Jumping the Gun

Spearhead Analysis – 18.04.2019

By Farrukh Karamat
Senior Research Coordinator, Spearhead Research

Like most other leaderships in the World, the PTI leaders too are avid fans of social media for projecting their achievements or pointing out the shortcomings of their opponents. The Prime Minister and several other Ministers are in the habit of often Tweeting their ‘thoughts’, and by jumping the gun, such hasty posts create more issues than solutions. There was the announcement about forming a new Tax Collection Authority, rather than reforming Federal Board of Revenue (FBR). Then came the potential ‘good’ news about huge oil reserves off the coast of Gwadar. This was followed up by the news that the government would announce the creation of a huge number of jobs within a week. The purpose of all these messages was to create some media positivity within the system and perhaps provide some hope to the beleaguered people of Pakistan. The reality has quite often been different as FBR continues with its harassment tactics; there is no sign of oil reserves till date; nor is there any indication of a huge job influx. What has been apparent is a declining macroeconomic environment borne out of conflicting statements, constant U-turns, and an apparent lack of experience in managing the situation.

In February 2019 the Finance Minister of Pakistan in a social-media post put up a graphical representation highlighting the economic achievements of the government during its first six months in comparison to the same period of the previous government. The presentation was ‘wisely’ titled: ‘Ripple Effect on Economy Due to Wise Economic Decisions by PTI-led Govt’.

Source: Pakistan Today- Profit

Of course there were a lot of other macroeconomic indicators that could have been included for a more meaningful comparison on the performance, but that would have negated the purpose of highlighting the selective achievements. Also, since February 2019 there has been further economic deterioration and hardship for the people with the rapidly rising cost of living. There are problems and at times these appear insurmountable – what has been lacking is the communication of a clear vision on the financial front, which is creating obstacles for any planned economic revival. The government with often conflicting policy statements, borne out of inexperience, is compounding the confusion in the financial markets, which has led to a wait and see approach by most would-be investors. The multiple mini-budgets, the constant revision in regulatory and federal excise duties, the carrot and stick approach, the Amnesty scheme, the issuance of Bonds, are all manifestations of the desperation of the government in dealing with the declining economic situation. What is abundantly clear is the overt emphasis on corruption and the focus of the PTI leadership in pursuing that objective. One hopes that it would help them realize their objectives.

Corruption is usually borne out of incompetence, which in turn is a result of the failure of governance due to the destruction of the institutional framework. The past seven decades have witnessed a consistent decline in governance structures as the institutional pillars of the state moulded the framework to perpetuate their power and rule. Essentially, the ability of one man to dictate his terms and the incompetence of the majority to present their point of view has gradually eroded the governance structures within the country and within the institutions. Whether it is the democratically elected governments, the bureaucracy, the judiciary or the armed forces at some stage they have all been complicit in perpetuating the decay. 

Recently the renowned economist Atif Mian, who so unceremoniously exited the present government, conducted a poll on the challenges of corruption and incompetence being faced by developing countries from the ruling elite. The question he posed was:

“Which one is the biggest problem in developing countries:

  • Corruption of elite
  • Incompetence of elite.”

Around 60 per cent of the respondents opted for corruption and 40 per cent selected incompetence. Interestingly, Atif Mian went with the minority view arguing that incompetence is a bigger constraint on development than corruption, citing the examples of China and Saudi Arabia.

“They (China and Saudi Arabia) are both centralized power structures with a lot of corruption at the top. But Chinese system differs in one important way: it encourages competition within the power structure and favours those who can deliver stronger productivity (think of local government targets etc.),” he wrote.

“In a sense the Chinese recognize that a growing pie offers a lot more to pick from and enables centralised power to stay longer,” he said, adding that Saudi Arabia was unable to do anything similar, with the result that there is no dynamism, and one sees glaringly incompetent policies like “Saudisation”.

Corruption is endemic in any society or system of governance and a reality in today’s societies. It is the level and magnitude of corruption that varies across nations. He argued that the success of the system relies on how effectively power is delegated to the most competent segments, and despite corruption the competence enables the system to overcome the odds and deliver.

Over the past 70 odd years Pakistan has been experiencing successively higher rates of incompetence in governance, with higher corruption and a failure to deliver. Each government blames its predecessor for what ails Pakistan, but in the process fails to institute a system to improve the competence or the performance of the system. All the governments have extensively used media trials and state institutions and resources to defame the opposition in an effort to cover up their own shortcomings in delivering on good governance. This policy has unfortunately been continued by the present PTI-led government with stories of corruption cases being leaked and discussed by the media and the government.

The World Bank in a recent report “Pakistan@100: Shaping the Future” has highlighted the potential of Pakistan and the pitfalls holding it back economically, and has pointed out the role of the state institutions in holding back real and meaningful progress in the country. There is effectively a state capture by the elite to perpetuate their own power structure, which has led to the present state of affairs with corruption and incompetence. This has also been pointed out by Dr. Hafiz Pasha in his recent book “Growth and inequality in Pakistan – Agenda for reform”. The eminent Dr. Pasha has pointed out the Feudals, the Military, the Multinationals, the Real Estate Developers, the Politicians, and the Bureaucrats who continue to milk the system and hold back real broad based structural reforms, which could put Pakistan on the path of real growth and progress.

Pakistan is thus facing a severe crisis of incompetence, which is compounding the other problems including the economic issues. The Finance Minister has been in the habit of making off-the-cuff remarks about the economy in the past, which he has had to vehemently deny or defend subsequently. At times his simplistic way of thinking makes one wonder if he is actually serious about reforming the economy and whether he is defending or accusing the system. Perhaps for the first time after his appearance on BBC, the Finance Minister answered some hard question posed by the veteran journalist Kamran Khan. This time around he did appear to make some sense as he talked about the Rupee devaluation, Stock Exchange decline, IMF bailout, Amnesty scheme, FBR and NAB. This is what he needs to do more frequently to allay the fears of the people and infuse some confidence and provide the much needed direction for the future. There is a need to deliver on all these fronts and that is what will define his success or failure. For that it is essential to make the required structural changes and remove the stranglehold on the economy to allow true competence to supersede corruption as the primary focus. A hard and uphill task by any standard but one that will have to be done to bring about the transformation that Pakistan so badly needs.

It is all very well to scamper for funding to resolve the economic problems of Pakistan by meeting the fiscal shortfalls, but the real change will come through enhanced revenue generation, the recognition of competence as a core value driver; and the institution of systems to perpetuate this thinking and form of governance. The blame game, the corruption cases, the constant comparisons are tools to incite and sway the emotional via social media, but it will not bring about the paradigm shift that Pakistan needs at this point. For that recognition of competence as a key growth driver is essential to reform the structure such that it focuses on growth and not on individual preferences of the leaders. There is a dire need to not jump the gun in making populist announcements, but to work towards concrete achievable targets that can then be defended.