Policy consistency takes a big step forward

KARACHI: One January 14 of this year, then-finance minister Shaukat Tarin called for a “Charter of the Economy,” a broad consensus on how to manage the economy that cuts across political lines. In the budget speech made by his successor, Hafeez Shaikh, he appears to have gotten his wish.

Both the current and former finance ministers were appointed by a PPP prime minister and thus must pay lip service to the party’s left-leaning social welfare ideology. But both men are also bankers, and as such are died-in-the-wool capitalists who believe in leaving free markets alone as much as possible. Mr Shaikh said as much in his speech on Saturday evening while presenting the budget to Parliament: “The government must reduce its role in economy.”

He said it in the context of highlighting the benefits of deregulation in the telecommunications sector where the reduction in the government’s role has improved services, reduced costs and provided access to millions of Pakistanis. Interestingly enough, he was citing the telecommunications example while mentioning the travails of the energy sector. While he did not announce a similar step towards deregulating the energy chain, the government did announce a 40% reduction in subsidies for the sector.

The minister spent the first few minutes of the budget speech, typically the highlight of the economic calendar, downplaying the importance of the budget. He noted that economic policy management was a year-round job and the budget was only one amongst its many components. Put in the context of his later comments, it seems that the minister was implying that the government would begin to focus on growing the economy through deregulation, not fiscal stimulus.

What is important about the above statements is not that the minister said them, but the fact that they are largely aligned with an economic policy that has been followed in Islamabad with relative consistency since 1997, when the right-leaning administration of then-Prime Minister Nawaz Sharif initiated the first significant measures towards moving Pakistan from a state-centric economy to one that truly encourages free private enterprise.

The administrations of President Musharraf and now President Zardari, appear to be continuing in that vein, no mean feat for the country. Growth in the 1990s was slow in large part due to the vacillation in economic policies that took place due to the changes in the control of government between the PPP and the PML(N). Given this year’s budget, one can hope for more consistency in the future, regardless of who is prime minister or president.

As much as one would like to celebrate the consistency, one would do well to remember that it is at least partially of foreign extraction. The International Monetary Fund, which has been involved in Pakistan’s economic management since the 1990s, has been pushing an ideology known as the Washington Consensus, a policy framework that advocates a role of government limited to regulation and promotion of private free enterprise.

Briefly put, the framework calls for fiscal discipline, trade liberalisation, privatisation of state enterprises and the removal of cumbersome regulation that inhibits free enterprise. In particular, it advocates redirecting government spending away from subsidies and more towards infrastructure development. Does that sound familiar?

There is likely to be much wailing and gnashing of teeth amongst those who seem to feel that it is the government’s job to provide cradle to grave services. It is the opinion of this scribe, however, that citizens would be better off if the government stuck to providing them with an infrastructure and then let them build their own wealth. In this budget, at least, the adherents of the Washington Consensus see reason to hope.

Published in the Express Tribune, June 6^th, 2010.