The concept of ‘charter of the economy’ was first floated by Ishaq Dar in 2015 as he faced growing criticism for his handling of the economy. By far the most damaging policies implemented by Dar whose after-effects are visible to this day included artificially keeping the rupee over valued to understate his increasing reliance on foreign borrowing on the grounds that the interest rate was cheaper globally then domestically as well as incurring debt equity through issuance of Sukuk/Eurobonds at rates well above levels that were on offer by severely indebted countries like Greece at the time.
The charter of economy is not a unique concept as it is modeled on the charter of democracy signed by Benazir Bhutto and Nawaz Sharif in exile during Musharraf’s dictatorship (14 May 2006) which for all intents and purposes was abandoned on 13 May 2008 when the nine PML-N federal ministers (who took oath on 31 March 2008) resigned from the PPP-led coalition government (including Ishaq Dar).
Be that as it may, in spite of periodic political strikes against each other during the Zardari-led government, including an attempt to de-seat Shahbaz Sharif’s Punjab government, the two mainstream parties at the time - PPP and PML-N - continued to engage in discussions on several matters leading to: (i) parliamentary approval by consensus of the eighteenth constitutional amendment subsequent to a very comprehensive more than a year-long review; and (ii) a consensus on the seventh National Finance Commission (NFC) award 2010 envisaging an annual rise in provincial share from the divisible pool to 57.5 percent (from the 46.5 percent prior to the award) and Punjab agreeing to population no longer being the sole criteria for horizontal distribution with special grants to smaller provinces – a decision that the then President Zardari reportedly linked to agreeing to a constitutional amendment that would allow Nawaz Sharif to become the prime minister for the third time (PML-N team was led by Ishaq Dar during the negotiations).
Dar severely criticized this very same NFC award that he brokered after he was given the finance portfolio in 2013 on the grounds that the award constrained federal government resources inhibiting its ability to meet expenses. It is indeed ironical that a man who reneged on an award that he himself brokered and is guilty of taking flawed economic policies is insisting on a charter of the economy.
In February 2015 as the Finance Minister Dar easily manipulated the Economic Advisory Council (EAC) to endorse his proposal for all political parties to agree to a charter of economy while emphasizing that economic development must be above all other considerations and remain so irrespective of a change of government (though by September 2013 the country was on a three-year twenty-second International Monetary Fund programme with no effort to include and/or discuss the conditions agreed with other political stakeholders). At the same time the EAC expressed a consensus on continued economic reforms though sadly by that time Dar’s foreign exchange policy and reliance on external debt was already having disastrous effects on the economy.
The conclusions that can be drawn from the foregoing are three fold. First, while all political parties are agreed that economic development must be above all considerations yet no administration – civilian or military – has been able to demonstrate that a monetary and/or fiscal policy decision is divorced from its political considerations. Last month the Economic Coordination Committee of the Cabinet approved the dealers’ margin due to their ability to launch a debilitating country wide strike action while refusing the oil marketing companies a margin raise.
Second, while objectives of all political parties are more or less synonymous and can be agreed on yet the path to achieving these objectives vary from party to party and in Pakistan’s case from finance minister to finance minister. In addition, even those finance ministers like Ishaq Dar with no academic background in economics (a subject that makes available multiple theories/paths to achieve a specific development objective) have to cater to their party’s support base, be it the industrial sector, or any other sector/subsector thereof; it is precisely which path is favoured that distinguishes one political party from another in a democracy.
And third, in Pakistan economic theories have varied but little from one administration to the next for three reasons: (a) most administrations, including the incumbent draw from a limited pool of available finance ministers; (b) Pakistan is currently on its twenty-third IMF programme and while the conditions may have become more upfront and harsh with time as administration after administration failed to implement the structural sectoral reforms (abandoning them mid-way or soon after programme completion) yet they have changed but little over decades; and (d) budget after budget has changed little over time with current expenditure continuing to rise (estimated at 3.9 trillion rupees in 2017-18 whereas in the current year it has been allocated 7.5 trillion rupees) while development expenditure has been mercilessly slashed to meet the budget deficit target. During the past three years the deficit has been unsustainably high at over 7 percent which is funded by ever rising reliance on domestic (from 16.5 trillion rupees in August 2018 to more than 26 trillion rupees today) and foreign borrowing (from 95 billion dollars inherited by the Khan administration to over 126 billion dollars today).
The Khan administration would of course disagree and vehemently maintains that it is more focused on welfare of the poor and vulnerable. However, the following data may suggest otherwise: (i) in 2017-18 the Benazir Income Support programme (BISP) received 121 billion rupees with total budgeted (current plus development) expenditure at 47542.9 billion rupees or 2.54 percent. Budget for the current year reveals that in 2020-21 BISP (Ehsaas) will be allocated 246 billion rupees against a total expenditure of 8487 billion rupees or 2.89 percent – a not too significant rise however it must be noted that these are budgeted figures which are never achieved; and (ii) Sehat Sahulat Card (SSP) is targeted to be issued to all residents in three provinces.
In April 2019 an actuarial analysis of the SSP was commissioned by the German GIZ and undertaken jointly with International Labor Organization’s (ILO’s) Impact Insurance (a facility that enables insurance companies, governments and partners to embrace impact insurance to reduce households’ vulnerability, promote stronger enterprises and facilitate better public policies). Their findings were as follows: (a) admission rates were very low not only in comparison to developed countries and new economies but also in comparison to baseline Survey in Pakistan with a substantial increase envisaged; (b) projected claims costs and expenses (nominal terms) are very sensitive to the assumed increase in utilization, assumed increase in unit cost and fairly sensitive to the family size assumption. In this context it is relevant to recall that inflation rate continues to be a source of concern which is impacting on hospital rates and medicine prices; (c) projected demographic changes – if they are small then there would be minimal impact on cost of claims and premiums; and (d) the baseline indicative premium required from the projection model is 1,755 rupees per family per annum for 2019-21 - an amount that without doubt would need to be upgraded. For these reasons GIZ/ILO recommended that another actuarial study be carried out every two years including frequent monitoring of incidence rates, statistical experience analysis and premium adequacy review as well as an annual report by the insurance provider SLICP on its experience. This is necessary to ensure that this salutary programme can continue to be financially viable.
To conclude, it is indeed unfortunate that Shehbaz Sharif has been urging for a charter of the economy since he was appointed as leader of the opposition – a stance that he no doubt considers would project his party as one always willing to work for national interest but it must raise the hackles of independent economists fully aware of the shortcomings and disastrous consequences of Dar’s flawed policies. This is especially so as there is the distinct possibility of Dar being appointed as finance minister again in the event that the PML-N wins the next elections as Dar continues to be visibly in favour with Nawaz Sharif.
Copyright Business Recorder, 2021
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