LET me recall for my readers what I wrote for this page a couple of months ago. In an article published on July 22, I suggested that Pakistan should not approach the donor community with a begging bowl in hand and ask for help to resolve the economic crisis the country faces at this critical time in its history.
I did not advocate going to the IMF for support since that would compromise the effort to keep the economy on a trajectory of growth.
This is what the country did in 1999 and gave up growth in favour of stabilisation. It was in an effort to pick up growth that the Musharraf administration loosened fiscal and monetary controls over the economy, laying the ground for the current crisis. It is not good for the economy to go through such deceleration and acceleration in growth. It proves unsettling. It would not be prudent to send the economy through such a cycle again.
Instead, I suggested that the country should seek help on the basis of a well thought out programme of economic reform that should focus on bringing about structural changes that have long been postponed. An important part of the structural change would be to make the economy less dependent on external help for sustaining growth. This will take time but the process must begin.
I was of the view that by putting forward a programme of structural reform the country may be able to secure long-term finance, perhaps as much as $40bn to $50bn for a five-year period. Financing should be equally shared between the donor community and Pakistan with the donors requested to front-load the effort with $20bn to $25bn provided in the first couple of years. The Pakistan government should come up with an equal amount at the end of the programme period. However, Pakistani authorities should indicate clearly and persuasively how it would raise this amount of money.
I can’t tell whether my thinking influenced the policymakers in Islamabad. However, I am struck by two developments. One, the finance minister made a statement on Sept 19 that his government had no intention of going to the Fund for support. Instead it would develop its own package of reform. To reinforce that point he announced the withdrawal of a number of consumer subsidies that had weighed heavily on the federal budget.
Two, President Asif Ali Zardari, while on a visit to New York to attend the opening session of the United Nations General Assembly, met with a group of donors he called ‘Friends of Pakistan’. The group promised support but did not come up with a plan as to how it would be delivered. This is where the matter stands today while the country continues to run down the foreign currency reserves it had built up to a respectable level over the last eight years.
From my way of looking at the most effective way of solving the building crisis, this is only half the effort required. The other half needs to be focused on developing a strategy that will give confidence to the community of donors that the new leaders are up to the task of bringing the country out of the stiffest challenge it has faced in its history. Such an effort will need a great deal of thought, full commitment on the part of the leadership and public support. It will also need the development and creation of the institutional infrastructure that is needed to support the development and implementation of a far-reaching programme of economic and social restructuring.
A small step in that direction has been taken by the appointment of a panel by the Planning Commission to come up with a programme of change and reform. The panel is made up of the best economists available to the country. Having been put to the task they should be able to come up with a programme aimed at structural reform. The fact that the Planning Commission has taken this step suggests that the new government is giving the role of strategic thinking to the organisation that was created for this purpose more than half a century ago.
The Commission was overshadowed by the Ministry of Finance during the Musharraf period for the reason that the man who headed the ministry for the entire period did not have the self-confidence to ask for advice. During his tenure economic policymaking became ad hoc, subject to personal whims and pressures exerted by powerful groups of lobbyists.
What should the panel focus on in attempting to develop a programme? It must aim at three goals. It must convince those interested in the economy that the country is serious about reform and development. Two, it must come up with a plan to rescue the country from the economic meltdown it is currently experiencing. And, three, it must put the economy on a trajectory of growth that is not only sustainable but will increase national income at a rate comparable to that of other large Asian economies. A high rate of economic growth is needed to provide employment to those seeking work, bring women into the workforce, and reduce interpersonal and inter-regional income disparities.
It always helps to focus on the positives when thought is being given to the development of a medium-term growth strategy. All the talk about current economic stress has diverted attention away from the positive features of the Pakistan economy. I would like to mention at least three of these plus points.
The first is the agriculture sector, long neglected by public policy in favour of some other parts of the economy. I have held the view for a long time that Pakistan’s policymakers should give a very high priority to agriculture. The sector should lead the rest of the economy, provide jobs in both rural and urban areas, and increase exports. The second advantage resides in the country’s large population that should be educated and trained to become an asset rather than a burden for the economy. The third is Pakistan’s location in the middle of the most rapidly growing parts of the global economy.
Time is running out for the country. The approach to the donor community for help should be accompanied by a well-developed, carefully costed and implementable programme of economic change and reform. We need to dispense with the begging-bowl approach and adopt one that makes a selected number of countries Pakistan’s economic partners rather than providers of charity.
Source: Daily Dawn, 7/10/2008