Radical economic transformation

One of the questions, especially after the February 8, 2024 fiasco, is what the big picture thinking of Pakistani decision-makers is. Today, I wanted to explore one theory. The plan is a ‘radical transformation of Pakistan’s economic trajectory’. In essence, the powers-that-be have concluded that ‘radical transformation of Pakistan’s economic trajectory- is the only path out of the current, now almost two-year long, polycrisis Pakistan is mired in.

Before we dig into this: a disclaimer. This is not a crossroads that any Pakistani should be excited about or proud of. It is probably also not an acceptable set of juxtapositions or metrics for the overwhelming majority of Pakistanis. It most definitely is not how young people want this country to be run. Most importantly, ‘radical transformation of Pakistan’s economic trajectory’ is not a formula for political carte blanche.

We live in an era where how people feel is not connected to a so-called ‘rational’ analysis of their interests as measured by ‘experts’. How people feel is how people feel – and governance is the art of aligning policy outcomes that help make the people feel better.

‘Radical transformation of Pakistan’s economic trajectory’ is just the necessary condition to set Pakistan right. Populist leaders will remain an inescapable political reality everywhere. Populist messages will continue to resonate. But countries with sound economic and institutional fundamentals will survive this era of populism, and countries without sound economic and institutional fundamentals will struggle – with or without the populist leader taking charge.

Now the theory: after everything that has happened in Pakistan over the last two years, the way forward cannot be the same as the way forward in previous iterations of the political crises that emerge after a poisoning of the relationship between ‘the chosen one’ politician and those that choose politicians for such exalted roles. The reason for this is not the differences between Zulfikar Ali Bhutto in 1977, Nawaz Sharif in 1999, and Imran Khan in 2022. The reason for this is that the economic foundation of previous ‘recoveries’ no longer exists. External powers are preoccupied with different priorities, and the new generation of elites in countries like China, Saudi Arabia, Qatar, the UAE and even Afghanistan have not grown up in awe of the idea of Pakistan (as their parents may have in the 1950s and 1960s).

The elites in key Pakistan-relevant countries have grown up in the same wider ecosystem that Pakistani millennials and Gen Z have grown up. They have watched Pakistan lose its mojo over two decades or more. They have watched Pakistan described as a dangerous country for their entire lives. They have consumed Indian disinformation at the same rate and in the same quantum. They have hosted the same Pakistani leaders bringing with the same messages and offering the same pitches for their entire adult lives.

Everywhere else, elites have changed – even in calcified, pro-genocide Western capitals. But Pakistan’s have stayed the same. This dichotomy has meant that the space for continuing business as usual has ended. The country’s core brand value is vastly depleted. Boomer elites still occupy a post-colonial, apologetic posture on behalf of 250 million people with a median age of 23. The median-aged Pakistani is apologetic about nothing and refuses to accept what is on offer. Too much is at stake for business as usual to continue. Now the good news: none of this is news for Rawalpindi or Islamabad.

In the eyes of the Pakistani establishment, the pivot point for everything that has happened in Pakistan over the last two years is a radical transformation of Pakistan’s economic trajectory. If radical transformation of the country’s economic trajectory is not achieved, everything that has happened will have set Pakistan back by decades. The last two years will then represent an era of ‘irrecoverable damage’. Everyone realizes this.

The flip side proposition is an interesting one. If the military leadership succeeds in producing major economic growth in the next twelve months, then in theory at least all of the last two years will end up becoming what we might call ‘recoverable damage’.

This means that in the minds of decision-makers, all the negative things that have taken place or are taking place will be judged within the context of a comprehensive turnaround in the most important metric for the country: the economic health of Pakistanis. Some of the damage Pakistan has done to itself in the last 23 months – on the back of damage done in the last eight years – is probably permanent. But countries with 250 million people enjoy a luxury that the Singapores and Macedonias and Norways simply do not have. Large, heavily populated countries can deploy success at scale to drown out and bury contained failure. Sceptical? Take a good long look at Brazil, Russia, India, China. Then breathe deep and take a look at Bangladesh, Ethiopia and Mexico. These are not countries with perfect trajectories – nor ones that can claim to have solved all of their deep, decades-long, intergenerational, structural and existential problems. Yet they all have enough national success to point to and confidence to draw on to project success and build on their small victories.

Why? Their failures are deep and wide and often large scale, but they are not uncontained. They are not cancerous. One failure does not metastasize and infect the entire national ethos. Contained failure is something countries can recover from. Uncontained metastasizing failure is a terminal illness. The proviso for national recovery for Pakistan is that failure must remain contained. It is the overriding condition of ‘radical transformation of Pakistan’s economic trajectory’ that must be the focus, rather than the proviso. But the proviso must not be forgotten. The proviso, in my estimation, is what feeds distrust of dissent, and an effort at suppression of judicial, press and political expression and autonomy.

If the current pursuit of ‘radical transformation of Pakistan’s economic trajectory’ is really a single-minded pursuit for the Pakistani decision-making elite today, then there are five big challenges they must contend with successfully.

The first is the day-to-day management of the economy. This has three main parts. First is to solve the twin deficits (fiscal and current). The second is to manage external debt in a manner that builds (rather than undermines) confidence among debtors and investors. The third is to manage the budgetary and fiscal flows relationships within the federal level and between the federal government and the provinces. Muhammad Aurangzeb can deliver all of this – but only if he is allowed to be the leader he was hired to be. Will he?

The second is to crack the foreign investment black box – via the SIFC. Good news on PIA and Reko Diq isn’t good enough (and has taken and is taking far too long). Why is progress on SIFC’s work with PIF, QIA, CIC, Mubadla, ADIA, or EIA so slow? Can the SIFC hasten its learning curve to align with the urgent demands of the ‘radical transformation of Pakistan’s economic trajectory’?

The third is to cultivate domestic investment at scale. This may or may not be a core SIFC function, but it is central to altering the existing narrative of capital flight. Foreign owners of brands exiting the market is not the actual story. The actual story is the vote of confidence of Pakistani business groups that is manifest in exits. How much security can be offered to domestic capital without the state becoming captive to narrow interests?

The fourth is social protection. No period of economic transition can be dealt with adequately without a layer of protection that the state affords to the most vulnerable. The inevitable political disquiet from changes to how the economy functions (privatizations, outsourcing government functions, higher taxes, less subsidies) require a counteracting vector. The best of these are unconditional cash transfers to the poor. How much more will Pakistan pay recipients of BISP (Ehsaas) than they did this past year?

Finally, there is the domestic banking sector. Senior bankers cannot continue to keep making bonuses by indirectly gouging the Pakistani people through lending to the government of Pakistan. Banks have to become the engines of economic growth, not printing presses for government. Does the State Bank have the courage to force banks to ensure that executive compensation becomes linked to lending to the private sector, and especially to the medium-sized businesses that this country suffocates as a matter of policy?

These are the questions that a ‘radical transformation of Pakistan’s economic trajectory’ will be able to answer clearly and without hesitation. Are there such answers in Islamabad or Rawalpindi?

The writer is an analyst and commentator.