Pakistan’s economy: charting the politics

Country should strive to align good economics with good politics

ISLAMABAD:

In his recent blog, while commenting on Pakistan Democratic Movement’s plan to organise rallies and protests, Pakistan Institute of Development Economics staff member Nasir Iqbal has estimated that the direct economic loss (of strikes) is three times greater than the total expenditure on social protection (only 0.6% of GDP allocated for social protection).

Iqbal was of the view that Pakistan could easily alleviate poverty and hunger if the same amount (loss in protests) was invested in the poor. The writer subsequently argued that “if we can restore political stability, the economic potential ranging from human capital to natural resources can quickly change outlook of the country.”

Ironically, similar calls were made when the ruling party Pakistan Tehreek-e-Insaf (PTI) staged a 126-day sit-in in Islamabad in 2014 forcing the Chinese president, on one occasion, to cancel his trip to Pakistan. There is no guarantee such protests would not be organised again if a new government is in place tomorrow. That is the very nature of a healthy democracy.

Various stakeholders have given the call for a cross-partisan consensus on economic policy to insulate it from political shocks. These calls assume that the economy can be isolated from politics, which is a naivety. A common phrase used is political stability.

If political stability is interpreted as having one leader for a long time, which happened in the case of Malaysia, it can also open doors for deep-rooted nepotism.

On the other hand, we can find examples of countries where the change of the head of government has been much more frequent, such as Japan. Despite frequent changes, Japan has continued on the same economic policy and has maintained a broadly consistent framework of economic governance through its Ministry of International Trade and Industry.

There cannot be even two countries which would follow the same path because of uniqueness in their historical paths and national dynamics, thus I am not proposing to adopt the Malaysian or Japanese model here.

In a vibrant democracy, we should expect the economic policy to change with the change of government. In competitive politics of Pakistan, political parties have contrasting economic visions and they can be genuinely expected to follow their visions once they are voted in.

For example, the PML-N is known for its strong preference for public sector infrastructure spending, which has a strong visual appeal as well as deep spillover impact on the economy. PTI, on the other hand, came to power with the claim of fixing governance first, development later. If there is a third party tomorrow in the government with a free-market orientation, we can expect taxes and tariffs to go down considerably.

There is nothing wrong with changes in the political government and the change itself does not imply lack of political stability. What matters more for investors and businesses is not who the prime minister is or what is his party’s name, instead, it is the quality of regulators, courts and civil bureaucracy, which has a direct impact on the business environment.

If courts develop a knack of interfering in economic policy, the accountability drive freezes decision-making by policy managers, regulators are incapacitated and businessmen stop investing in any growth-enhancing risky ventures. Instead, they park their capital in safe havens either inside or outside the country. At this juncture, it becomes irrelevant who the prime minister is and what is his or her party.

If key institutions are reasonably functional, then politicians themselves become less relevant. It is that point of institutional maturity when a stable economic policy can be crafted. Only then we can expect predictable taxes and tariffs, for example. The mechanisms themselves determine the outcomes. What needs to be done?

To start with, Pakistan needs an open, candid and serious dialogue between the private sector and key institutions of economic governance. This can be organised autonomously without having politicians involved at the first stage, though surely such a dialogue will have its own politics.

Once some points of consensus are evolved, then political parties can be involved. Such a dialogue may lead to certain points of agreement or a new national agenda for growth and prosperity.

A working relationship between the private sector and key institutions responsible for economic management is vital for the country. This can be established even if there are political storms and may even become more crucial in this case. We need to align good economics with good politics.

The writer is the founder of PRIME Institute, an independent think tank based in Islamabad

 

Published in The Express Tribune, October 26^th, 2020.

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