I will start by updating on the present economic situation in section I and the predicament in which we find ourselves today as a result of economic mismanagement by imported, dual nationality and suspect credibility economic managers. Section II brings to the fore Einstein’s wisdom in defining an insane person as some one who does the same thing over and over again but expects different results. I then go on to suggest an alternative model which is superior to the IMF model in Section III. I have been discussing important contours of this model since the 1990s, but none of the governments have had the political will to adopt a superior model which can not only dig us out of the quagmire but bring prosperity to Pakistan. Section IV concludes the paper.
I. Present Economic Situation
Pakistan, in spite of being an agricultural country, producing more than one fifth of its output from agriculture, and a little less than half of its population working in agriculture, is food insecure. And in spite of vast rivers and their tributaries, is potable and irrigation water scarce. And in spite of vast hydro, coal, oil and gas reserves is energy scarce. Pakistan also has large mineral reserves and presents a perfect text book example of a resource curse afflicted country.
GDP and sectoral growth rates have declined, skewness in the distribution of income has increased and poverty levels have increased substantially specially during the last few years. Public sector institutions have become dysfunctional and rent seeking is rampant. These institutions are unable to deliver the essential services such as primary and higher education, research, legislation, water, power, transport, etc and other civic amenities to the public. Natural resources are being looted and plundered. Agreements have been signed with foreign countries which reflect Emmanuel’s “unequal exchange” in its most blatant form (Wizarat 2017). In some agreements the share going to the country and its people is minimal, but there are examples when resources have been given at zero royalty. Our highways and roads are being used for transportation of armaments, goods and services to super powers free of cost. And to a super power which according to Stiglitz and Bilmes (2008) spent $3 trillion on the Iraq and Afghan wars between 2001 and 2008. Poor governance and corruption are taking their toll resulting in a sense of exclusion, break down of law and order, increase in conflict and turmoil, non availability of essential services and utilities. The rule of law is non-existent, merit is marginalized and might is right. Competent, honest and patriotic technocrats and bureaucrats are kept as far away as possible from the corridors of power less they turn things around and get Pakistan out of the quagmire in which it has been pushed by successive governments from the 1990s onwards.
According to the Pakistan Economic Survey 2018-19 GDP growth rate at 3.3 % in 2018-19 missed its target of 6.2% by a big margin. Rates of growth in agriculture, industry and service sectors declined, 15 sub sectors missed the targets while six sub sectors showed negative growth rates. Foreign debts increased to $97 billion, while interest payments due in 2019-20 are to the tune of Rs 3 trillion. Inspite of massive devaluations export growth is zero, while imports have declined by $4.5 billion brought about as a result of reduction in import of machinery and electric equipment.
II. Failure of Economic Policies and Managers (dis) serving Pakistan since the 1990s.
The forgoing shows the complete failure of economic policies and economic managers in Pakistan that have been (dis) serving Pakistan since the 1990s when our imported economic managers warmly embraced the neo liberal model which was mainstream economic model thirty years ago. But much water has flowed under the bridge since then. There has been a moving away from the core model and towards protection of individual economies and interests. These can be discerned from the massive injections of trillions of $s, £s and €s in western economies, nationalisation of Fanny and Freddy and other banks and financial institutions in the aftermath of the financial crisis in 2008-9. Brexit is also a manifestation of moving away from conservatism as well as the trade wars between the US and China and US and Europe.
But the policies being thrust on Pakistan by the IMF are as pure and fundamental as they were more then 30 years ago when they were first initiated. Total preoccupation of successive governments in Pakistan has been on protecting the interest of western banks and commercial institutions only. National interest appears to be a dirty word as far as economic policy formulation in Pakistan is concerned. The only objective pursued by successive governments in Pakistan has been that the country does not default. Pakistani governments have been totally oblivious of the tremendous cost this entails in terms of sacrificing the rate of growth and employment and its fallout on income distribution and poverty. The outflow of massive revenues to service debts and the interest payments along with the very harsh conditionalities on account of depreciation of the rupee and the hike in the lending rate, supposedly to curb inflation have had severe consequences on the rate of investment, output and employment growth, with very adverse consequences on income distribution and poverty.
In spite of this horrendous situation, formulation of a debt management strategy which could have brought about a balance between the interests of western capital and Pakistan has not occurred to the large army of economic advisers. Moreover, the entire focus of the present economic model is on trying to bring about the inflow of foreign exchange through only increasing exports by depreciating the value of the Rupee. The model does not attempt to bring about inflow of foreign exchange through diverse sources. There are numerous ways to generate non tax revenues, but the IMF programs are silent on these. They include the revenue Pakistan can generate from its strategic location, its natural resources, etc. Pakistan still appears to be in the colonial mode when its resources (combined India prior to 1947) were used for financing the Industrial Revolution by its colonial master England. Similarly, Indian soldiers and treasury financed the British war effort during the Second World War. Although Pakistan claims to be a sovereign country its land and air routes are being used for free by NATO. Moreover, Pakistan’s natural resources are also being doled out free of cost to friendly as well as enemy countries who are minting wealth from them. Even a scarce resource like water is being given for free to a western company. These generosities along with the most liberal foreign exchange regime in the world is resulting in massive outflow of capital and wealth from Pakistan. Successive Pakistani governments including the present one have failed to generate non tax revenues.
Successive Pakistani governments have also failed to collect tax revenues from wealthy Pakistanis. Wealthy feudals, stock market and real estate investors are loaded with money, the criminal display of which you see in their life styles, weddings, etc, but they are not brought in the tax net. While those already in the tax net continue to bear increased incidence of the tax burden. Present government’s preference for passing on the burden of debt servicing to the middle and lower income classes can be gauged from the imposition of taxes on meat, chicken, vegetable oil, sugar, cold drinks and cigarettes and the continuous increase in electricity and gas tariffs. This shows that while the government is totally indifferent to pursuing the interests of the country and its people, it ‘s resolve to pursue the interests of creditors is through snatching food from the lower and poorer segments of the Pakistani population.
III. Alternative Strategy
I have proposed an alternative strategy which is superior to the IMF strategy that has been pursued by successive Pakistani governments (Wizarat, 2018). The strategy envisages:
IV. Concluding Remarks
While imported economic managers with suspect loyalties to Pakistan are doing a fine job of protecting western commercial interests and adversely affecting Pakistan’s interests as reflected by declining output and employment and worsening income distribution and poverty levels. If Pakistan continues to sacrifice its economic interests over those of western capital, the ensuing crisis that will engulf the country will be serious and protracted. It has now been stated quite unequivocally that economic meltdown of Pakistan will be projected as that of a nuclear power with serious implications on nuclear non proliferation. The US has made it clear that such a situation will imply that Pakistan will sell its nuclear assets to raise money thus necessitating the seizure of Pakistan’s nuclear assets. The only way to preempt this horrendous situation from developing is to bring in patriotic, honest and competent economic managers who can still prevent the free fall of the economy thus preempting the security challenge Pakistan faces today!
Pakistan Economic Survey 2018-19, Government of Pakistan, Islamabad, 2019.
Stiglitz, Joseph, and Linda Bilmes (2008), The Three Trillion Dollar War, W.W. Norton.
Wizarat, Shahida (2017), “The State of Pakistan’s Economy: An Action Plan for Sustainable Economic Development Plan for Pakistan” at the international conference on State of the Pakistan Economy: Issues and Challenges for the 21 Century, 27-28 September 2016, IOBM, published in the PBR, May 2017.
Wizarat, Shahida (2018), An Alternative to the IMF, Hilal, June.