Pakistan’s political economy

October 13, 2015


The writer is a former governor of the State Bank of Pakistan.
The writer is a former governor of the State Bank of Pakistan.

A COUNTRY which was clocking a growth rate a shade above 5pc per annum for most of its history is now finding that this rate has dropped to below 4pc. It gives the impression that this is the new equilibrium rate that we may have to live with for some time. What explains this lacklustre performance of the economy, even though there are some positive fundamentals that should be able to accelerate economic growth?

After all, we have a massively sized young population of more than 100 million, which should provide a huge market for consumer goods as well as a large labour force that could be productively employed, representing what is generally referred to as the ‘demographic dividend’. A large irrigation system, the recent upgrading of telecommunication and internet facilities (mobile technology) and an expanded network of roads could become strategic drivers of growth and employment. They could improve the mobility and productivity of this workforce, thereby pushing up the economy to a higher and sustainable development path.

With such foundations and key developments are there any reasons to worry about the possibility of this youth becoming our demographic nightmare, threatening national unity and social cohesion?

Despite the hoopla about the widely assumed ‘game changer ‘role of the China-Pakistan Economic Corridor, there are several structural and institutional factors constraining the fulfilment of the potential of the above-mentioned fundamentals and other strengths of the economy.

The state has little available for investments to enhance the quality of the nation’s human capital.

Presently, the physical infrastructure for transportation other than for roads and the provision of energy and basic social and economic services mandated to the state is deficient. For many reasons, the Pakistani state has little available for investments to enhance the quality of the nation’s human capital and physical infrastructure. These include:

A self-serving ‘rentier’ elite that has spawned and accepted, if not actively supported, poor quality governance. This is reflected in an inept, venal political leadership, nurturing dysfunctional systems and institutions debilitated by political and interest group interference, patronage and non-merit appointments. All function under the overarching paradigm of a ‘security state’. The ranks of the traditional landed and business elites have over time been corrupted by the entry of land and real estate interests as a result of a burgeoning urban population, aided largely by outdated government building and zoning regulations and partly by politicians and bureaucrats becoming direct or indirect stakeholders in real estate development.

Consequently, society has assimilated the political, social and cultural values of a structure rooted in paternalistic and personal relations, nepotism and patronage and violation of laws. The state has become a hostage to these interest groups and their perceptions on how Pakistan’s political, bureaucratic and economic formations should be organised. These structures and lobbies have become so entrenched that balancing competing interests and negotiating ‘compromises’ has become extremely complex and time- and energy-consuming, resulting in fundamental structural constraints remaining unaddressed while continuing to act as a drag on economic growth.

A politicised, de-motivated (and corrupt) bureaucracy has been undermined and weakened by pervasive political interference. The impact of our kind of corruption is much more adverse than say in China, because in our case it tends to be fragmented and ubiquitous, and hence difficult to manage or eliminate.

Successive governments have been rendered broke by inadequate tax revenue mobilisation owing to rampant evasion, continued protection and promotion of elite privileges and crony capitalism and a large and growing burden of debt and subsidies. Additionally, there is poor prioritisation of recurrent expenditures with bloated, but limited capability, a workforce that shirks its responsibilities but absorbs a significant proportion of the budget, weak selection and design of development projects and non-transparent, discretion-laden policy and regulatory frameworks.

Cheap external inflows (because of fortuitous international events at various times) have managed to keep the state afloat, enabling the postponement of basic reforms. Short-sighted elites have been quite happy with their personal gains made from the implementation of such a strategy, while the country continued to operate below its potential.

The full realisation of the potential of the youth, by giving them a stake in the country’s pattern of growth and providing them with meaningful and productive job opportunities, has been obstructed by the poor quality of education and technical skills imparted by state institutions. Secondary education is generally regarded as the minimum requirement for many jobs. But 45pc of the children drop out before completing the fifth grade, partly for economic reasons but largely because of non-functioning schools owing to teacher absenteeism and the generally poor quality of schooling in public-sector institutions.

The skills imparted by technical and vocational training institutes are not those demanded by the market. Most of these institutions run exceedingly outmoded and shoddy programmes producing workers with insufficient employable skills.

A key requirement for any economy is the availability of affordable energy. In our case, the entire sector suffers from unreliability of supply, proliferation of theft and poor recovery of dues owing to collusion between consumers and the personnel of these utilities.

While public services for education, health, safe drinking water and sanitation have continued to deteriorate the richer segments have been able to fend for themselves by arranging private provision for such services. Large and widening regional disparities in the levels and rates of economic growth and the quality of physical infrastructure and social and economic services, have politically alienated growing segments of youth along nationalistic/ethnic lines.

Unfortunately, combined action by an emerging middle class through civil society institutions to rectify these distortions is difficult to organise. This is because of a highly fragmented and factionalised society, polarised between the haves and have-nots and a large and heterogeneous population comprising different nationalities, each seeking a fairer political and economic share for itself in a stressed federal structure.

Can a new political dispensation and a new set of political actors enter such a system and execute a formidable agenda of essential reforms? Going by the present evidence, the barriers of prohibitively expensive elections requiring huge volumes of funding that invariably attract illicit (including criminal) sources (which then have to be ‘paid off’ in different ways) make the likelihood of such an outcome rather bleak.

The writer is a former governor of the State Bank of Pakistan.

Published in Dawn, October 13th, 2015

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