Development 2.0--by Nadeem Ul Haque

“Insanity is doing the same thing over and over again and expecting different results.” Einstein Pakistan is an IMF addict: we have had 12-13 IMF programs in the last 30 years and have spent more than 22 years in a program (more if you count program monitoring). So, what will change with another program? Will both Pakistan and IMF repeat the past and prove insanity as in Einstein’s maxim.  IMF gave us a clean bill of health about 2 years ago, yet we are in another BOP crisis. You can see the exchange rate collapsing. Will the doctor repeat the old medicine?   While policy, IMF and our policy remain engaged in a dismal dance, the economy beyond the control of the MOF chugs along creating a middle class.  People are largely better off despite the shenanigans of the trio (MOF, IMF and pundits). People have worked hard to build a life for themselves whether through migration or some trading and even informal work at home.  But then the trio (IMF, M...

Our macroeconomic policy stance is and has been seriously wrong for a long time. Time we seriously reviewed it. We have been chasing the chimera of fiscal adjustment most unthinkingly. In the bargain we have killed growth, governance, public service delivery and perhaps even the state. Let us see how? Consider an economy where economic growth has slowed down and large fiscal deficits have led to a growing debt stock and balance of payments difficulties.  No doubt such an economy needs adjustment. The question is how? Several options are available. The best approach is to address the fundamental causes that have caused the slowdown in the economy. Often the source of the economic difficulties is deep-seated structural issues such as a bloated government based on poor expenditure choices and a poorly developed mismanaged public sector enterprise sector, poor market regulation, low quality of governance and regulation that drives up the cost of doing business, and several lega...

Pakistan is Practicing Austerity Economics Some of my economist friends still insist that we are not practicing austerity economics. Once again let us try to understand. Austerity is the mindless approach to containment of a fiscal problem. A fiscal adjustment often is necessary in an economy. The austerity approach is to rush the adjustment without a focus on the reform that might address the deeper structural issues that are driving the fiscal problem. Often the rush to meet fiscal targets leads to cuts in expenditure for the development and maintenance of society’s capital –physical, social and human. In that sense it places an excessive hardship on the country. Pakistan has had a fiscal problem for the last 30 years and has failed to address it. Why? Because the Pakistani economics amounts to what I call fiscal arithmetic . These analysts see the budget only as expenditures minus taxation. The only thing that matters to the proponents of fiscal arithmetic is...

How Valuable is Your Bureaucracy? For decades now the issue monetization of perks has been on the table. No action has been taken because the powerful secretaries who monopolize access to perks block the reform and because our austerity mindset keeps us from financing a reform that accelerates growth and employment. This reform is most necessary in housing because the current distribution is iniquitous and because its holding back economic development and employment. Let us see how! Inequity Recall government-owned accommodation such as houses, bungalows or apartments located in the posh areas of metropolitan centers. The location and addresses themselves are prestigious and symbolizing power. What is less well known is that not all civil servants get these houses. Of the 447155 civil servants, 8% have the privilege of getting government-owned accommodation such as houses, bungalows or apartments located in the posh areas of metropolitan centers; 20% are l...

Austerity Pakistan 4 What is Pakistan's fiscal problem Pakistan's provinces where much of the welfare and infrastructure lies are all running balanced budget as required by the constitution-thank the almighty. The federal government has obligations to smaller regions that it administers such as the FATA, GB, AJK but these are not more even 1% of GDP. Much maligned defense is about 3% of GDP which given the war on terror which has killed 50,000 people and destroyed many cities may not be too large. Running of the federal government is only about 1.5 % of GDP. Debt service is the largest amount about 4% of GDP. All in all the federal government does not appear to be a huge spendthrift locked up in huge administrative and defense expenditures that cannot be reversed. Where then is the problem? The federal deficit borders on about 8 to 9% of GDP. Our Revenue is only about 9% of GDP. Adding up the above mentioned items, our expenditure commitments are only abou...