Alert Sign Dear reader, online ads enable us to deliver the journalism you value. Please support us by taking a moment to turn off Adblock on

Alert Sign Dear reader, please upgrade to the latest version of IE to have a better reading experience


Expect more of the same

April 16, 2013

EVEN purveyors of the folklore about the resilience of Pakistan’s economy because of a “vibrant”, largely untaxed (despite its visibility) informal sector would acknowledge that the country faces serious economic challenges.

Not the least of these is the productive absorption of a massively sized restive, dispirited and poorly educated young labour force with limited skills. Its restiveness stems partly from the unrealistic aspirations stoked by political parties seeking power.

Tackling these challenges for pushing the economy onto a higher growth path on a sustainable basis will be tough owing to the structural factors that have been a drag on Pakistan’s growth prospects. These can only be addressed in the long term, a time period out of sync with the time cycle of political governments or the legitimate concerns of those affected.

Despite the formidability of these constraints there are huge expectations of the ‘new coalition’ government likely to assume office (if recent opinion polls are to be believed) sometime in May. This writer, like all other Pakistanis, wonders if the next government will have the wherewithal and political determination to induce such reforms, even if by stealth.

So, what can one pragmatically expect over the next four to five years from it, considering the social background of the leadership — since many of them are either non-taxpayers or pay a piddling amount in comparison with their earnings that support their fancy lifestyles. And these powerful interest groups have historically been fairly successful in resisting reforms, which would entail a dilution of their elite/class privileges and patronage powers.

Given the performance record of the leadership likely to lead this coalition (unless the Pakistan Tehreek-i-Insaf’s ‘tsunami’ actually hits our shores, depending on how the seemingly popular demand for ‘change’, especially of first-time young voters, translates into votes for Imran Khan) we should not expect a sea change in economic decision-making.

In this writer’s view the quality of governance and degree of administrative competence should certainly improve. These positive features combined with a pro-business stance should buoy up investor sentiment, facilitating the creation of job opportunities.

All this should raise the level of economic activity, thereby setting into motion a virtuous cycle for a self-sustaining growth process. However, for economic growth to acquire the rates needed to productively employ the burgeoning labour force on a sustainable basis fundamental structural reforms involving a decisive and permanent shift in direction have become unavoidable.

This raises the question of whether such a government would be able to initiate some of the necessary reforms, say in the first 100 days of its tenure — generally characterised as the ‘honeymoon period’.

In my opinion nothing close to the minimum reforms needed will ever get launched, at least until 2014 (when the Americans are targeting to exit Afghanistan).

The quality of economic and financial management and expenditure prioritisation of potential contenders for power (as displayed in the provinces that they either ruled or where they were important coalition partners in government) should disabuse us of any such notion.

No serious effort to reform property tax and general sales tax on services (provincial subjects) and to collect tax on agricultural incomes (these incomes are taxable under a relevant provincial law — except that all those sitting in our legislature refuse to pay their dues) bears testimony to this claim.

The technocratic solutions are well-known. The trouble, however, is that there is no constituency for serious reform, considering the long slog out of this valley of despair and the pain that will accompany the correction these wrenching imbalances, albeit on the basis of the ability of different social classes to bear this burden of adjustment.

Who will initiate these basic reforms and how will they be launched? It is chronically difficult to tell home truths to people whose votes are being courted, since sacrifices will have to be more broad-based than hitherto realised.

No political party would be prepared (they have not even hinted at these in their manifestos) to:

a) phase out subsidies on wheat and fertiliser;

b) raise electricity and gas tariffs to levels required to eliminate the circular debt and create conditions to eliminate its recurrence;

c) privatise public-sector corporations like Pakistan Steel Mills, PIA and electricity distribution companies;

d) downsize a bloated state structure at the federal level (especially with the hiving off of several formations to lower levels of government under the 18th Amendment);

e) change the general orientation of government as an employment agency which has resulted in Islamabad having three times the number of ministries to cover the same subjects the US does, despite the fact that the latter has 140 million more people and an economy 75 times ours.

Given our national style of governance (of perpetually looking towards the international community for handouts to pay our bills) we should, therefore, not be surprised if the new government simply tries to buy time — a strategy that runs contrary to the experience of all democracies that the best time to implement difficult decisions is in the early days of a government.

So, perish the thought that there will be any meaningful reforms in the foreseeable future, unless our external benefactors decide to walk away, forcing us to fend for ourselves. Maybe we will then learn to swim. That we could eventually drown is the default option that we seem to be unwittingly (or is it wittingly?) pursuing.

It appears, therefore, that we will continue to bump along at the bottom until we finally hit road blocks that we will not be able to surmount, because we will not have the economic, political and social strength to remove or overcome them.

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