By most accounts 2011 was yet another difficult year for Pakistan’s economy. Stalled reform, energy shortages, floods, political uncertainty and a dramatic rise in geopolitical tensions all but overshadowed the few bright spotsi on the landscape, such as record exports.
The year gone by also saw deterioration by another important measure — governance. With scandals getting larger and more brazen, the losses of public sector enterprises rose to the point where the solvency of many entities was severely eroded and the entire fiscal framework compromised. Policy drift and bad governance culminated in the unceremonious lapse of the International Monetary Fund programme during the year, under which disbursements had been frozen since May 2010 due to poor performance by Pakistan. The deterioration in governance came at an unfortunate time, when the operation of the seventh National Finance Commission award and the half-baked formulation and implementation of the 18th Amendment were placing heightened stress on the consolidated budget.
Exacerbating the challenges (and underscoring them at the same time) was the high degree of attrition of key government policymakers over the past two years.
The resignation of Shahid Kardar as governor of the State Bank of Pakistan this summer followed the departure of Syed Salim Raza from the same position and of Shaukat Tarin from the finance minister post in 2010. Kardar became the second governor to leave halfway through his constitutionally-mandated three-year term since 2008, while Tarin was the third finance minister to leave office prematurely in the past three years.
In addition to these high-level departures, a significant number of senior bureaucrats have been axed or reshuffled since the PPP-led government took office. The tally includes four finance secretaries, a number of establishment division secretaries, and principal accounting officers in the railways, petroleum, and water and power ministries, among others.
The common element in most of these personnel changes appears to have been the upright reputation of each individual involved and their reported refusal to follow dubious directives.
An example of the triumph of vested interests in pushing through self-serving policies after the exit of officials blocking the way was the abandonment of the automated customs-clearance and risk-management system called Pakistan Customs Computerised System, which was developed by a third party. While international best practices, our own experience with maladministration and corruption in customs, and a damning report by the Federal Tax Ombudsman’s office all point in the direction the Federal Board of Revenue should have taken — strengthening its automated clearance capability in a transparent manner and instituting a stronger risk-management system — the FBR chose to do the complete opposite: de-automate customs.
Another glaring example was the stand Tarin took against rental power projects. After his departure, the norms and internal agreements set to deal with the issue in the light of a damning report by the Asian Development Bank were ostensibly discarded, paving the way for further gratuitous abuse of the policy.
Apart from highlighting governance issues, the abrupt departure of a large number of senior policymakers in a relatively short span of time also disrupted policymaking, resulting in a combination of policy limbo and shifts that sent confusing signals to economic agents.
The sharp reversal in the course of monetary policy — and prima facie in the level of oversight of the banking system — immediately following Kardar’s exit from the SBP was a recent case in point. While monetary policy was calibrated since 2008 towards fighting entrenched inflationary pressures and pre-empting another episode of pressure on foreign exchange reserves and the rupee, the reduction of the discount rate by 200 basis points since September increased vulnerability on both counts.
All in all, the high turnover under the present government of policymakers with honest reputations compounded the challenge of managing a deteriorating economy.
— Sakib Sherani is a former economic adviser to the government
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