A new agenda for political leadership

The economy is plummeting for a variety of inter-related reasons (the newspaper will carry tomorrow an editorial comment on SBP's Monetary Policy Statement of January 29, 2011). Our country faces structural challenges that are undeniable but, politically speaking, untouchable. All eyes are therefore on the on-going talks among the four major political parties - PPP, PML-N, PML-Q and MQM - to get the country back on the economic stabilisation path as they are expected to articulate a collective resolve and public purpose that redeems our economy.
The government's onward roll has been derailed due to the blockage of the RGST and putting on hold the pass through of the international oil price rise due to its implication on transport costs and a resultant hike in electricity tariffs. No doubt the PPP-led government is primarily to be blamed for gross mishandling at the domestic level. It is indeed sad that despite risking loss of political capital with several hikes in electricity tariffs by 70 percent, as well as by raising POL prices by an even higher amount and reducing the subsidy on several items such as fertiliser and sugar, the fiscal deficit continues to soar. Consider: (a) arrears left by the previous government in the shape of the circular debt; and (b) on account of the new international oil price shock. It also needs to be conceded that the adverse impact of the recent floods was unprecedented. But then the government, itself, has not much to show due to the poor perception of it arising from sheer bad governance, which has been exposed by the media as well as the country's apex court.
It goes to the credit of these four political parties' chiefs that they are pressing forward on the path of reconciliation and are not wrestling one another to the ground - as of yet. But what is worrying is the lack of ideas and deeper understanding of the complexities of the economy within their ranks as their approach to even hard core economic issues is often based on political posturing, misperception and hollow slogans. Why don't we understand that we are battered and bloodied any hanging on the ropes as the result of the present economic crisis. Of the former Prime Minister Nawaz Sharif's 10-point agenda, eight of them are doable in 45 days, according to him, and the remaining two can be undertaken, within the time stipulated by him. Unfortunately, however, Mian Sahib appears to be a prisoner of the past. He needs to understand that only strong people admit their mistakes; they laugh at them; and they learn from them. He appears to be a profoundly naive person when he insists that all was well when his government was forcibly removed as he conveniently forgets that his government, just before the October 12, 1999 bloodless coup, had gone back to the International Monetary Fund for a 'bail-out' and had also applied to the Paris Club for a write-off and rescheduling of bilateral loans, since Pakistan's forex reserves had dwindled to a dangerously low level of $200 million and default was staring us in our face. Fortunately, on Musharraf's watch, Pakistan managed to obtain a relatively better terms, in the Paris Club due to the 9/11 terror attack and Pakistan's decision to back the West in its war against terror.
Mian Sahib's assertion that the loss-making public-sector entities can be put right, just by putting the right persons on the board of the PSEs and placing the requisite talent in management appears to be a promising solution. Thus far, the PPP-led government has totally failed in reversing their operational losses. In fact, most of these PSEs have gone from bad to worse under their watch. These PSEs, therefore, require the dose of medicine rightly prescribed by Nawaz Sharif. However, this has to be followed by a painful surgical procedure, which requires right sizing them and an appreciable reduction in their staff cost through a combination of Voluntary Separation Schemes (VSSs) as well as Golden Handshake Schemes (GHSs). To do so requires both money and the political spine to stand up for the unpopular but ultimate solution. Funds can be raised for the payout of VSSs and GHSs and commercialising these loss-making PSEs. The political forces need to collectively agree not to bow before bouts of protest demonstrations or even widespread public unrest that is quite possible once VSSs and GHSs are implemented. It was during the premiership of Nawaz Sharif that nationalised banks were prepared for privatisation and were right sized. Nearly 40,000 jobs were axed to make them commercially viable and profitable. The two schemes - VSS & GHS - were funded through a financial sector World Bank loan. Indeed, the whole effort was successful because the government of the day stood firm. Is that the picture today? If the last three years are any guide - there is not much to hope!
The MQM, an urban-based party, has rightly sensed that the existing tax payers are not prepared to pay over and above whatever they are paying now - direct or indirect - unless those outside the tax net are roped in as well. Are the PPP, the PML-Q and the PML-N willing to go along and tax farm income?
Needless to say that Opposition - a political party or a group of parties - opposed to the policies of government in power strongly advocate the argument that the continued fiscal crisis aggravated by an ever-increasing revenue-expenditure gap plus a bloated public sector putting pressure on the budget, leaves precious little for the welfare of the poor and improvement of vital social indicators, such as health and education. As a result, a large percentage of our population remains under the poverty line, swinging in and out of poverty, with every dip and rise in growth graph. But once in power, they refuse to even undertake medium-term measures to enhance growth. For starters, they conveniently adopt a short-term stabilisation programme. An unstable political and security situation forces them to be crisis-oriented at the expense of any thought about institution-building. Every successive government has time and again run to the Fund for bailouts since December 1988. Despite some privatisation and stabilisation, under Musharraf/Shaukat Aziz, both the public sector and the government remain involved in intruding into markets with excessive regulations at the cost of productivity, growth and employment. As a result, our growth has remained around five percent per year for last 20 years against the need for eight percent to absorb the growing ranks of the unemployed. Even during a year of above average growth, inflation has also been more. This is indicative of structural problems.
The challenge before the parliamentarians requires them not just to debate among themselves, but also receive input from development economists and policy thinkers. The business leaders, including CEOs of top corporate firms, are also afforded an opportunity to be heard on the issues. Our development approach needs to shift from aid-led projects to a home-developed growth policy. This requires putting the microscope on local issues and problems. The discussion among them needs to focus on tasks, explore taxation, the role of the government, budgetary and expenditure control processes, the efficiency of the government, the quality of public service delivery, the size and structure of the government.
Poor quality of governance has reduced productivity, increased transaction costs, incentivised rent-seeking and is devoid of merit and entrepreneurship. Political parties need to give a deeper thought to the economic malaise afflicting the country. Ostensibly, the requisite expertise, within them is missing. Their think-tanks do not undertake independent research and their manifestoes are full of rhetorics. But the same does not hold true for the country. The first few things that they need to properly understand and appreciate are some profound facts that constitute the true picture of Pakistan's economy.
While the country is also facing fiscal distress and rising inflations pressures, the extent of financial inflows is not comparable with other emerging markets. The risk premium to invest in Pakistan is perceived to be quite higher in the global financial markets due to both economic and non-economic factors. There is, therefore, a need for the implementation of an economic reform agenda that addresses the structural fiscal and energy sector problems without any further loss of time, although cynics will view these ongoing inter-party talks as a crafty election ploy. It is essential that we lead by example. The country needs a strategy to rescue our own economy - a vast effort. Let us speak out about our long-term structural problems and their potential solutions.