AS the political parties ready their economic plans, they would do well to consider some stylised ‘facts’ from past experience.

— Plans will need to have a strong institutional reform bias

Given the fraying of Pakistan’s already frail institutional framework, any plan to govern the country (and not just the economy) will perforce require a strong element of institutional reform. As I have argued previously, the economy can only be fixed by deep-rooted structural and institutional reform.

Given its moribund state, trying to revive it by using an anti-cyclical tool box or other gimmickry (tax amnesty and money-whitening schemes and the like) will not provide lasting effects.

Hence, the ‘governance’ angle should be the underpinning of the overall plan. Of course, the institutional focus should go beyond just fixing the public-sector enterprises (PSEs) or revamping the Federal Board of Revenue (FBR), for example, to more fundamentally how the state and government should function.

It would not be out of place for all stakeholders involved to re-tutor themselves on why states and governments exist in the first place, so that the plans made place the ordinary citizen at their epicentre. (I would argue what others have done before: that in fact the plans should place the weakest and most vulnerable citizens at their centre, as doing so will be the well-spring of welfare for society at large.)

— Process is important As reforming the institutional framework is, by definition, a change-management process, it will take several years to achieve under the best of circumstances. In the interim, any reform-minded government will have to work within the system — no matter how corrupt, outdated and anti-change its antecedents.

Hence, understanding how the system currently works is important. Of course the system can be tinkered with at the margins; but it requires such a complete overhaul that nothing short of a well thought-out and executed change management strategy, rooted in broad agreement amongst all stakeholders in society at large, will work.

Just some of the Herculean tasks that will need to be undertaken, for example, include de-politicising the police and civil service; moving the system back to a merit-based one; protecting state officials from interference in the performance of their functions; reducing incentives for corruption and collusion, etc.

Hence, it will be important for political parties to identify beforehand a core nucleus of reform-champions — not just technocrats, but from within the political parties and also, importantly, from within the civil service — who will not only guide the overall change management process, but will ‘move things along’ in the interim.

An example from 2008-09 serves to highlight the importance of this element in the smooth management of the economy. After spiking to their highest nominal level ever of around $145 (Brent spot) in the summer of 2008, international oil prices collapsed six months later to around $34 per barrel. The Economic Advisory Council (EAC) recommended to the government to ‘hedge’ the oil price in the international markets to insulate Pakistan from the pain of higher petroleum prices.

The finance minister (Shaukat Tarin) directed the Ministry of Finance to prepare a summary for the Economic Coordination Committee for approval. The senior bureaucrats in MOF dithered. Privately, they asked what would happen if oil prices sank below the hedge price? They wanted to know if they would be held accountable (their ultimate concern).

Our failure to devise a complete process defining how the hedge would interface with the budget meant that the bureaucracy played a war of attrition (their favourite game!) with us. A year later, the finance minister was on his way out — and the bureaucrats had stumped an idea that could have saved Pakistan billions of dollars (and much pain) over the next few years.

— Be ready with heterodox policies While I favour a ‘back to basics’ approach in managing the economy, with its institutional and structural focus, I also believe there are areas (and times) where (and when) one should not be wedded to any single ideology. For example, I do not favour a blanket approach of outright privatisation for all the PSEs. I believe the right approach to take for restructuring or reforming the PSEs should be guided by their own individual circumstances and peculiarities.

My own preference for restructuring Pakistan Railways, for example, is to cut the pernicious hold of the government exercised through the Ministry of Railways, create the right conditions for it to operate profitably, and hand it over to the employees in a variation of a management buy-out (MBO). The Railways, with its colonies, schools and hospitals, is a way of life for 150,000 families. There is no reason to inflict pain on this scale when its greatest asset — its skilled and hardworking employees — can be harnessed to its advantage with an incentive for employees to share in the profits from any turnaround they manage to bring about.

Being flexible with their policy menu will also be important for the political parties that form the next government for another reason. Almost surely, the next elected government will have to deal with a severe macroeconomic crisis. Like in the ‘fog of war’, dealing with an unfolding macroeconomic crisis demands well thought-out and well-honed policy responses.

Unfortunately, depending on its severity, it may also render completely useless the pre-conceived plans of political parties. For example, if the oil price spikes to $150 a barrel, all bets will be off for a political government. Subsidies may have to be granted not just for electricity but for petroleum as well, completely ruining budgetary plans.

In our case, we had to deal not just with arguably the most severe macroeconomic crisis in Pakistan’s history, but soon thereafter, the effects of the ‘Taliban’ insurgency threatening to reach the gates of Islamabad. This prompted us to fashion a policy response that was fundamentally anathema to many of us! More on this in a subsequent piece.

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.