Living dangerously

The IMF has released the staff report listing stringent conditions for the latest standby agreement with Pakistan. Will Pakistan be able to comply? There is no direct answer to the question but plenty of indirect clues do exist. Here is an attempt to identify some of them.

The implementation of the IMF conditions would only be possible as part of major structural reforms. But the challenge is that there is a fundamental clash between reforms and the organizing principle of the ruling system. Pakistan’s economy is but a function of this. You cannot change it without changing the operating system to which it is subservient. The reality is Pakistan’s problems are not just economic, however grave they may be, but political.

As a genuinely insecure state Pakistan had needed security but ended up creating a security state. It worked well as long as the security brought stability and development. But the bargain ended with the end of the Ayub Khan era. And we craved democracy. Pakistan has not been the same since.

There have been successes in external security, some foreign policy accomplishments – notably the opening to China – and occasional surge in economic growth, but our search for democracy has been a tale of failure as part of the larger story of the decline of Pakistan especially since the breakup of the country in 1971.

In our longing for democracy we did not care about its quality, mistakenly believing that a flawed democracy was better than no democracy. And successive political governments took advantage of the public ingenuity that allowed them to continue to deliver poor governance without any fear of accountability or loss of power as electability was not an issue for most politicians.

When things got bad, the military took over on the pretext that they were saving the country. The external assistance that came with it, principally from the US – by coincidence more than anything else as the Soviet invasion of Afghanistan and the second Afghanistan war happened soon after the military takeovers – allowed the military to temporarily boost the economy, giving a false impression that it performed better. As the people became victims of yet another illusion the military, like the politicians, took full advantage of it by advancing their personal, institutional and class interests. To their credit, they did provide some sense of external security but at a heavy cost to the nation in some other ways. When the military rule got prolonged and the external assistance dried up we yearned for democracy yet again.

In this cyclic process, the military and the civilians took turns to rule the country without reference to people for whom they did not do much as they did not need their help to come to power. By our indifference we ended up sustaining the military and their controversial security doctrines, and the feudals and their regressive social structure, negatively impacting different areas of national life.

By empowering the feudals for whom rule of law was antithetical to their raison d’etre we legitimized the mindset that they were above the law. This set up the country for a weak rule of law. And the flawed political process that made the leadership constantly dependent on the support of self-serving politicians exacerbated the culture of corruption and flouting of law with impunity. Heavy mandates were not heavy after all.

As a nation lacking a true national purpose, Islam became a surrogate national purpose that brought Islamists to the center stage. They became valuable to both the establishment and the civilians, providing a perfect enabling environment for sustaining the status quo in rural Pakistan entrenching feudalism, thus reinforcing social disparities, gender inequality, low education, and high population growth. In economic terms it meant the exclusion of a large segment of population, especially women, from any productive economic activity.

While the military was an institution by itself, the civilian leadership had multiple constituents. It comprised a broad coalition of elites led by the political class who supported each other for strength. The system would help the feudals not pay taxes and ward off reforms to dismantle the social structure that supported feudalism. And it would support the business community with exemptions, tax breaks and protection from competition. And since governance, whether civilian or military, is run with the help of the bureaucracy it too became an accessory to the system and thus part of it as did judiciary for its help in legitimizing the system.

That was the panoply of power comprising the civilians and the military making up almost an oligarchy. They competed with each other for political power but cooperated to maintain the system. The system and the political power that came with it allowed them to influence the law-making process as well as policies to ensure that there was no erosion in their dominant position.

In ‘Why Nations Fail’, Daron Acemoglu and James Robinson may have been thinking about Pakistan when they wrote: “Extractive political institutions concentrate power in the hands of a narrow elite and place few constraints on the exercise of this power. Economic institutions are then often structured by this elite to extract resources from the rest of the society.”

Look at the consequences. External debt now stands at $130 billion and the debt service amount has now become larger than net federal revenues. Trillions are being wasted on state-owned enterprises because of the opportunities they provide for corruption for their cronies, and jobs they provide to their political supporters. Trillions are being lost to the treasury because of no or low taxes or due to tax evasion, corruption or exemptions.

Circular debt now amounts to four per cent of the GDP – not to mention the huge losses in the electricity sector. Last but not the least, the billions being spent every year on maintaining elite’ personal privileges especially of the oversized and politicized bureaucracy running a generally wasteful and unproductive administration. Frankly, there has been no money left for development, economic or human. The borrowing is basically to keep the system running.

Any surprise that Pakistan’s per capita income is at the low end of the global rankings? Its rank on the UNDP’s Human Development Index is 161 globally. It ranks amongst the lowest – and poorest – countries in the world in terms of both spending as well as outcomes with regard to education and health. On the Global Competitiveness Index, Pakistan is at number 110. In the Worldwide Governance Indicators, Pakistan is ranked in the 25th percentile on ‘Rule of Law’ (that is: lower than 75 per cent of the countries worldwide); and for ‘Political Stability’ and ‘Absence of Violence’, in the fifth percentile (worse than 95 per cent of the countries globally).

The system does give room for marginal improvement in the economic situation. Pakistan has had moments of good growth rates, largely consumer driven or due to activity in certain economic sectors, but they remained effervescent in the absence of fundamental reforms. They made no lasting impact on the job creating economic activity or on reducing poverty or improving social indicators.

As a consequence, our labour force has remained largely uneducated, poorly educated or unskilled – causing social discontent that has fomented either despair or extremist tendencies. Social discontent, weak rule of law, extremism and ethnic alienation are an incendiary mix. Over 58.7 per cent of the total population are young people. But there is little that Pakistan offers them. Those who can are leaving the country even at the risk of dying.

On top of that, relentless political jockeying and contests continue to fuel political instability. And the unresolved Imran Khan saga will also keep Pakistan politically unstable for the foreseeable future. We justify this activity in the name of democracy. What democracy? It is an unprincipled struggle for power without sensitivity to people’s welfare or the country’s future.

Noted economic journalist Khurram Hussain recently writing on the prospects of Pakistan meeting the IMF conditionalities has made a dire prediction. Pakistan, he said, “is sinking increasingly into financial and economic unviability”.

The bottom line: the decks need to be cleared not reshuffled. Pakistan’s problems are not just economic. They have become existential.

The writer, a former ambassador, is adjunct professor at Georgetown University and visiting senior research fellow at the National University of Singapore.