Pakistan’s reform plans

Updated November 22, 2019

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The writer is a former member of the prime minister’s economic advisory council, and heads a macro-economic consultancy based in Islamabad.
The writer is a former member of the prime minister’s economic advisory council, and heads a macro-economic consultancy based in Islamabad.

PAKISTAN has a dire and well-established need for wide-ranging structural and institutional reform. The required reforms encompass tax administration, the wider civil service, management of state-owned enterprises, the energy sector, regulatory agencies, the central bank as well as the regulation of the corporate sector, among other areas. While addressing legislative and policy gaps is an important element of the reforms, the substantive part remains in the area of building (or rebuilding) state capacity and capability in policy formulation, implementation, monitoring as well as evaluation across a wide range of government function.

Read: Economic reforms bearing fruit, says PM Imran on narrowing of current account deficit

The reform agenda needs to entail enhancing the technocratic capacity of the civil service by providing the requisite resources, including financial as well as technological. Importantly, the reform enterprise should also entail rewiring institutional arrangements to promote coordination vertically as well as horizontally across different levels of government as well as across different agencies and departments, to lower ‘inside’ as well as ‘outside’ lags in policy formulation and implementation, to enhance the efficiency as well as effectiveness of government work, to shift the focus from outputs to outcomes, and to provide an enabling and facilitating environment for the private sector.

Given this daunting reform agenda, how should the government approach this gargantuan task at hand. While the PTI government has demonstrated its intent to introduce meaningful reform in critical areas of economic management, such as the tax regime, the reform intent does not appear to be informed by a ‘grand design’, and this is likely to be problematic.

Some important elements of successful reform include the following. First and foremost, there is deep strategic thinking prior to initiating the reforms. What are the initial conditions, which challenges are the most pressing, what are the key points of change, what resources are available to effect the change (human capital, finances, political capital, institutional capacity, technology, international support, time)?

Key elements of successful reform design appear to be missing.

This phase should be informed not just by a mapping of initial conditions, but by a thorough understanding of the political economy context. Who will be the ultimate winners and losers of each reform, how can support of potential winners be galvanised and potential losers ‘compensated’, and what should the optimum pace and sequencing of the reform process be keeping in view the political capital of the government. To achieve its reform objectives, what will be the most effective strategic communication of the reform plan?

As part of this process of strategic thinking, a key consideration will be matching the reform ambition with the available institutional capacity. Any asymmetry between the two will also impact the pace and sequencing of reforms. This entire thinking process should not be donor-led but home-grown, with the donors restricted to providing technical assistance where such expertise is not locally available.

A related question is who informs policymaking in Pakistan? After consigning the Economic Advisory Council to irrelevance, there is no de facto formal mechanism for the government to take policy input from. An institutional mechanism (however half-baked) has been replaced by a host of part-time task forces, kitchen cabinets and informal advisers. Formally, and de jure, this role has been assigned to the Pakistan Institute of Development Economics since the last few years. However, its performance and utility have suffered from both demand as well as supply-side issues.

In this context, Pakistan should take a leaf from China which has a pantheon of public policy think tanks working for the government. Under the State Council, there is the well-respected Chinese Academy of Social Sciences (which comprises 32 research institutes, three research centres and a graduate school. Also under the State Council, there is the Development Research Centre. The Academy of Macroeconomic Research and the China Centre for International Economic Exchanges are affiliated with the National Development and Reform Commission. The Chinese Academy of Fiscal Sciences operates under the Ministry of Finance and has 12 research centres, five graduate school departments, six supporting departments and two subsidiary associations associated with it.

To ensure that expert policy advice gains more traction within policymaking, the Chinese try to induct and embed academics and practitioners into formal policymaking roles. This practice is of course not unique to China but followed in many countries including the US. In Pakistan, a parallel, lateral entry system for technocrats was introduced in the early 2000s with special pay scales, but its success has largely been undermined by an insecure bureaucracy.

Choosing the right reform team is another essential success factor. The standard practice in Pakistan has been to select a narrow-based band of reformers, usually all macroeconomists with varying degrees of public policy or multilateral experience, instead of a much wider and more eclectic team comprising change management specialists, systems designers, sociologists and anthropologists, behavioural psychologists, behavioural economists etc.

This team of reformers should be embedded in the designated lead agency responsible for formulating and implementing the reform plans. In our case, the natural choice should be the Planning Commission.

Finally, the most critical element of a reform enterprise or a restructuring project is a clearly articulated and understood ‘theory of change’ to anchor and guide the process. The PTI’s original theory of change was to bring in technocratically capable, and untainted, fresh blood with reformist impulses into government. However, it has since completely undermined this by accommodating tainted members of the old guard (the so-called ‘electables’) into the cabinet and positions of influence. Combined with the clout of its political allies who mostly represent the corrupt old guard, and whose votes the PTI is completely dependent on, the centre of gravity has now shifted away from the reformists.

Even if somehow the PTI can retain its reformist impulses, a looming challenge will be a perennial one — how to sustain the reform enterprise after achieving macroeconomic stabilisation and seeing off the IMF programme. Clearly, the reform enterprise has plenty of internal hoops of fire to navigate even before it confronts pushback from entrenched vested interests on the outside.

The writer is a former member of the prime minister’s economic advisory council, and heads a macro-economic consultancy based in Islamabad.

Published in Dawn, November 22nd, 2019