The saga of economic mediocrity
We spent more than what we collected, imported way more than what we exported and did not save much.
Representational image. PHOTO: REUTERS
Our economic policy has not varied much over the last few decades. We have invested in populist projects with little regard to their viability or need. We spent more than what we collected, imported way more than what we exported and did not save much. We have offered incentives and support packages for our industries and agriculture, but they mostly ended up in the pockets of elites. On top of that, we have relentlessly expanded the size of the government.
It’s not hard to guess that this policy has led us to frequent economic crises. But whenever we did, we ran towards the IMF and borrowed even more, on the back of brief periods of “macroeconomic adjustment” — which was more like treating the symptoms rather than the infection — and then we were back to business as usual.
This is a story of myopic visions, perverse incentives and mediocre economic policies.
Our politicians’ economic vision has traditionally been limited to a few pet projects which could get them more votes. They are only compelled to think beyond them when they either face a public outcry due to inflation, food or energy shortages, or have to appease lobbies with financial muscle or street power.
But they are never willing to take difficult decisions, especially if those can be postponed. Why cut down government size when reducing development spending can get you through an IMF programme? Why put money in a pension fund which will only benefit future generations? Why worry about state-owned enterprises and face strikes and political unrest if throwing in a few billions can keep them afloat for a little longer and make them someone else’s responsibility? Why invest in dams if they are going to take years to build? Why look at capacity payments of power projects and open up a Pandora’s box? Why invest in the future at all, if dividends lie beyond our immediate political horizon? Isn’t it too tempting to invest in dazzling short-term initiatives that could blind the voters long enough just to get into the next election cycle?
Our finance ministers are no different. Even the best of them remain confined to chasing their revenue targets, managing budget deficits and convincing lenders to pitch in more. But they never have the appetite to think beyond these basics, as their survival often lies in not rocking the boat.
Then come the bureaucrats whose perspective is even narrower. Sitting behind file-laden desks, they are the ones with actual control over resources. Parliament may approve the budget but it is they who, with the help of re-appropriations, supplementary grants and financial releases, decide where the public money gets spent. But even they steer clear of the messy business of economic reforms and are instead obsessed with maintaining their postings, charming those who matter and avoiding anything that can even remotely cause a hiccup.
Because of this short-termism every time there is a perverse incentive for the system to spend beyond what it generates and not worry about who’s going to pay for it. As long as the lenders are happy and citizens are quiet, it really doesn’t matter.
The result is a hopeless economy crumbling under piles of debt, swelling inflexible liabilities in the shape of wage bill and pensions of a rapidly growing government workforce and a ballooning population stressed with malnutrition, poor education and low level of skills leading to unemployment. There is no vision, no larger picture and no plan on how to get Pakistan out of this hole that we are digging for ourselves. Unless we fix these perverse incentives, bring in some fresh thinking and go back to the drawing board, we are not likely to break this spell of mediocre economic policies.
Published in The Express Tribune, February 11th, 2020.
It’s not hard to guess that this policy has led us to frequent economic crises. But whenever we did, we ran towards the IMF and borrowed even more, on the back of brief periods of “macroeconomic adjustment” — which was more like treating the symptoms rather than the infection — and then we were back to business as usual.
This is a story of myopic visions, perverse incentives and mediocre economic policies.
Our politicians’ economic vision has traditionally been limited to a few pet projects which could get them more votes. They are only compelled to think beyond them when they either face a public outcry due to inflation, food or energy shortages, or have to appease lobbies with financial muscle or street power.
But they are never willing to take difficult decisions, especially if those can be postponed. Why cut down government size when reducing development spending can get you through an IMF programme? Why put money in a pension fund which will only benefit future generations? Why worry about state-owned enterprises and face strikes and political unrest if throwing in a few billions can keep them afloat for a little longer and make them someone else’s responsibility? Why invest in dams if they are going to take years to build? Why look at capacity payments of power projects and open up a Pandora’s box? Why invest in the future at all, if dividends lie beyond our immediate political horizon? Isn’t it too tempting to invest in dazzling short-term initiatives that could blind the voters long enough just to get into the next election cycle?
Our finance ministers are no different. Even the best of them remain confined to chasing their revenue targets, managing budget deficits and convincing lenders to pitch in more. But they never have the appetite to think beyond these basics, as their survival often lies in not rocking the boat.
Then come the bureaucrats whose perspective is even narrower. Sitting behind file-laden desks, they are the ones with actual control over resources. Parliament may approve the budget but it is they who, with the help of re-appropriations, supplementary grants and financial releases, decide where the public money gets spent. But even they steer clear of the messy business of economic reforms and are instead obsessed with maintaining their postings, charming those who matter and avoiding anything that can even remotely cause a hiccup.
Because of this short-termism every time there is a perverse incentive for the system to spend beyond what it generates and not worry about who’s going to pay for it. As long as the lenders are happy and citizens are quiet, it really doesn’t matter.
The result is a hopeless economy crumbling under piles of debt, swelling inflexible liabilities in the shape of wage bill and pensions of a rapidly growing government workforce and a ballooning population stressed with malnutrition, poor education and low level of skills leading to unemployment. There is no vision, no larger picture and no plan on how to get Pakistan out of this hole that we are digging for ourselves. Unless we fix these perverse incentives, bring in some fresh thinking and go back to the drawing board, we are not likely to break this spell of mediocre economic policies.
Published in The Express Tribune, February 11th, 2020.