AT the recently concluded 28th annual general meeting and conference of the Pakistan Society of Development Economists, organised by what is now the Pakistan Institute of Development Economics (PIDE) University in Islamabad, the finance minister, Hafeez Shaikh, delivered the inaugural keynote address.
As is the annual ritual, he presented his assessment and understanding of the state of Pakistan’s economy, focusing on all the achievements of his government. With elections to be held well before the next meeting in 2013, this was the last time that the finance minister would represent this particular government and speak at Pakistan’s most important economists’ forum.
As was expected, he put his spin on the state of the economy highlighting what he thought were some of the main achievements of his government.
He argued that Pakistan was now turning the corner regarding the economy and since 2008 when this government took office, much had improved.
At that time, he stated, the growth momentum had been completely lost, inflation was at 25 per cent, the stock market was virtually closed and reserves were below $5 billion.
This, he said, had forced the government to go to the IMF. The finance minister stated that this year growth would be four per cent, and that the government had brought down the inflation rate to less than 15 per cent and government expenditures had increased by only four per cent over the last four years in nominal terms, implying a decrease of six to seven per cent in real terms.
Provinces had been given far more resources and provincial expenditures had increased considerably in the last four years. He stated that during the last year alone the increase in taxes was around Rs350 billion. According to him, the government had laid down strong foundations for the prosperous future of Pakistan and a “new Pakistan is taking shape”.
However, before he painted this improving picture of the economy, the finance minister also stated a number of factors which he said had not allowed the economy to perform as well as it should have.
The by now well-known factors were: the Musharraf government that did not do enough and caused serious economic and financial crisis at the time the new government took office in 2008; consequences of the war against terrorism; the floods of 2010 and 2011; the global economic recession since 2008; and the rise of international food and energy prices.
Are these justifiable reasons and explanations for why the economy performed at its worst five-year average in 50 years, or are these mere excuses behind which this government tries to hide?
There is no doubt, that all these events and factors which the finance minister has mentioned on many occasions, as have other spokespersons for the government, did take place.
There is no getting away from the fact that both the Musharraf governments, that of Shaukat Aziz and the caretaker government from November 2007, did not take adequate measures to ensure that the windfall gain created after 2002 could have had longer-term benefits.
The biggest failing of the Musharraf-Shaukat Aziz government was not political (and there were many political disasters under their watch); it was the inability to transform an extraordinary economic opportunity into something more concrete.
The PPP government inherited an economy which was in severe difficulty. It is also true that the PPP government had to face all these international and environmental factors which had a negative impact on the economy, worsening it.
Do these natural and manmade calamities absolve the present government from having performed so poorly?
The answer is clearly, ‘no’, and the present government must be held accountable for not doing enough to improve the economy.
While this government will be remembered for some extraordinary constitutional and political reforms and interventions, it will also be remembered for some of the most ordinary and poorly managed economic policies.
In fact, it is likely to be remembered as a government which had no real economic policy. Except for turning to the IMF in 2008, there is little which emerges as reform or economic policy in the last five years.
If anything, and given the nature of problems faced by the government and the economy, one ought to hold the economic team responsible for sheer neglect. If ever an economy was allowed to run on auto-pilot, it has been Pakistan’s over the last few years.
There are some interesting parallels between the first PPP government of 1971, and this incumbent one since 2008.
In the 1971-77 period, Pakistan faced severe floods in 1973 and 1976, the cotton crop was destroyed in 1974, oil prices had quadrupled in 1973 followed by a global recession, inflation was as high as 25 per cent, Pakistan had been reduced to half its size in 1971 and a democratic government was coming to terms with this after a decade of military rule.
For these reasons, it has been argued that the poor economic performance of the Z.A. Bhutto government was caused more by bad luck than by bad management.
Here the parallels with the current PPP government come to an end, for while there was active engagement with the economy in the government of 1971, there has been next to none in that of 2008.
Despite the very severe problems faced by the Z.A. Bhutto government, the economy performed better than it has since 2008. Clearly, the current government has done very little to deal with the problems faced by Pakistan’s economy. The complete absence of a vision and of taking responsibility, and perhaps even ability, have been the main features of the economic team of this government.
The writer is a political economist.