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April 16, 2021

Institutional autonomy in Pakistan


April 16, 2021

The recent kerfuffle about central bank autonomy in Pakistan is unraveling some basic fissures in Pakistan’s economy, confronting which our economic managers and political leaders have continually tried to ostrich away from.

We have been talking about economic reforms – though never very seriously or steadfastly – from day one, although we didn’t have a clear blueprint of how the inherited colonial economic structure would be changed (reformed, much less transformed) after Independence.

One key reform whose omission has cost Pakistan dearly is, according to a broad consensus, large-scale land reforms – often considered a precondition for successful development. The example of many developing countries, notably in East, Southeast and South Asia, including the former East Pakistan and now Bangladesh is often cited as evidence inter alia. The latter, to the chagrin of its former West Pakistani rulers, has leapfrogged from the ranks of the ‘least developed countries’ to be counted among the most dynamic countries of Asia. On the other hand, Pakistan remains a bastion of feudalism and its style of governance, despite its rulers’ claims to modernism and faux populism, remains firmly rooted in feudal culture.

Although Pakistan’s first two five-year development plans did pay considerable emphasis on the need for land reforms, the subject has been off the policy agenda since the mid-1970s and is considered beyond the pale in polite discussion. The two half-hearted attempts to carry-out watered-down land reforms in the Ayub Khan (1958-68) and Z A Bhutto (1971-77) eras were largely ineffective. They were intended more to consolidate political power and create space for the rising urban middle classes with deepening roots in the military and the bureaucracy.

Such feeble reforms failed to generate the latent energy and growth momentum that they normally do. In recent decades, the increasing neglect of the agricultural sector, accompanied by large-scale and indiscriminate land acquisition by the industrial, highways and real estate construction sectors, led to highly inequitable outcomes, which could have been avoided by existence of an autonomous Land Commission or a Land Bank. ‘Land grab’ scandals have often been the subject of litigation in higher courts, sometimes on suo-motu basis, but those affected by the extortion of both sellers and buyers of land and real estate have had to await the courts’ decisions for years and decades.

The country squandered the formatively crucial first decade and odd years of independence, which was arguably celebrated as the country’s “decade of development” by its iconic architect, Gen Mohammad Ayub Khan. His original sin of dragging the military into politics was compounded by his frivolous and toxic aspirational goals, including such dubious and quixotic projects as ‘controlled democracy’ and courting tribal Middle-Eastern potentates to form a conservative Islamic bloc, with Western support.

That strategy failed miserably and the nation – especially its bottom half – continues to reap its bitter harvest to this day. Had the general (field marshal, as he preferred himself to be called) paid more attention to building robust and autonomous institutions (other than his own), it would have palpably avoided the hurdles now being faced by Pakistan’s rough ride on the long and bumpy road to sustainable development, with frequent refueling stops at the IMF where it had to pay exorbitant prices to keep the economy’s engine running.

Rather than dabbling in an idle and esoteric debate about the autonomy of an institution whose essential levers are controlled by the IMF in Washington, Pakistan’s economic managers should concentrate on “building back better” a more resilient institutional structure for managing the economy in response to the emerging challenges of a more complex nature arising in both the domestic and the global economy.

The issue of enhanced autonomy for the central bank in the presently dilapidated state of Pakistan’s economy is nothing but a red herring. It is primarily aimed at forestalling the IMF’s wrath at the government’s lack of ability to satisfactorily implement the IMF programme. For obvious reasons, the IMF would like to insulate itself from the inner bickering within the government and the crossfire with the opposition that may jeopardise the implementation of its three-year programme. The proposed legislation to enhance the SBP’s autonomy is an attempt to provide the IMF a fool-proof guarantee against such an eventuality.

The attempt by the present government to raise autonomy to a high pedestal as a governance principle for ensuring horizontal equity seems rather hypocritical, as the principle has been grossly violated in many other areas before. The recent summary dismissal of the chairman of the HEC, Dr Tariq Banuri, being the most glaring. Educational institutions, especially universities, are much more deserving of being autonomous than central banks. Autonomy, like accountability, has to be applied across the board, rather than selectively. Likewise, provincial and regional autonomy – which is currently the exclusive privilege of larger and more powerful units – needs to be accessible more widely. The widespread and frequent discontent in Balochistan against the central government’s interference is highly concerning.

That said, the question of giving the necessary autonomy to the SBP to conduct its mandated functions unhindered and without undue intervention is not a trivial one and must be addressed in its historical context. Its role in the management of Pakistan’s economy has been changing since its establishment in 1948. Initially, the SBP was preoccupied with promoting the growth of indigenous commercial banks, and in maintaining monetary stability to provide a conducive environment for the growth of trade, commerce and industry. The need for operational autonomy of the SBP arises from the fact that as the guardian of the country’s financial resources it must ensure that excessive borrowing by the government does not ‘crowd out’ the private sector from undertaking productive activities.

The Ministry of Finance had always ruled the roost in the management of our economy. The minister of finance has been the most coveted and powerful ministerial slot in Pakistan’s administrative hierarchy and has been the bone of contention among various political factions vying for dominance in the political structure of a newborn state, confronted by a myriad of complex economic and political challenges of an existential nature, both within and across its borders.

There was considerable harmony among these senior civil servants who headed the SBP and the Ministry of Finance until 1971, both at an institutional and personal level and their tenure was for more than five years each. The founding governor, Zahid Hussain, served for a period of over five years, before he was appointed the head of the Planning Board (later renamed Planning Commission). The next two governors, Abdul Qadir and Shujaat Ali Hasnie, served for a period of over seven years each. The only SBP governor from former East Pakistan, Mahbubur Raschid, served the institution for nearly four years – from 1967 to 1971.

The post-1971 period saw considerable volatility in the economic management team.

The writer is a former professor of economics at QAU, Islamabad.

Email: [email protected]