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A new strategy, please

February 26, 2012

THE prime minister of Pakistan has asked his economic team, to prepare next year’s budget and to focus on “job creation for youth, provision of basic services like health, education, clean drinking water and civic amenities to people and sustaining growth”, as reported in this paper a few days ago.

Given that this is his government’s last budget in this tenure — and he might even not be prime minister come June — the obvious question which comes to mind is: where were you these last four years, Mr Prime Minister? Why are you and your economic team after four previous budgets only now thinking of the provision of basic services, jobs for the youth and sustaining growth?

And if the answer is, as is likely to be, and as the recent meeting with this economic team concluded, that the “budget must continue with the approach of preserving economic stability, checking inflation and creating jobs while protecting the vulnerable groups through social safety net programmes”, then we are in bigger trouble than many imagined.

Continuing with any approach which this economic team has apparently been doing for four years is a really bad idea. What is needed is bold, imaginative and creative thinking, not a same-as-usual strategy. But of course, it would be foolish to expect anything imaginative or creative in economic policy from this government or its economic team.

One must give full marks to this government for achieving numerous critical milestones and for making some particularly important interventions in the political sphere. There is no doubt about the fact that the government has defended democracy and has also strengthened it far more than most people anticipated, although there have been some really ridiculous blunders and missed opportunities as well.

Many of the extraordinary constitutional amendments usually passed unanimously, are also major achievements. In terms of an evolving foreign policy, there are clear signs that this government is willing to take some more interesting and independent positions with regard to dealing with its neighbours and the US.

Its change towards India, both in terms of working for better relations and furthering peace after Mumbai 2008, are creditable achievements, especially the Most Favoured Nation status granted to India and the desire for more economic cooperation.

Analysts and observers will cite other equally important achievements of this government.

However, one area where there is considerable agreement is that this government really has had no economic policy at all these last four years. And if it has, it has been hidden from the public eye altogether. Hence, continuing with whatever approach the team has for its last budget, sounds ominous.

The absence of any clear thinking on economic issues, has been the main economic instrument of this government. It has stumbled through four years, and while it deserves credit for managing to avoid any major economic crisis and catastrophe, it has shown little imagination and has not been particularly proactive.

There are few achievements which come to mind with regard to economic policy these last few years. The Benazir Income Support Programme is one, but while there has been ample criticism of the programme and its philosophy; to be fair, there is insufficient evidence just as yet to either call it an abject failure or a success of any degree. The IMF programme which the government eagerly embraced, ended before it was to be completed, and by some accounts, is considered a failure. Other than these and a few clearly defined policy interventions, policy outlines have been absent.

The circumstances in which the government has managed to stay afloat, are also creditable. Dealing with floods two years running, high oil and food prices causing considerable domestic inflation and a security environment not at all conducive to growth and stability are also major achievements. But this is crisis management, not proactive economic policy. The last four years show that it is crisis management which has become this government’s economic policy. What on earth will the government do in the absence of crises, when things stabilise, as trends suggest?

With elections to be held before the budget after this one next June, one can expect lots of voter-friendly goods being thrown in, although the longer-term costs, especially for the next government (which might well be the same one), will be high. Most governments resort to such strategies in an election year, and believe that they will sort out the mess once re-elected.

However, unlike this government, most governments have plans, policies and strategies, where such over-spend is factored in, and can be adequately dealt with later. In the last four years, this government has only been able to deal with crises, some even of its own making, such as the inability and unwillingness to raise revenue resulting in a growing fiscal deficit.

If re-elected, despite the need for a more proactive strategy at this time, for higher growth and job creation and revenue generation, as well as sufficient interventions in infrastructure and the social sectors, one should expect only more of the same.

The writer is a political economist.