Dr Nabi is member of Prime Minister's Economic Advisory Council and was a member of the Monetary Policy Committee of the State Bank of Pakistan before it was disbanded. Dr Ijaz Nabi has been associated with the World Bank for 22 years, where his last assignment was Manager, Economic Policy for South Asia region (2002-08). He also led the Bank's team during the East Asian financial crisis.
He is Pakistan's Country Director for 'International Growth Center', a policy research consortium of London School of Economics and Oxford University. Dr Nabi has published extensively on economic growth, industrialisation, international trade and labour markets in developing countries. He is currently Professor of Economics and Dean, School of Humanities, Social Sciences and Law at Lahore University of Management Sciences.
Contrary to popular perception, "Pakistan's economic problems are not complex since their nature has not changed much over the course of years". That's the message, Ijaz Nabi tried to bring home when BR Research met him in Lahore last month, adding that the problems can be resolved with much ease if there is enough political will.
Stressing that Pakistan's economic crisis is repetitive, he laments that it is the government which gets into trouble because it spends more than it earns. Yet, he believes the predicament to be not very complex because the government, being a single agent, can cut back its expenditure, if it wills.
"Our periodic cycle of going into a big dip exists because the government finds itself spending far more than it is gets in revenues," he says, adding that the politics of coalition demand the government to not do "what it knows needs to be done". "The complexity comes because of the politics," he said. Nabi is apprehensive about the country's GDP growth which is currently less than the potential growth rate of 5 percent. The less-than-potential growth is partly attributed to the persistent energy shortage. "Estimates show that Pakistan is 1-2 percent short of the GDP growth because people do not get constant supply of electricity," he says.
"China is growing at 10 percent and India is growing at 8-9 percent. To stand close to them, we will have to grow by 7-8 percent," he added. To reach this potential, Nabi deems macroeconomic stability to be of utmost importance because "it will remove uncertainty and encourage people to invest".
Productivity growth is Nabi's answer for surpassing the growth potential to come close to a GDP growth rate of about 8 percent. And he believes the onus for this doesn't fall on the government alone. "We do not need to rely on public investments. You have to design a total investment programme with public-private partnership so that we don't depend on public investment alone for credible infrastructure," he explained.
Stressing on the importance of foreign investments, Nabi said there is an urgent need to control the law and order situation. "For a growth rate of 8 percent, domestic investment alone will not be enough. For that, you have to have foreign investment and be much better integrated with the global economy," he said. Because global integration requires us to "clean our region", cities, like Karachi, have to be cleaned up. "You cannot have the commercial hub of the country collapse every other day into complete mayhem. Without addressing these issues, I don't think an 8 percent growth is possible...Pakistani investors alone cannot bring about this growth," Nabi cautioned.
He asserted the need to have a stable law and order environment, "without which, 8 to 9 percent growth is not possible", because the restoration of law and order is also critical for the success of structural reforms. "You can do structural reforms till the cows come home, but if people don't feel secure about long-term investment, they will ask for premiums for being in Pakistan," Nabi pointed out.
Another way to increase the country's GDP is to strive for regional integration. "We should see ourselves as connectors of the vibrant Asian region," says Nabi. He is positive that Pakistan will gain from opening trade routes with rapidly growing countries like China and India, adding that closing up trade routes also equates to wasting the potential of natives, such as 'pathans', who have traditionally been tradesmen and money lenders.
INDIA-PAKISTAN RELATIONS
Nabi expects the law and order to improve if there is trade activity via the Wagah border. "It will not only improve the law and order situation but it will also open all borders for trade," he said. Explaining his position, he said, although Pakistan never existed as a state before 1947, the region was still vibrant because of the three cultural and commercial centers throughout history.
"One is in the north, what was called the Gandhara valley, Peshawar, Abbotabad, Taxila etc. It is very vibrant and it was vibrant continuously through history. Then in the center, Multan and later Lahore were very vibrant and then upper Sindh, where Sufi saints ran off from the Mongols to settle there," he opined, adding that these centres linked what was to their west and with what was to their east.
He stressed on the need to capitalise on the country's north-south network, which he thinks is "stronger than anywhere else in the South Asia", by opening up the east and west borders. "If west and east are re-opened, the regions will regain their original vibrancy," he said. And potential "50 to 60 years of growth" would be equally distributed in and around the three historical regions within the country.
RESOURCE MANAGEMENT
Unlike many, Nabi doesn't look at taxing rural income as a panacea for Pakistan's revenue problems, arguing that "those will always be a small fraction of the total revenue because Pakistan does not have many big landlords." Instead, he suggests taxing consumption, for example sales tax, so that everyone - be it big landlords or the urban elite - will pay taxes regardless of where they are from.
Nabi dismisses the view that such a taxation form will be regressive because items consumed by the poor, for example, basic necessities, such as health and food, can be zero-rated. This will also tax the consumption of large farmers by, for example, "taxing the luxuries that the rich consume, be it a rich farmer, a rich businessman, a rich industrialist or even a rich teacher". "Tax large restaurants but not the 'tandoor'!" an emphatic Nabi remarked.
In one of his resource management propositions, the former World Bank employee, stressed on the importance of having an independent debt office. "We need someone very strong who oversees the debt office and someone who can make a lot of noise if the debt is exceeding a certain amount," he said.
"What is happening at the moment is that there is pressure on the Ministry of Finance to spend on several projects. And for survival, the Ministry sends an overdraft to the State Bank of Pakistan, which it duly honours," Nabi explained. He suggests that journalists should be seeing the head of the debt office much more than anybody else so that the activities can be reported. This, he says, is necessary because the ministry of finance needs an ally to pressurize the spendthrifts in political leadership.
ROLE OF MEDIA For Nabi, the media is very critical for creating public awareness regarding economic issues, criticising headlines such as that of the "oil bomb". Having gone through some unfulfilling experiences of speaking at popular talk shows, Nabi is upset about the inability of talk shows to project any clear understanding of the issues. "Populist talks abound. It is as though they don't want to understand the real issues," adding, that in 3 minute conversations you can't reach a conclusive understanding of a 30-year-old issues.
Nabi says consumers mistakenly believe that the government is responsible for the rise in oil prices. "It is the role of the media to tell the public that this is not true. The government does not decide the oil price. It purchases oil in the international market where the price has risen substantially over time," he said. The flawed perception, he says, forces the government to become shy of passing through international cost to the consumer, which in turn creates a circular debt in the power sector chain. On a related note, Nabi criticises the rampant use of private vehicles because it prevents taking advantage of economies of scale. Inadequate public transport, forces people to use private transport, which is "an enormous waste".
Commenting on loss-making public enterprises such as Railways and PIA, Nabi says that "If you want the government to be the employer of last resort then pay taxes to the government. If you are not paying taxes, then don't throw these liabilities on the government."
He adds that the media needs to make people understand that if workers of Pakistan Railways, PIA and others don't allow the government to restructure the sick entities, the end result would be that government will not have revenues. "Consequently, everybody will have to pay through government borrowing and what is known as the inflation tax," he warned. And that inflation tax doesn't discriminate. "In fact, it affects the poor much more than the rich...so I think things need to be seen in totality and the media plays an important role in this," he said.
An interview with DR IJAZ NABI
Interview by Ali Khizar & Ayesha Aftab
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