Comments on Zubair Iqbal’s “PAKISTAN’S CURRENT ECONOMIC CRISIS—AN IMPERFECT STORM"
Nice piece by Zubair! It is typical of most economic writing (other examples are Ashfaq and Meekal) in Pakistan which has now been conditioned to think “macro-first” ignoring the underlying micro and institutional problems.
Written in typical IMF fashion giving primacy to macroeconomics assuming that it is independent o political economy, institutions and governance. For example
“It has become fashionable to trace the current economic malady to “wrong” growth strategy of the past 60 years. This is neither meaningful nor helpful in understanding the current policy imperatives. Yes, there has been a secular weakening of institutions but that is not an excuse for inappropriate policies. ???”
“Finally, the deteriorating official capacity to formulate and implement effective policies has become a major impediment.”
I would argue that this is central to the issue and not a final footnote.
“Problems were compounded by a total disregard of economic crisis by the new government in the initial period; valuable time, during which the crisis could have been staved off, was lost.”
As if in a few months the mistakes of the last 5 years could have been corrected. With the tax base eroded, an ongoing civil war, a judicial crisis and power shortages and global crisis, I think it is unfair to blame the new democratic government.
“Without fundamental reforms of the fiscal sector aimed at raising domestic revenues and increasing room for outlays to improve the abysmally poor infrastructure—energy, education, water resources, R&D in agriculture, and transportation-- any sustained improvement in growth outlook is unrealistic.”
This assumes that when the government has additional resources, like it did in the 2000s when aid was increased, that it did use the expenditures wisely. People like Furrukh Salim and Shahid Kardar have documented the waste in government. Our leaders –both current and past—jet around the world as if they were on a frequent flier program costing the exchequer 4 billion rupees if he media is to be believed. VIP cavalcades expensive housing and many other government pleasures is what our expenditures are used for. Public sector perks account for 14% of expenditures larger than our outlays on education and health. Should we not look at these? Perhaps political economy requires that these should be addressed at the same time as a tax increase.
“None of the proposed reforms will make any headway without a dramatic and sustained improvement in governance—not simply in terms of formulation of policies and strengthening of institutions to implement them.”
“It is critical that donor financing must be conditional in order to ensure that Pakistan takes painful, but necessary, steps that are needed for it to durably ensure growth and thus eliminate the need for global handouts every so many years. One way would be for such assistance to be tied to reform programs agreed with multilateral lending agencies.”
Is that not what we have been doing for the last 60 years! We have had a fund program based on conditionality for 20 of the last 30 years. World Bank ADB even DFID conditionality has been riding us forever. Remember IPPs social action. If conditionality were the answer, we should have arrived!
We need a separate discussion on conditionality which many of my economist friends who are advising the government from overseas now seem to be asking for. But certainly the onus should be on them to explain why we need more conditionality, why it did not work in the past (in both military and political governments) and why it will work now.
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