Dole model is no model
Pakistan should emulate economic models adopted by the Asian Tigers, China or India to come out of appalling poverty
“We as a nation have rejected poverty and the Indian nation seems to have embraced it.” This was how the late economic genius of Pakistan Dr Mahbubul Haq explained to a curios group of visiting Indian journalists, why as opposed to a seemingly ‘shining’ Pakistan, India looked so ‘drab’. This was the mid-1980s when the good doctor, as Pakistan’s finance minister, was interacting with the visiting journalists from a country groaning under, what was called, the Hindu rate of growth of two per cent, while Pakistan was galloping at a rate of more than six per cent.
That Dr Haq was trying to conceal the actual reason for Pakistan’s skin-deep prosperity of the 1980s with a rhetorical explanation did not fool many, even as he uttered it. The ‘shine’ was indeed, a reflection of the first Afghan war-related flood of dollar inflows. By the time this war had come to an end, our shallow show of opulence had consumed more than 50 billion unencumbered dollars that had flowed into the ‘front-line state’ between 1982 and 1987 from the so-called ‘free world’, including the oil-rich Middle East. In addition, the then regime was consuming up, on the double, the physical and social assets and production capacities, created mostly using borrowed resources during the Ayub and Bhutto regimes. But as the war neared its end, there was nothing to show on the ground where all the billions had disappeared. Dr Haq, finance minister of the interim government of former president Ghulam Ishaq Khan, had to rush to the IMF for an emergency band-aid.
This entire scenario was repeated to the letter in the first decade of the current century as the second Afghan war-related dollar inflows created another skin-deep prosperity in the country, only to disappear by 2008 in a blinking of an eye as it could not last for even a couple of months in the face of financial upheavals occurring in far-off lands. As in the closing years of the 1980s, by the close of 2007, the country started suffering from massive load-shedding. During both periods, precious foreign assistance was wasted on consumption instead of using the comfortably wide fiscal space for introducing much-needed structural reforms to enhance national income, add to physical and social assets and improve to a reasonable level the Incremental Capital Output Ratio.
The economic predicament that Pakistan has been facing since 2008 is similar to the one we had faced in the decade of 1990s. And like then, the present crisis, too, is the direct result of the mismanagement of the economy during the preceding regime. And like the regimes of the 1990s, this time around as well the governments, both the previous one and the current one, seem to have continued with the policies formulated during the regime that had preceded them. That is why our economy is continuing to crumble. And that is why our dependence on borrowed resources continues to grow.
Time to do some candid appraisal of the ground realities. We don’t have our own sources of energy; we do not own enough capital to provide even two square meals to our galloping population; and being too far behind in world ranking in education, our capacity to acquire knowledge-based technologies is too limited. Much of our so-called natural wealth, like the huge coal deposits in Sindh and rich minerals in Balochistan, including the Reko Diq gold and copper mines, are buried deep under mounds of earth. We don’t have either the capital or the technology to exploit these on our own.
One way of overcoming these shortcomings is to go around the world with a hat in hand. This we have been doing since independence, but have done nothing with all the dole received so far, other than to create false affluence. More of the same is not going to make us behave differently. The other way of extricating ourselves from this impossible situation is to emulate the economic models that were adopted by countries like the Asian Tigers, China or even India to come out of their appalling poverty. This would need a lot of belt tightening and that too for at least a quarter of a century. But mind you, we are a nation that has rejected poverty!
Published in The Express Tribune, October 1st, 2014.
That Dr Haq was trying to conceal the actual reason for Pakistan’s skin-deep prosperity of the 1980s with a rhetorical explanation did not fool many, even as he uttered it. The ‘shine’ was indeed, a reflection of the first Afghan war-related flood of dollar inflows. By the time this war had come to an end, our shallow show of opulence had consumed more than 50 billion unencumbered dollars that had flowed into the ‘front-line state’ between 1982 and 1987 from the so-called ‘free world’, including the oil-rich Middle East. In addition, the then regime was consuming up, on the double, the physical and social assets and production capacities, created mostly using borrowed resources during the Ayub and Bhutto regimes. But as the war neared its end, there was nothing to show on the ground where all the billions had disappeared. Dr Haq, finance minister of the interim government of former president Ghulam Ishaq Khan, had to rush to the IMF for an emergency band-aid.
This entire scenario was repeated to the letter in the first decade of the current century as the second Afghan war-related dollar inflows created another skin-deep prosperity in the country, only to disappear by 2008 in a blinking of an eye as it could not last for even a couple of months in the face of financial upheavals occurring in far-off lands. As in the closing years of the 1980s, by the close of 2007, the country started suffering from massive load-shedding. During both periods, precious foreign assistance was wasted on consumption instead of using the comfortably wide fiscal space for introducing much-needed structural reforms to enhance national income, add to physical and social assets and improve to a reasonable level the Incremental Capital Output Ratio.
The economic predicament that Pakistan has been facing since 2008 is similar to the one we had faced in the decade of 1990s. And like then, the present crisis, too, is the direct result of the mismanagement of the economy during the preceding regime. And like the regimes of the 1990s, this time around as well the governments, both the previous one and the current one, seem to have continued with the policies formulated during the regime that had preceded them. That is why our economy is continuing to crumble. And that is why our dependence on borrowed resources continues to grow.
Time to do some candid appraisal of the ground realities. We don’t have our own sources of energy; we do not own enough capital to provide even two square meals to our galloping population; and being too far behind in world ranking in education, our capacity to acquire knowledge-based technologies is too limited. Much of our so-called natural wealth, like the huge coal deposits in Sindh and rich minerals in Balochistan, including the Reko Diq gold and copper mines, are buried deep under mounds of earth. We don’t have either the capital or the technology to exploit these on our own.
One way of overcoming these shortcomings is to go around the world with a hat in hand. This we have been doing since independence, but have done nothing with all the dole received so far, other than to create false affluence. More of the same is not going to make us behave differently. The other way of extricating ourselves from this impossible situation is to emulate the economic models that were adopted by countries like the Asian Tigers, China or even India to come out of their appalling poverty. This would need a lot of belt tightening and that too for at least a quarter of a century. But mind you, we are a nation that has rejected poverty!
Published in The Express Tribune, October 1st, 2014.