EDITORIAL: In the words of the first ever National Security Policy 2022-26 (NSP), “Pakistan’s vital national security interests are best served by placing economic security as the core element of national security.” While critics may contend that merely putting pen to paper does not ensure the implementation or otherwise of an NSP or that it contains the theoretical framework that is available to any student of national security yet the economic centricity of Pakistan’s national security is an acknowledgement of the appalling state of the economy today that requires immediate remedial measures — a position that is amply reflected by not only the macroeconomic data released periodically by the government (domestic debt rose from 16.5 trillion rupees in August 2018 to over 27 trillion rupees today while foreign debt has risen from 95 billion dollars in August 2018 to over 130 billion dollars today) but also Prime Minister Imran Khan’s statements that reliance on borrowing has made us economically insecure. And to further add to the toxic economic mix the government is embarked on a policy to enhance not decrease its expenditure outlay by citing historically flawed policies of the past with particular reference to the power and tax sectors.
Textbook security policy framework consists of economic security, energy security, physical security, environmental security, food security, border security and cyber security. In Pakistan the key positives noted since decades have been two-fold: (i) “our geo-economically pivotal location to operate as a production, trade and investment, and connectivity hub for our wider region to strengthen our economic security” as stated in the NSP has yet to reach its potential after it was first touted more than four decades ago given the sustained geopolitical conflicts in the region; and (ii) multilateral assistance that may allow a country access to the international capital markets at lower rates of return which, in turn, are influenced by geopolitical considerations of key Western donor countries that are visibly not supportive of politically less challenging multilateral conditions than Pakistan is being subjected to today and keeping Pakistan on the Financial Action Task Force’s grey list in spite of our meeting 26 out of the 27 conditions.
What must be of deep concern to all stakeholders is that Pakistan is the only overt nuclear power that is on an International Monetary Fund (IMF) programme which requires “friendly countries” to roll over their assistance till the end of the programme scheduled for September 2022 — a condition that may account for acceptance of conditions harsher than those available from the commercial banking sector. There is therefore an urgent need to undertake the following remedial measures.
First and foremost, the massive rise in reliance on domestic borrowing during the past three years needs a five-pronged strategy: (i) the government must shift from its heavy reliance on borrowing from commercial banks to securing loans from the domestic capital market. In fact the existing debt from commercial banks that too should be refinanced by borrowing from the domestic capital. Such financing would be cheaper than bank borrowing and free bank deposits for utilization by the productive sectors of the economy. For this purpose the Debt Management Cell in the ministry of finance should be relocated to Karachi, the financial and commercial hub of the country and be staffed with professionals from the private sector rather than bureaucrats; (ii) the drain on the economy due to the circular power sector debt needs to be plugged immediately, currently at over 2.4 trillion rupees, though improved sector performance requires not only ensuring that the economic merit order is adhered to but also RLNG be imported on time. In addition, the government must purchase power plants at book value to save the 17 percent guaranteed return on equity as the cost of borrowing to buy equity would less than 17 percent. Though contractual obligations under the China Pakistan Economic Corridor have to be met yet one would hope that Chinese companies give us some leverage given that, without some give, Pakistan’s capacity to clear interest on Chinese loans may be compromised; (iii) ministries on subjects devolved under the 18th Amendment to the provinces continue to exist at the federal level and account for over 650 billion rupee budgetary injection each year and need to be disbanded immediately. It is important to reiterate that in 2010 when the 18th Amendment to the constitution was enacted the expense of these ministries was 175 billion rupees; (iv) foreign direct investment must only be allowed in those areas where transfer of technology and know-how is envisaged or the finished product is to be exported; and (v) state-owned entities, another budget guzzlers, need to be dealt with — either restructured or sold depending on their financial health.
The most obvious and quickest way to end economic dependency on borrowing from the market (domestic or foreign) would be to curtail current expenditure massively. In 2017-18, current expenditure was earmarked 4.2 trillion rupees (with an additional 110 billion rupees or so earmarked for Benazir Income Support Programme) while for the current year this figure has been raised to 7.5 trillion rupees — a whopping 74 percent rise. There is therefore a need to not only undertake the measures highlighted above but also curtail procurement of all but the very basic replenishments by all recipients and implement pension reforms and treat pensions like income and tax it under the law, similar to income of those in active service.
It is relevant to note that prior to the publication of the policy Pakistan like its arch enemy India did not have an overarching national security strategy that spelt out policies to effectively deal with challenges; Bangladesh has a set of security policies that deal with different sectors, for example food security, energy security, etc. Sri Lanka has explored regional avenues for security. It is therefore important to argue that this policy is just as good as its implementation and given the debt shackles that hold the country hostage it is time that bold, out of the box structural reforms are implemented on an emergent basis.
Copyright Business Recorder, 2022
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