Pakistan needs a charter of economy to move forward
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The slide seems unstoppable. The finance minister’s balancing act in the budget has failed to end anxiety in the country in the middle of a stagflation with a negative economic growth rate and runaway inflation. The spectre of default stares the country in the face as the government’s hopes of sealing the IMF deal have yet to be realized.
The budget document reveals the predicament of a government trying to meet IMF requirements, with an eye on the coming elections. Given the narrow political and fiscal space available, there is little room for initiating any structural reform. The budgetary proposals are not very different from the previous ones except for some change in emphasis and the tweaking of taxation measures.
Most economists consider the growth target of even 3 percent set in the budget and of keeping the inflation rate to slightly over 20 percent implausible. It is all about keeping the failing economy afloat with external support. This has been the story of our economic policy over the decades, irrespective of who has been in power. Any claim of ‘wizardry’ seems far-fetched.
With the government unable to swallow the bitter pill and address the situation, our financial recovery now completely depends on an IMF bailout and help from friendly countries. That may provide us with some breathing space. But it will not be long before we are back on the ventilator again.
It is not for the first time that the country has been on the brink of a financial collapse. We have been many times in the proverbial ICU in the past and have been resuscitated, of course with some outside help. It’s no different this time as we wait for ‘God’s hand’.
Our financial recovery now completely depends on an IMF bailout and help from friendly countries. That may provide us with some breathing space, but it will not be long before we are back on the ventilator again.
Zahid Hussain
Our failure to address fundamental structural problems has earned the country the dubious distinction of being the ‘sick man’ of South Asia. We lag behind on most social and economic indicators as compared to regional countries, with the exception of Afghanistan. Nothing could be more alarming than the spectre of financial collapse of a nuclear-armed country.
For long, successive governments have traded on the back of the country’s strategic resources and geopolitical importance. That has made us completely reliant on international financial aid. Like other rentier states, we have tended to extract rent in exchange for our strategic support.
All this has reinforced the rentier state of our economy, with little incentive to initiate fundamental structural reforms in order to expand our domestic revenue base and reduce dependence on external resources. The current financial crisis cannot be seen in isolation; it is symptomatic of a more serious malaise. It is not only about reliance on external aid but also about an economy based on internal rents limiting our productive capacity.
Unfortunately, it’s hard for our ruling elite to break away from this rentier mindset and move towards a sustainable self-reliant course. The ongoing blame game and political instability have further obscured the fundamental challenges confronting the country’s ailing economy. Postponing the tough measures for political reasons has already cost the country hugely. The short-term thinking has worsened the crisis in the long term.
This has been a vicious cycle from which the economy has never come out. It is more of a political problem and has put the economy in a perpetual state of crisis. No wonder we have the dubious record of approaching the IMF for a bailout 22 times. There has never been any serious effort to carry out fundamental structural reforms to put the country on the path of sustainable economic growth. We remain largely a rentier economy dependent on external help, with little incentive to break the shackles.
Undoubtedly, the frequent disruption of the democratic political process and extra-constitutional interventions has been some of the major reasons for the absence of a long-term reform strategy-- one needed for sustainable economic growth and the perpetuation of the rentier state. It is true that the state of the economy is intertwined with political stability. The country needs to find a durable solution to its financial problems.
Given the increasing political polarization in the country it is highly doubtful that elections will produce a strong government necessary for implementing a reform agenda. A broad consensus among all stakeholders is urgently needed.
For the country to move forward, it is imperative for all political forces to agree upon a charter of democracy as well as a charter of economy. There is a need for continuity in policy. That can only happen if all political forces agree on some basic charter of economy. An economy so dependent on external support cannot defend its sovereignty.
- Zahid Hussain is an award-winning journalist and author. He is a former scholar at Woodrow Wilson Centre and a visiting fellow at Wolfson College, University of Cambridge, and at the Stimson Center in DC. He is author of Frontline Pakistan: The struggle with Militant Islam and The Scorpion’s tail: The relentless rise of Islamic militants in Pakistan. Frontline Pakistan was the book of the year (2007) by the WSJ. His latest book ‘No-Win War’ was published this year. Twitter: @hidhussain
