The new mantra now being chanted in official circles is “a developed, industrialised, just and prosperous Pakistan”, which the country is set to achieve by 2025, a shifting hypothetical landmark which planners choose, fully aware they won’t be around on the day of reckoning,
An official document, entitled Medium Term Development Framework” (MTDF), prepared by the Planning Commission and released as a prelude to the forthcoming national budget and on the occasion of last month’s meeting of Pakistan Development Forum, elaborates the mantra for 2005-10. The Prime Minister, not satisfied with the choice of adjectives in the MTDF has added three more: “modern, enlightened and Islamic”.
What relevance do these high-sounding objectives, whose internal consistency is highly suspect, have for the ordinary man, much less the poor, for whose uplift the “new development strategy” is being designed? In this article, we will try to unravel the mysterious formula by which the present Government is trying to make Pakistan both “developed, prosperous and modern” and “just, enlightened and industrialised”. What the Government is faced with is the classical debate about reconciling the objectives of growth and equity during the course of development.
It is significant that the MTDF has been introduced as a substitute for the Five-Year Plans that the Planning Commission has been issuing for the last five decades when it was established as a guardian and guide of the country’s economic development. It was one exercise, however flawed, for which the governments could claim paying some respect to the goal of inter-temporal policy continuity, often emphasized by the present regime and its external benefactors.
The unceremonious burial of the Five- Year Plans, notwithstanding an eloquent quotation of Lenin in the Deputy Chairman’s Preface, is a sad event in the annals of our macroeconomic management. Our next door neighbour, with whom we have belatedly realized the need to cultivate good relations in political and other areas, has shown how a commitment to the process of planning, instead of ad hocism which has been our forte, and bringing the best of the country’s economic minds to the Planning Commission, can help achieve over all development.
In an illuminating talk in the Planning Commission auditorium, which was almost surreptitiously arranged on the Prophet’s birthday, a prominent Indian economist, Prof. G. K. Chadha, Vice-Chancellor, Jawaharlal Nehru University, while on a private visit to Muzzafarabad, his ancestral abode, tried to convey this sense of commitment to an audience consisting primarily of current and former staff of the Planning Commission.
Dr Chadha emphasized that the recent resurgence of Indian growth rate was not simply due to the more recent liberalization policies, but also to the earlier efforts of the Indian planners to lay the foundation for a solid industrial base, while paying due regard to the reduction in unemployment and poverty. He admitted that progress on the latter issues was alarmingly unsatisfactory and posed a challenge to Indian planners.
He characterized the “India Shining” syndrome as a mere fluttering of a peacock’s feathers. Dr Chadha also attributed some of the success of the Indian planning experience to the fact that the advice of foreign experts was not accepted uncritically. These lessons have yet to dawn on the Pakistani planners, past and present, who unabashedly gloat at having achieved, during limited periods, higher growth rates than India, without having strived to achieve high rates of domestic savings and total investment.
The MTDF also does not show much evidence that our planners have learnt any serious lessons from Pakistan’s own past planning experience. However, in an attempt to be uncannily innovative, it reverses the accepted pattern of past Five-Year Plans, by putting the cart before the horse in relegating the macroeconomic framework chapter to the end of the document. This may have something to do with the fact that the new Deputy Chairman of the Planning Commission is an engineer rather than an economist or a bureaucrat, as in the past.
However, even if one doesn’t cavil over this presentational issue, the substance of the macroeconomic framework, which is the linchpin of a planning exercise, can’t be overlooked. It is pathetic that the 500-page development framework paper should devote less than 10 pages to the discussion of its macro-economic underpinnings, tucked away in the last chapter almost as an afterthought.
Unfortunately, as presented in the MTDF, the macroeconomic framework also does not provide much insight about the options that the planners face and the political economy issues that they inevitably confront in making a long-term plan. The macroeconomic framework of the MTDF is rather rudimentary and does not seem to be based on a sophisticated planning model, neither does it present any parametric or scenario analysis which would arouse some public debate.
The macroeconomic framework of MTDF is based on the simple Harrod-Domar model that was in vogue in the early decades of planning. Pakistan’s Second Five- Year Plan (SFYP) was one of its better examples. Since then, however, considerable theoretical and empirical work has been undertaken to incorporate the many concerns that development economics debates generated in the wake of the failure of “growthmanship”. The incremental capital-output ratio and the imarginal savings rates were the main instruments of planning the SFYP. The MTDP, almost four decades later, uses these very tools with much less savvy.
The growth strategy implicit in the MTDP is also remarkably similar to that of SFYP. The only difference being that while the latter based its hope for high growth rates on steeply rising marginal savings rates, which unfortunately were never realized, the MTDP’s hope rests largely on the unwarranted extrapolation of the high growth rate achieved in the last two years or so.
While the improved economic performance in the past 2-3 years, though undoubtedly exaggerated by the manipulation of economic data, is a welcome development, both its sustainability and quality cause legitimate concerns.
The present guardians of the economy are possessed by the prospect of its early take-off which would enable them to put it on auto-pilot aided by distant control towers. They seem to think that the recent refuelling it has fortuitously received will not only help it keep its momentum but would also enable it to climb higher altitudes. Unfortunately, the economy is a far more complicated machine than a F-16 and managing it for the long-run is rather different from flying a sortie.
The MTDF’s growth projections for the next five years (2005-10) are based on the simplistic assumption that the binding constraint on growth is investment. The Framework uses the sleight of hand to assume that the ICOR of 3.1, prevailing in 2003-04 could be treated as a more typical benchmark than 3.9 which prevailed during the longer period 1980-81 to 2002-03.
Nevertheless, unable to totally ignore the existence of idle capacity accumulated over more than a decade, which is the prime reason for the recent growth acceleration, it gives a minor concession to realism by assuming that the ICOR ‘would rise gradually from 3.1 to 3.5 in the next five years”.
There is no discussion of total factor productivity (TFP) which many empirical studies for Pakistan show as being low and falling. That implies that Pakistan may need a higher ICOR than in the past. Unfortunately, the planners can’t entertain that or other alternative assumptions for fear of upsetting the applecart of high growth without commensurate domestic effort, which would require a considerable increase in the burden of the more affluent economic segments of the society.
The MTDF’s basic philosophy about growth and equity does not differ much from other predecessor documents, except in terms of window dressing and the preponderance of donor-pleasing jargon. Growth is still seen as the main instrument of poverty reduction, even though the document admits it is only a necessary, not a sufficient condition.
However, the implicit strategy of MTDF seems to achieve a growth rate high enough to lift all boats, including those of the poor. This seems to be the burden of the prime minister’s address to the PDF, where he is reported to have candidly said “…..growth and other correct policies cannot undo the follies of past decades and ensure long-term equity and social justice, and a lot of efforts will have to be made for the continuity of growth”. The high growth route to poverty alleviation would, however, require an East Asian type of economic miracle, which seems well beyond Pakistan’s reach in the present circumstances.
The MTDF also reinforces the feeling that the government has decided to put its poverty alleviation agenda on the back burner in the new development strategy. The document tries to soft pedal the concerns about increasing poverty, even in the last five years when the politicians can’t be made a scapegoat, by trying to prove through rather dubious methodology, using the PPP (purchasing power parity, not Ms. Bhutto’s) estimates, to show that “Pakistan’s poverty historically and currently remains lower than South Asia (sic)”.
The MDG target of halving poverty incidence to 13 per cent by 2015 seems well nigh impossible for Pakistan to reach, since the figure is still above 30 per cent.