larger than Pakistan’s, while its debt-service payments amount to a colossal 15pc of GDP, according to the IMF. Pakistan’s public debt is much lower in terms of GDP, but produces a substantial burden in terms of interest payments, which account for 29pc of total budgeted spending and 52pc of net revenue receipts of the government.

Given the reasons for the public debt build-up over a period of time, any set of proposals to address Greece’s economic woes has to have a judicious balance of debt relief versus austerity. Prior to the latest phase of the crisis, the earlier plans put forth by Greece as well as by Europe both lacked balance: Prime Minister Tsipras’ proposals relied heavily on debt relief and not enough on structural reform, while the Europeans had stubbornly ruled out any debt restructuring.

A further lesson from the Greek saga is about the dangers of populist politics. Politicians who have not done enough homework and make unrealistic promises to the electorate always stand a good chance of being swept to power — but are being disingenuous and almost always will fail in delivering. This was the case with Syriza, which, till its latest proposals, had sold the illusion to the Greek people that they could say ‘no’ to austerity while staying within the eurozone.

Since its dramatic rise and subsequent coming to power, Syriza has also indulged in a popular tactic too often employed not just by Pakistani politicians but other well-meaning people: blame someone else for your largely self-inflicted troubles. Countries that are truly sovereign take responsibility for their actions — as well as inaction. If the troika is imposing harsh conditions on Greece, or the IMF on Pakistan, the onus is on the countries that refused to walk the path of reform.

It is worth remembering that Iceland, Ireland, Spain and Portugal (to a lesser extent) have all made pain-inducing macroeconomic adjustment since the Great Financial Crisis of 2008 that has allowed them to pay off their creditors while restoring growth during the same period. Conditions are still difficult for Spain and Portugal but the worst appears to be past.

The final lesson from Greece, and yet another point of comparison with Pakistan, is the sense of entitlement on display. Linked to the earlier point, the Greek discourse is mostly about what Europe ‘must’ do for Greece, rather than what Greece must do for itself. The same narrative is pervasive in Pakistan and needs to change.

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

Published in Dawn, July 10th, 2015

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