Several economic team leaders throughout the world rely on data manipulation to show a performance that is at odds with ground realities and yet, disturbingly, have convinced many a cabinet colleague.
In democracies unemployment and inflation, two indicators that have serious consequences on any administration’s political fortunes, are the focus of the government yet in Pakistan the focus has shifted to growth, though with abysmally low education levels, it is doubtful if this focus is finding too much traction with the general public.
The Musharraf era economic team leaders constantly cite the high growth rates (between 7 to 7.5 percent), the rise in the share of industry (from 22 percent in 2000 to 26.7 percent in 2006), doubling of the share of gross fixed capital formation, an impressive performance by the services sector and last but not least with 82 mobile subscribers per 1000 (up from 2 in 2000) as major achievements.
A 2005 report prepared by Nancy Birdsall, Adeel Malik and Milan Vaishnav, Centre for Global Development, for the World Bank’s Operations Evaluation Department observed that in spite of a massive surge in US dollar inflows during the Musharraf era no doubt subsequent to the country’s decision to support the US-led war on the Taliban, “Pakistan’s people have suffered one of development’s most worrying cases of growth without development. Pakistan made measurable progress on very few dimensions of development—economic, political, or social—in the 1990s.
Even the more recent signs of progress in managing the economy and implementing reforms are not institutionalized nor embedded in a resilient and transparent system of government accountability or of adequate checks on abuse of power. Thus, they may be vulnerable to the same setbacks that political change brought to past periods of apparent progress.”
The mantra of the previous government that the country experienced a 6 percent growth rate in 2021-22 reflecting improved performance in comparison to what was achieved during rival administrations sadly supports the observation of growth without development.
The four lessons learned itemized in the report need serious consideration as they remain relevant to this day. First, structures of economic and political power need to be addressed. In the perspective of decisions during the past seven months one may assume that extending electricity subsidy to exporters, and extending loans to the farm sector with no apparent mechanism to ensure that subsistence level farmers nearly wiped out financially after the floods will be the sole beneficiaries, are policies that continue to provide sustenance to the centres of economic and political power structures in this country.
Second, improvement in social programmes, with the World Bank report stating that “the grossly inadequate levels of public spending on the social sectors, encouraging increased expenditures on social services makes sense – but only given at the same time improvements in the effectiveness of that spending…and considerable attention to empowerment and participation of communities.” There is no doubt that the Benazir Income Support Programme (BISP) launched in 2008 has been a resounding success, and was subsumed in Ehsaas programme during the Imran Khan administration; however, its allocation since its launch has paled into insignificance when compared to total budget outlay.
BISP has been allocated 360 billion rupees in the current year’s budget - a gross underestimation as it predated the onset of the floods - though in comparative terms it is a considerable raise compared to the 246 billion rupees disbursed the year before; and if one adds pervasive mismanagement and irregularities in social sector programmes (as in other sectors/subsectors) as per the Auditor General of Pakistan’s reports year after year that are simply ignored by those audited one is forced to realize the reasons behind a crumbling physical and social infrastructure.
Third, the report states that “leverage is elusive and its limits should be recognized in any strategy to encourage progress against poverty…..all the lending eggs should not be placed in the Structural Adjustment Credits (SAC) basket. SACs should continue to be complemented by the Pakistan Poverty Alleviation Fund program and by smaller, more traditional projects”; however, today the leverage of donor agencies is considerable. Successive administrations, through sustained flawed policies supporting the elite and justifying this support through the outdated trickle-down theory accompanied by multiplying government current expenditures, accounts for the need to procure 40 billion dollars in roll-overs/loans in the current year alone; and this will not be possible without the successful completion of IMF’s ninth review.
The current economic team leaders, like the two previous team leaders, are so far seemingly resisting attempts to implement the agreed reforms however with the Fund staff evidently adamant that the next tranche will not be released till all prior conditions are met it is a matter of time till this team too capitulates.
And finally, governance is a part of World Bank’s vocabulary however “its and context in the Pakistan program is still largely confined to managerial, procurement, and financial issues. There is a need to take a broader view of governance, which includes the wider issues of local power relations; corruption, rule of law etc.” In Pakistan administration after administration has relied on tax amnesty schemes – be it PML-N, PPP or the PTI – with the objective of increasing documentation as well as generating resources from those who have opted to bank outside the country – be they politically exposed people (PEP), senior government officials, or those engaged in over- and under-invoicing.
None of these schemes have sadly paid the kind of dividends for the tax collectors that were projected to be considered a success. To this day the majority of those who do not file their returns prefer to remain outside the net and pay a fixed tax – an option that was given by the PML-N to those it regards as its major political support base.
Many a Western based bank has requested its clients (Pakistani as well as from other countries) to close their accounts no doubt due to questions about their source of funds. And given that the rules governing tax evasion as well as avoidance have been supported by an increasing number of countries, including Pakistan, the potential for future money laundering is more limited than in the past though some countries remain safe havens. In this context it is relevant to note that the United Arab Emirates, a major destination for our PEPs and the elite, is on the Financial Action Task Force grey list.
Thus the way forward would be two-fold. One to focus on development as opposed to growth especially growth led by consumption – of government as well as of the elite - and a start needs to be made towards making the tax structure equitable, fair and non-anomalous, and this necessitates that tax rates should be brought down and there is an urgent need to bring expenditures, especially current expenditures down dramatically.
Copyright Business Recorder, 2022
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