Pakistan's federal finance ministers have generally opted for those policies/reforms that are supported by multilaterals/bilaterals that are politically the least challenging - as it facilitates borrowing - or implement outdated theories taught at the time they were in college or simply relied on common sense, ignoring the fact that chapter 1 in most freshman economic books dismisses common sense as nonsense. Thus there appears to have been a singular lack of interest in keeping abreast of the latest economic theories/literature by our decision makers over a long period of time.
Reliance on staff of multilateral agencies to determine the policies/reforms that are most appropriate within a country's unique macro-economic context may not be a wise decision. Joseph Stiglitz, Nobel laureate 2001 and former Chief Economist of the World Bank as well as having held key positions in the US government wrote: Finance ministers and central bank governors have the seats at the table, not labour unions or labor ministers. Finance ministers and central bank governors are linked to financial communities in their countries, so they push policies that reflect the viewpoints and interests of the financial community and barely hear the voices of those who are the first victims of dictated policies. There would be many a nod in Pakistan for support of these views subsequent to the successful completion of the three-year International Monetary Fund's (IMF) 6.64 billion dollar Extended Fund Facility (EFF) end-September 2016. There has been a considerable criticism of the Fund package by independent economists including two disturbing elements: (i) the decline in exports is sourced to the inordinate focus on lower budget deficit, a Fund condition, that compromised growth; and (ii) failure of the Fund to point out that the rise in tax collections was due to a rate rise, rather than any reforms, including governance reforms, in the Federal Board of Revenue.
That economic theory is evolving based on changing ground realities political as well as economic - is not in doubt. With respect to the former it is relevant to note that what was taken as a given notably the relevance of globalisation for all participating economies when Hillary Clinton was expected to win the elections may no longer hold true in the Trump era if the President-elect, as he committed during the run up to the elections, revisits trade deals with the rest of the world - a fear that is raising hackles in capitals all over the world. Brexit is another case in point where the general public is clearly disenchanted with globalisation.
And what was considered a good policy reform measure in decades gone by may no longer be deemed to be the appropriate option today based on subsequent detailed evaluations of the success and/or failures associated with a policy. Privatisation is a good case in point. Stiglitz in a foreword to a book titled Privatisation: Successes and Failures edited by Gerard Roland maintained that "the World Bank and the IMF pushed countries to privatise as much as they could as fast as they could... the experiences of the last 15 years have cast a pallor over this unbridled enthusiasm for privatisation... a new, more pragmatic consensus is developing - more consistent with economists two handed stance, "it depends" - Privatisation has had some successes but it has also been marked by dramatic failures...the privatisation process has been marked by enormous abuses: in many countries a few individuals managed to grab hold of previously state owned resources for a pittance and become millionaires - or billionaires... other failures of privatisation arose when monopolies (especially natural monopolies) were privatised before regulatory and antitrust systems were put in place. The private sector was better at exploiting monopoly power than the government... While privatisation has deservedly had its critics, so have state owned entities. Many have not been run efficiently and many have created losses that have been a burden on the state. There are instances of corruption." He in a more recent interview stated that "rather than providing incentives for wealth creation, privatisation provided incentives for asset-stripping, with huge movements of capital abroad - $2 billion to $3 billion a month. Policies seemed almost deliberately designed to suppress new enterprise and job creation".
A read of this quote would no doubt have many an independent analyst in Pakistan nodding in complete agreement though Miftah Ismail, Chairman of the Board of Investment, stated on television that it has been acknowledged the world over that privatisation is the right way forward. This statement was not backed by evaluation of the success and/or failures of past privatisation in this country - K-Electric certainly not being a success story. All three of the Sharif administration's relevant members - Ishaq Dar, Mohammad Zubair and Miftah Ismail - fully support the privatisation plan which identified 31 SOEs in the first letter of intent submitted to the IMF under the EFF in 2013 and indeed continue to do so even in the face of strict opposition by the staff backed by opposition PPP parliamentarians.
Ishaq Dar constantly refers to what he claims are the economic successes during the second tenure of the Sharif administration (1998-99) when he held the portfolio of Finance Minister as the rationale for following similar policies in 2013-16. Sadly, Dar seems undeterred or unaware of the change in the global economic environment. To quote Joseph Stiglitz again he highlighted two post-1999 changes: "China and India are now integrated into the global economy. Besides, technology has been advancing so fast that the number of jobs globally in manufacturing is declining". Our Finance Minister also appears to be blithely unaware of the change in the Pakistan economy which today, unlike in 1999, suffers from high borrowing costs (domestic and foreign loans - an outcome of Dar's heavy external borrowing), a tax system as well as the overvalued rupee that disables the exporters from competing internationally, a rising outlay on current expenditure as opposed to development expenditure, and failure to check capital flight - legally through remitting profits and illegally through hundi/hawala. To continue to blame previous governments does not hold water as three and a half years in a five year term is considered long enough to at least improve governance.
Dar points to two favourable macroeconomic data to prove that all is well. One of course is the foreign exchange reserves which are clearly inflated due to borrowing, a charge he denies, however the other claim is that our credit rating has improved. I would again cite Stiglitz who described the rating agencies as the "key culprit" in the financial crisis noting "they were the party that performed the alchemy that converted the securities from F-rated to A-rated. The banks could not have done what they did without the complicity of the rating agencies".
What does Stiglitz propose? "The first order of business is to boost investment, thereby restoring robust long-term growth," he advises President-Elect Trump. Unfortunately, Pakistan's investment to GDP ratio remains appallingly low. According to the Economic Survey 2015-16, investment as a percent of GDP was 17.55 percent in 2008-09, declined to 14.96 percent in 2012-13, the last year in the tenure of the PPP-led coalition government. Thenceforth it declined to 14.64 percent in 2014-15 and rose to 15.48 percent in 2014-15 and as per the Survey registered at 15.2 percent in 2015-16 and this slight rise is in spite of expectations of massive inflows under the China Pakistan Economic Corridor.
To conclude, one would urge the relevant federal ministers to induct experienced economists as their advisors and heed their advice (Dar reportedly does hire qualified economists but fails to heed their advice) or immerse themselves in reading up and understanding the latest economic literature which would enable them to take more informed decisions than they have been taking.
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