Our elite’s bankruptcy

Published January 19, 2023
The writer is a former member of the prime minister’s economic advisory council, and heads a macroeconomic consultancy based in Islamabad.
The writer is a former member of the prime minister’s economic advisory council, and heads a macroeconomic consultancy based in Islamabad.

“God gave Noah the rainbow sign, no more water, the fire next time.”

AS Pakistan’s difficulties in meeting its external payment obligations deepen, its elitist policymakers, both past and present, are inclined to believe that the country got into this mess because of a host of recent external factors — the post-pandemic super cycle in commodities, Russia’s invasion of Ukraine, the US Federal Reserve’s change of tack, biblical floods at home.

The entrenched conventional wisdom also appears to be that managing the mounting payment difficulties and debt distress (or, in this case, a near-certain default on the current path) is Pakistan’s only challenge, and that averting the inevitable in the short run by kicking the can down the road will be ‘mission accomplished’ for the incumbent political set-up and its architects.

For a country that is experiencing its 13th balance-of-payments crisis since 1988, and is in its 23rd Fund programme since 1958, this argument can only wash with the cognitively inert. Placing the two figures quoted above in context (13 and 23), gives some perspective of how deep-rooted and protracted the country’s economic malaise has been.

Pakistan is one of the foremost protracted users of IMF resources globally, spending, by my estimate, a cumulative of 34 years in various IMF programmes since independence. This suggests that it has slipped into a new Fund programme once in less than every three years of its existence on average.

Perhaps unsurprisingly, Sri Lanka comes close, with a total of 16 IMF programmes under its belt since its independence in 1948. (Argentina, a serial defaulter on its sovereign debt, has approached the IMF 22 times since 1956).

It will also be illustrative to see a breakdown of the number of IMF programmes undertaken by each political party by its tenure in government since 1988. PML-N has four IMF programmes under its belt, PPP six, two under Gen Musharraf, and one by PTI.

Power elites have their heads in the sand regarding the country’s frequent and multiple crises.

This should put paid to any politics that each of these political parties has played at various times with regard to seeking a bailout from the Fund, especially in 2018 and 2019 when the then PTI government was dithering on signing off on a loan arrangement with the IMF and the very same PPP and PML-N that are in power today were hauling it over the coals for petty political mileage.

While Pakistani elites believe that everyone and everything except their own poor policies and choices over the past 75 years may be the root cause of the problem, the fact is that as the data indicates, there is one constant that predates all recent events: a lifelong history of poor political as well as economic governance.

This is a textbook example of what psychologists call an external locus of control, referring to the belief in some individuals and societies that they do not have agency over what happens to them, and that their life outcomes are determined by external factors beyond their control.

The plethora of deep-seated and widely believed conspiracy theories bandied about in Pakistan is a prime demonstration of this phenomenon.

Where have things gone wrong for Pakistan? Is the country a victim of bad luck, bad policy, bad governance, or an international conspiracy? The exploration of this question over the years is well documented, and while various commentators differ as to the exact root of the malaise, the consensus appears to be that the fault lies in our own choices and constructs — and not just on the economics side.

Whatever impulse our external environment may or may not have given to our growing challenges, it is clear that the entropy caused by the ‘establishment’s’ governance of the country’s internal affairs has played a large role in bringing things to this pass.

Unique factors and circumstances following the country’s birth that handed the reins of power, decision and policymaking to a small elite consisting of the army, politicians and bureaucracy laid the basis for a system of governance run on wider co-option (and coercion). The judiciary and industrialists were next to be co-opted, followed eventually by the media and other business segments.

As a result, with so many ‘insiders’ enjoying the benefits of the status quo, it is no surprise that there is no organised reform constituency in the country. Business segments that are affected only want policies that hurt their interests to be tweaked, while retaining the rest of the edifice that provides them ‘rents’. The disaffected middle class appears to have rallied behind PTI, but it is largely unorganised and lacks a coherent national economic strategy so far.

A clear manifestation of elite capture is the unwillingness as well as inability to organise the country’s polity as well as economy into anything resembling ‘normal’. This is illustrated by the half-hearted commitment to reform demonstrated since independence.

With fiscal reform at the core of the wider economic reforms needed, a need recognised since the 1950s, policymakers have embarked on at least 15 ‘attempts’ at fixing the country’s tax system since 1972, with various commissions, committees and task forces formed at periodic intervals. Despite the repeated identification of the (same) problems, tax collection has doggedly remained mired at around 10 per cent of GDP for over seven decades.

A survey of multiple education sector reform attempts reveals the exact same dismal results. More recently, attempts at introducing a semblance of viability in the energy sector have also been meeting with failure.

The country’s power elites would still like to believe that it is ‘bad luck’ that landed us here, but running a country on geopolitical rents, mercenary impulses and elite capture is hardly sustainable — and has never ended well.

The elites have to wake up. Without recognition of what I would term the country’s foundational mis-constructs, whether on the political or the economic side, and taking responsibility as well as ownership for addressing them, any hope of getting onto the road to recovery will give way to a path to perdition.

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

Published in Dawn, January 19th, 2023

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