Military vs civilian economic performance — II

Published: October 29, 2017
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The writer served as additional secretary at the ministry of commerce

The writer served as additional secretary at the ministry of commerce

Since 1947, Pakistan has been ruled for 32 years by the military and 38 years by civilians or for 45% and 55% of the time, respectively. During these two periods the average GDP growth was 6.3% during military rule and 4.2% during civilian rule. GDP growth under the military regime has always been higher than under civilian rule.

Growth

Pakistan’s economic performance under civilian and military rule needs to be analysed both in quantitative and qualitative terms for comparative analysis. Noticeably, GDP growth performance was better during military rule than under the civilian setup, but unfortunately, the country’s performance continued to slide over time with the result that the performance of President Pervez Musharraf was poorer than President Ziaul Haq which was worse than President Ayub Khan. The Pakistan Muslim League-Nawaz (PML-N) performed badly as compared to Musharraf’s regime but the Pakistan Peoples Party fared even worse. But these should be seen in their context.

During Ayub Khan’s period, economic growth was achieved through both rapid industrialisation and the green revolution. Good relations with the United States helped Pakistan acquire technical know-how. However, Ayub Khan ignored distributive justice. This and the war of 1965 was used by Z A Bhutto against him who took over with the breakaway of the country’s eastern wing. Prime Minister Bhutto’s Islamic socialism was neither — leading to the introduction of wrong policies like nationalisation. Private investment declined from 90% to 36%, forcing Bhutto to make large PSDP investment in large scale and basic manufacturing with a long gestation period which later, through no fault of Bhutto, became white elephants. One stabilising factor achieved by Bhutto came via the deployment of Pakistani manpower in the Gulf states.

During Zia’s rule Pakistan enjoyed a period of economic development. While the growth rate was healthy thanks partly to the injection of US aid, it came at a great social cost introducing drugs, arms, violence, jihad and hypocrisy in the society. In economic terms, President Zia did not negotiate well with the US and settled for “peanuts” resulting in the curse of unmanageable foreign loans, large adverse trade balance and IMF dependency.

Inept policies and alleged corruption were the hallmarks of subsequent civilian rule. While the economy improved under General Musharraf, Pakistan is still suffering from the follies of Shaukat Aziz’s total import liberalisation without first ensuring a robust import-cum-export and export policy. As a result, Pakistan today has a very large adverse trade of balance, the consequent fallout partly averted due to the inflow of workers’ remittances.

Despite these manmade disasters and natural disasters as well as exogenous pressures in his short history including couple of wars with India, earthquakes, floods, American war on terror and now its own war on terror, Pakistan manages to trudge along but at the core of its heart lies the central question of whether the country would be better off under military or civilian rule.

Rupee-dollar rates

While the rupee value is linked to the market, many held the government responsible for it even as Pakistan graduated from draconian and State Bank-controlled forex regimes to manage floating and finally to a free forex environment. While no proof has yet been established in court, it is safe to assume that only the PML-N through its whizz-kid manipulated in forex for self-gain and PPP may have upped their learning curve in this area in Rahman Malik, their former interior minister.

The sharpest depreciation happened during the civilian rule of the ’90s followed by Bhutto’s period, Zia’s regime and the third PPP government. The rupee depreciation is a story of disaster in every regime since Ayub era with notable exception of President Musharraf and the latest round of the PML-N government at least till October 2017. On this account both civilians and khakis lose.

Public debt

Nothing attracts the public imagination more than its curiosity to find out where do the debts, grants and loans actually go to? Not many, not even senior bureaucrats or, for that matter, ministers can answer this question. How the dollars coming in from abroad and rupee loans taken from local banks just seem to vanish into thin air without leaving concrete results on the ground remains a mystery. Misuse of foreign loans have been used in Pakistan to dislodge governments on charges of corruption or leading the country to potential bankruptcies by being forced to “default” on payments. While statistics or proof of siphoning off debt directly into somebody’s pockets is hard to come by as the process is opaque and cannot be unearthed other than through a forensic audit by experts, one thing is certain. Most of the public perceive that the debt is “eaten away” by the corrupt. The public perception, however, tends to blame civilians more.

Another thing that is also certain is that public debt, particularly domestic debt obtained by the PML-N in its current stint and the PPP in its last term, was staggering. Technically, these regimes managed to show compliance with the Fiscal Responsibility & Debt Limitation Act 2005’s target of keeping Public Debt within 60% of GDP (only 1 to 2% have been breached in net debt which is smartly calculated to push the gross percentage of around 65% to around 60%) but the ratio of domestic to foreign loan which generally was around 50%, was increased by both regimes and now hovers around 70%-30%. This is alarming as the interest rate on domestic loans is much higher than external loans.

Public debt during the end of the Ayub, Bhutto and Zia periods was Rs30b, Rs97b and Rs 523b, respectively. During the 10-year stint of the PML-N and the PPP in the ’90s, public debt had swollen by more than six times to what Zia had left them. Musharraf doubled it. By the time Musharraf handed over the reins of power to the PPP, Pakistan’s total public debt was Rs6.3 trillion accumulated over 60 years. Musharraf managed to get the Paris Club loan rescheduled on very favourable terms which virtually cancelled a good portion of the debt as a result of becoming a post-9/11 American ally in 2001. But the dream of lowering debt and its burden proved to be just a mirage. In just five years, the PPP added Rs8 trillion to raise the public debt to Rs14.3 trillion. Not wishing to be left behind, the PML-N added Rs6.66 trillion in less than four years to burden the nation with over Rs20 trillion in public debt ! In nine years they managed to take 3.5 times more than what the nation had earlier taken in the previous 60 years. This sharp increase cannot be explained away by the rupee-dollar rate as 70% of the loan is a rupee-based domestic loan. This is indeed staggering and the public has a right to ask where all the money has gone.

Concluded 

Published in The Express Tribune, October 29th, 2017.

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