The governance deficit

No other party in Pakistan was voted to power amid so much hype for change as the PTI. No other party has come closer to the PTI in boasting of being a league of extraordinary gentlemen bestowed with the magical power to turn things around in a jiffy. No other party has mesmerised the youth the way the PTI did. Yet, no other party has seen its popularity go down like a lead balloon as the PTI. At the same time, as the gruesome Sahiwal incident reminds us, the governance crisis predates the induction of the PTI government.

Sound economic management holds the key to effective governance. It is here that the present government has faltered. To be fair, the PTI inherited a cadaverous economy. Although FY 2017-18 closed with a robust economic growth rate of 5.8 percent, it was underpinned by substantial twin deficits: fiscal and current account imbalances were recorded at 6.8 percent of GDP and 5.7 percent of GDP, respectively. It was during FY 2017-18 that the economy ran the highest-ever trade deficit of $37.6 billion.

External deficits drove down both the domestic currency and foreign exchange reserves, and racked up foreign debt. Between December 2017 and June 2018, the rupee had depreciated against the US dollar by more than 10 percentage points; foreign exchange reserves depleted by $4.4 billion; and external debt had gone up by $5.9 billion. For more than three years, the PML-N government kept the rupee stable by pumping dollars into the market. In the face of weak economic fundamentals, the precipitous slide of the rupee set in the moment the exchange rate was left to the market forces.

Upon assuming office, the prickliest challenge for the PTI government was to shape up the economy while the immediate problem was to tackle the liquidity crunch through hefty external capital inflows. The tone and tenor of the PTI government was set by Imran Khan himself, who immediately after being appointed prime minister, threw down the gauntlet on the floor of the National Assembly to the opposition. “I won’t spare the plunderers of national wealth,” he declared in his signature style amid applause by the treasury and rumpus created by the opposition, which had earlier dismissed the elections as rigged. Over the years, he has insisted that the corrupt system needs spring cleaning and has presented himself as being on a messianic mission to stamp out corruption and call to account politicians who lived by their wits.

Then, the ruling party locked horns with the opposition for months over the appointment of the chairperson of the Public Accounts Committee (PAC) – the most powerful of parliament’s watchdogs. The standoff stymied parliament’s ability to legislate and hold meaningful deliberations on issues of national importance. In the end, the prime minister had to throw up the sponge when he acquiesced in the appointment of Shahbaz Sharif as the PAC head.

In a world of scarcity, every choice and move entails an opportunity cost in the form of the next best alternative foregone. If a government forks out too much on infrastructure development, it will be left with too little to allocate to the social sector. By the same token, in case a party in power is obsessed with having its opponents sorted out and penned up, it can’t home in on managing the business of the state.

The impression that the government, which has now presented its second mini-budget in less than six months, is finding it difficult to get its bearings is gaining currency. Instead of setting its teeth into addressing the burgeoning economic issues, it has been fiddling around with eye-catching yet inconsequential measures. For instance, being on the prowl to cut down on public spending, the ruling party responded by selling the buffaloes and cars at the PM House.

It is not that the PML-N, or the PPP before it, managed the economy astutely. Had they done so, the country wouldn’t have been faced with twin deficits or had to draw upon hefty foreign assistance. The edifice of the PML-N economic management rested on four pillars: keeping the exchange rate stable by injecting dollars into the market and thus running down precious foreign exchange reserves; resorting to external borrowing to fill the gap between the demand for and supply of hard currencies; heavily subsidising the exporting enterprises and powerful domestic cartels, such as the sugar industry; and prioritising infrastructure development at the expense of social-sector uplift.

Little attempt was made to address the structural economic constraints, such as the low productivity of labour; lack of competitiveness of enterprises; a narrow manufacturing and export base; and dearth of entrepreneurship. When a country’s star industries – in our case, textiles and garments – continue to lean on government support to face foreign competition both at home and abroad and when revenue-generation turns on slapping the existing taxpayers with more taxes, there is something fundamentally flawed with the economy. The PML-N government allowed such flaws to persist. But its economic managers at least knew what they were doing.

By contrast, the PTI’s policies have kept everyone on tenterhooks. Nothing brings out the befuddled and cack-handed management of the economy more poignantly than the flip-flop on going back to the IMF. The last two governments (2008-13 and 2013-18), which also found the economy in a shambles, didn’t fall between two stools on seeking the multilateral donor’s assistance. We may make allowance for the fact that unlike the PPP and the PML-N, the PTI counted a great deal on bringing back billions of dollars that have allegedly been salted away by corrupt Pakistanis into foreign banks and generous contributions from expatriates.

But after the bubble of such highly impressionistic – and thus misplaced – expectations had burst, it would have swiftly decided on seeking IMF assistance in the same manner in which it approached friendly countries. It is not that Pakistan must go for obtaining IMF credit. Starting a new arrangement with the creditor of last resort will entail both costs and benefits. But a decision should have been made by now – nay much earlier.

It may be noted in passing that borrowing from the IMF or, for that matter, from any other source neither amounts to begging nor constitutes an affront to national honour. An economy like Pakistan with meagre domestic savings has to draw on foreign savings. External credit also shouldn’t be a problem as long as the economy grows and has the capacity to retire the debt.

For the state, ensuring the sanctity of life and the liberty of citizens is even more important than efficient economic governance. The Sahiwal incident in which a family – including a woman and a 13-year old girl – was gunned down by Counter-Terrorism Department (CTD) personnel in a whippersnapper manner points to the failure of the PTI government in Punjab to do justice to its fundamental function. But in a larger context, the incident lays bare the failure of successive governments – particularly the PML-N, which ruled Punjab for many years – to reform law-enforcement agencies.

The PTI’s cardinal mistake has been the twin beliefs that the ‘right’ man stands outside the causal order of things and that a changing of the guard will be sufficient to set things right. The last five months have conclusively refuted this notion and underscored the need to alter the real causes to change the effects.

The writer is an Islamabad-based columnist.

Email: hussainhzaidi@gmail.com

Twitter: @hussainhzaidi