Pakistan's economy: Hard times

by Raza Rumi

Two years after the civilian government took office, there are few signs of economic recovery and this does not augur well for the fate of democratic governance in Pakistan. We are somehow doomed to bear the brunt of authoritarian regimes in social and economic terms. By the time a civilian government puts its house in order, the long and short marchers are ready to take over. The story this time has been no exception. Following the trends of the 1960s and the 1980s during the Musharrafian decade, unsustainable growth rates were touted as the raison d’etre for the apparent efficiency of a military regime. It is true that the Musharraf era inducted Pakistan into the globalized economic system, boosted domestic demand for consumer products and attracted huge doses of foreign assistance shortly after the military decided to ditch their erstwhile strategic allies, i.e. the Afghan Taliban. But it left the country in dire straits – bankrupt, politically polarised and mired in the worst inflation of our times.

The signs of economic fatigue and food inflation had appeared during Musharraf’s last year in power. An unprecedented energy crisis also plunged the nation into literal and metaphorical darkness and the global recession caused an economic slowdown all around. Consequently, from the high growth-rate of 6 percent, we were in the lowest growth category, even in the poor South Asia region. A 2.2 percent growth rate implies that our current population increase per annum is untenable. Similarly, the highest ever recorded inflation of nearly 25 percent in 2007-2008 also hit the fixed-income citizenry and the millions of poor, depriving them of basic sustenance.

In 2008, therefore, the newly-elected government had no choice but to espouse a stringent IMF stabilization package that many analysts believe has pernicious long-term effects. There is a political economy of resistance embedded within the state machinery, engineered by powerful economic oligarchies. However, the civilian government embarked on an ambitious agenda that increased the budget allocation for social spending from 0.1 percent of the GDP to 1.5 percent through the roll-out of the Benazir Income Support Programme (BISP). The government holds that 20 million households will benefit from the BISP this year, while detractors point to the leakages, malfeasance and nepotism by elected representatives as the key drawbacks. Unofficial estimates, though, suggest that nearly 60 percent of bona fide beneficiaries are receiving assistance under the BISP.

Desperate measures to protect the poor aside, the ruling party at the centre has faltered at introducing structural reforms. It has stumbled from one crisis to another. A bi-annual search for a credible Finance minister seems to plague a party that has rarely focused on policy deliberations when in opposition. In fact, the loss of its one-person think-tank, strategist and charismatic fountain-head was so severe in December 2007 that many believed the PPP would not survive as a viable political force with legitimate claims to power. The short honeymoon between the PPP and the PML-N was wrecked by the judges’ issue, and Mr Ishaque Dar, portrayed in the media as an economic wizard, was out of office even before he could set policy parameters. A loyalist PPP worker, Naveed Qamar, took charge of the Finance portfolio but was soon sacrificed at the altar of international and national expediency to be replaced by a banker. His successor, Mr Shaukat Tareen, with his impeccable banking-sector credentials was hailed by the corporate media and the international development partners of Pakistan as someone who would deliver the goods.

However in less then a year, Mr. Tareen has left the office in search of greener pastures. To his credit he appeared as a no-nonsense policy maker and made some candid confessions about his limitations in office and the political imperatives that impeded his work. But what can even the best of minds do if there is little political consensus on structural reforms, when less than 2 percent of the population pays taxes voluntarily and land owners and oligarchs dictate the formation of economic policy? In the face of such odds, the populist slogans of “roti, kapra aur makaan” have become a farce of yore and a tragedy of the present.

The crucial issue remains how policy is formulated and applied in Pakistan. A coterie of powerful men (and occasionally a woman) decide on what policies are to be introduced, often under the advice of external advisors and conditionalities that are served as a ready-to-eat meal for the apparatchiks at the Finance ministry. The role of domestic thinkers, analysts and experts is marginal, to say the least. The grandiose economic advisory groups and councils at the federal and provincial levels, despite the best of intentions, turn into elite groups which serve the process of providing legitimacy to the interests of a dysfunctional state. Little wonder that we are beset by vulnerabilities such as a perennial balance-of-payments crisis, as we have lost the comparative advantage, if any, making us an import-dependent economy. To top it all, public debt always remains high and currently stands at 55 percent of the GDP, with external debt comprising 27 percent of the GDP.

Future risks such as the slow increase in domestic productive capacity and the circular debt facing most institutions in the power and financial sectors require an expansion of the tax-base and enhancing productivity. This cannot be achieved without the political parties agreeing on transformational reforms. If there was any hope in the wake of a consensual Charter of Democracy, it is now history, as both the major political forces have reneged on the accord which was reached after serious thinking and sheer hard work.

Thus, Pakistan will continue to be an economy led by national-security imperatives, aspiring to be an even better client-state, taking pride in being a rentier entity, just as it has been for the past six decades. Political stability and continued civilian governance is the only way out in the short- and medium-terms. The core issues of redistribution, inclusive economic growth and a focus on the poor across the federation will only be addressed if the legislatures over time start to play their role under public pressure. Until then, we shall be a closed-door policy-making polity, with little engagement of an burgeoning, disenchanted and disenfranchised citizenry.

First published in The Friday Times – this piece was written before the appointment of Mr Hafeez Pasha as the Adviser, Finance.

Raza Rumi is a public policy expert and writer based in Lahore. He blogs at

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