Ex-ante accountability
The past emphasis on accountability in Pakistan has always been on the ex-post rather than the ex-ante.
The writer is a former caretaker finance minister and served as vice-president at the World Bank
Confidence is returning to Pakistan. This will pick up further if the budget for 2014-15 provides any indication that some of the politically more difficult economic reform areas are being tackled seriously. From this perspective, two aspects of reform are critical. They are needed not only to move the economy out of the slow path it has been stuck on for the last six years, but also to take it to a trajectory of high growth that could be sustained over time. The two areas in which Pakistan-watchers would like to see some movement are economic governance and rationalisation of the tax structure.
Let us look at governance, the quality of which has deteriorated remarkably during the tenure of the previous government. An important area of reform should be to improve the quality of institutions that oversee various aspects of the government’s administration. It is interesting to note that the past emphasis on accountability was on attempting to punish those who were suspected of misusing authority. The focus, in other words, was on the ex-post rather than the ex-ante. Shifting the emphasis on the ex-ante will mean improving the quality of governance provided by dozens of institutions that have the responsibility to regulate the government’s performance in different areas and at different levels. Such an effort will cover a wide front and will include institutions such as the State Bank of Pakistan, the Competition Commission of Pakistan (CCP) and the Securities and Exchange Commission of Pakistan (SECP). For them to work efficiently and effectively, they must have full autonomy and without interference by the executive branch.
Insofar as the State Bank is concerned, it must have the freedom to do what needs to be done to bring inflationary pressures under control. To control inflation, the central bank has to keep a close watch on money supply and that means the ability to formulate monetary policy without interference. Those who control government expenditure will at times find it politically hard to bring public spending under control. That needs to be done to tame fiscal deficits. At the same time, the government must raise more resources from within the economy to finance its activities. Authorities in Islamabad have always resisted giving a free rein to the central bank, which is why the last three governors of the State Bank left before completing their tenures.
The State Bank’s other important function is in the domain of institution-building. It watches the performance of the banking system. It is gratifying that as a result of the privatisation of a significant part of commercial and investment banking systems, the country has perhaps the best banking sector in South Asia. Capital markets supplement the banking system. The banks are intermediaries between those who save and those who buy and invest. Capital markets are essentially a collection of rules in which the investors place their trust. They can only function if those who use them follow the sets of rules. The investor must know that the firms in which they invest are telling the truth when they make their balance sheets public. To ensure this, governments appoint regulators who oversee what firms do and what they reveal to the public, which is why most governments go to some length to appoint trustworthy managers to run these institutions like the SECP. This has not always been the case in Pakistan.
This arrangement of trust can be disturbed when markets get to be dominated by a few players who can make their own rules, which need not necessarily work in favour of the general public. This is the reason why Musharraf’s administration felt the need for the CCP. In other words, ex ante accountability is a complex business involving many institutions. An ex-post agency such as the National Accountability Bureau has an important role to perform but it should be augmented by a cluster of well-managed institutions that watch economic transactions as they are taking place.
Published in The Express Tribune, May 19th, 2014.
Let us look at governance, the quality of which has deteriorated remarkably during the tenure of the previous government. An important area of reform should be to improve the quality of institutions that oversee various aspects of the government’s administration. It is interesting to note that the past emphasis on accountability was on attempting to punish those who were suspected of misusing authority. The focus, in other words, was on the ex-post rather than the ex-ante. Shifting the emphasis on the ex-ante will mean improving the quality of governance provided by dozens of institutions that have the responsibility to regulate the government’s performance in different areas and at different levels. Such an effort will cover a wide front and will include institutions such as the State Bank of Pakistan, the Competition Commission of Pakistan (CCP) and the Securities and Exchange Commission of Pakistan (SECP). For them to work efficiently and effectively, they must have full autonomy and without interference by the executive branch.
Insofar as the State Bank is concerned, it must have the freedom to do what needs to be done to bring inflationary pressures under control. To control inflation, the central bank has to keep a close watch on money supply and that means the ability to formulate monetary policy without interference. Those who control government expenditure will at times find it politically hard to bring public spending under control. That needs to be done to tame fiscal deficits. At the same time, the government must raise more resources from within the economy to finance its activities. Authorities in Islamabad have always resisted giving a free rein to the central bank, which is why the last three governors of the State Bank left before completing their tenures.
The State Bank’s other important function is in the domain of institution-building. It watches the performance of the banking system. It is gratifying that as a result of the privatisation of a significant part of commercial and investment banking systems, the country has perhaps the best banking sector in South Asia. Capital markets supplement the banking system. The banks are intermediaries between those who save and those who buy and invest. Capital markets are essentially a collection of rules in which the investors place their trust. They can only function if those who use them follow the sets of rules. The investor must know that the firms in which they invest are telling the truth when they make their balance sheets public. To ensure this, governments appoint regulators who oversee what firms do and what they reveal to the public, which is why most governments go to some length to appoint trustworthy managers to run these institutions like the SECP. This has not always been the case in Pakistan.
This arrangement of trust can be disturbed when markets get to be dominated by a few players who can make their own rules, which need not necessarily work in favour of the general public. This is the reason why Musharraf’s administration felt the need for the CCP. In other words, ex ante accountability is a complex business involving many institutions. An ex-post agency such as the National Accountability Bureau has an important role to perform but it should be augmented by a cluster of well-managed institutions that watch economic transactions as they are taking place.
Published in The Express Tribune, May 19th, 2014.