WHILE a lot of focus has been garnered by the operational mismanagement of the economy by the PPP-led government and its coalition partners in the past four years, some structural weaknesses that have been introduced to an already enervated framework for managing the economy have escaped notice and debate.
The architecture of economic planning and management in the country needs structural improvement for better outcomes.
For starters, instead of buttressing the status of the Planning Commission as the apex strategic planning, coordinating, monitoring and reporting authority of the government on economic policy, it has been made, for all practical purposes, part of the cluster of divisions reporting to the finance minister (alongside finance, revenue, statistics and economic affairs).
The deputy chairman, always a powerful figure in the government throughout Pakistan’s history with the rank and status of a federal minister, has been granted the rank of a minister of state — and ousted from the cabinet.
This regressive measure brings to full circle the shift of the centre of gravity of economic planning and management from the Planning Commission to the Ministry of Finance that had started in the 1990s. The ‘mission creep’ of the Ministry of Finance took place on the back of two developments: first, the steady decline in the capability and capacity of the Planning Commission as most of its finest minds took jobs in the World Bank or the IMF; second, the start in the late 1980s of Pakistan’s protracted borrowing engagement with the IMF made the Ministry of Finance the Fund’s counterpart authority in the country to negotiate and implement the various programmes that Pakistan signed up to.
The displacement of the Planning Commission from its vantage point, and its replacement in the driver’s seat by the Ministry of Finance, has had two adverse consequences. First, there has been no credible and independent formulation and evaluation of long-term economic policy as a result. Since the Ministry of Finance is hardcoded to work on a 12-month budget cycle, at best, it cannot think “beyond its nose”, or beyond fire-fighting. After Pakistan’s frequent borrowing trips to the IMF, this 12-month cycle has been further truncated to three months by the quarterly review process of a Fund programme — dramatically shortening the duration of the economic planning horizon in the country.
Second, the lack of ‘policy tension’ between the Planning Commission and the Ministry of Finance has deprived policymakers with a credible, alternate model that challenges the dominant IMF-Ministry of Finance view and economic road map under which growth is a ‘residual’ after the fiscal adjustment process, not a target. The value of such an input was underscored by the Panel of Economists report of the Planning Commission in 2008 that sought to provide a home-grown alternative to the IMF programme.
The gradual shift in importance from the Planning Commission to the Ministry of Finance has had a few self-reinforcing outcomes. The Planning Commission is not regarded as the apex economic institution of the country, and hence, fails to attract the top talent required. And, it has not been able to develop a robust alternative narrative to the economic philosophy in place, or even credible macroeconomic models to track the economy and explain or predict changes due to a lack of capacity, motivation and, perhaps, incentive.
The New Growth Framework launched under the current deputy chairman did introduce some fresh thinking and intellectual vigour into the Planning Commission — but much of it was not ‘institutional’, with the work done mostly by a team of outside experts and fresh recruits, who have left since.
In addition to restoring the Planning Commission to its former central role in economic planning and management, while rebuilding its institutional capacity, a number of other measures will need to be taken to improve the framework of economic policymaking and execution. Among these, a fundamental step would be to reverse the fragmentation of ministries that has occurred over a period of time, and has accelerated to unprecedented levels under this coalition government. A result of this disintegration of functions over a larger number of ministries has been, not surprisingly, an increasing lack of coordination and policy gridlock (in addition to uncalled-for expense).
Amongst the most visible examples of how the government response to an issue has been hindered by the proliferation of ministries is the case of the energy crisis. It is widely believed that a more effective response to Pakistan’s short-term as well as long-term energy needs would have resulted from having one single authority or ministry in charge of energy affairs rather than several as at present. The same logic applies to the various ministries dealing with industries, production, commerce, textiles and investment — with Japan’s formidable Ministry of International Trade and Industry or MITI (later METI) providing a successful blueprint.
This state of affairs has been worsened by weak leadership both at the Economic Coordination Committee level, where formation of committees and sub-committees has replaced hard decision-making, as well as at the cabinet level by one of the most disinterested and hands-off prime ministers in recent memory in terms of managing the economy. The lack of interest or performance by the prime minister reinforces calls for having an ‘economic tsar’ in a newly created post of deputy prime minister to oversee the economy.
Parliament also has a role to play in the formulation and review of economic policy, which it has willingly abdicated, barring a listless and ritualistic discussion on the annual budget. Another missing element has been a specialist (or ‘mandarin’) bureaucracy which will connect the dots and implement the policies. (An added advantage of mandarins could be that they may refrain from producing meaningless paeans of praise for the government, such as the recent presentation to the cabinet on the economy, and have more courage to present the truth).
Finally, a more robust framework will be needed post-18th Amendment to coordinate policymaking between the centre and the provinces. With all these elements in place, a more coherent framework for formulation, execution and review of economic policy should emerge.
The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.