Shifting Gears

Spearhead Analysis – 28.12.2018

Recently a media report stated that Prime Minister Imran Khan had identified ‘state failure’ as the reason for the present state of affairs in Pakistan. If indeed he said this, then truer words were never spoken. What we are being told through JIT reports and investigative journalism is that vast tracts of land– state land– were transferred without authority or legality to various people, that enormous real estate projects sprang up without planning, control or regulatory procedures. that colossal amounts of money were moved through fake bank accounts without any kind of ‘due diligence’ or checks that the banking system does or should do and that massive infrastructure and other projects were set up at enormous cost and never reached completion. This can only happen through complete state failure and the fact that this activity went on over more than a decade implies state complicity in bringing about its own failure. That there has not been a total collapse speaks volumes about the resilience and patience of the citizens of this land. It also indicates that it is through democracy—however flawed or managed—that those who led this nation over the last three decades or more have been voted out and a new dispensation voted in to undo the ills of the past and usher in a new era for Pakistan. No surprise then that expectations are high for a better future.

If these expectations are not to be dashed, then there is a need to prove those people wrong who are saying that “an inexperienced and inept government is being supported by powerful institutions” and that a ”flawed one sided judicial process is underway to decapitate the leadership of two large political parties”. Those saying this need to link state failure to those who were at the helm of affairs when the failure of the state was being engineered and who failed to empower the people through education, health care, electoral reforms, population control, a stable sustainable economy and a political and administrative dispensation that could deliver governance. Sadly, it must be admitted that when we say state failure we cannot hold only the political institution responsible but must also include all the other institutions that constitute the state. The Prime Minister has set the tone by threatening accountability and a formidable process is already underway and delivering results and justice. The state of the economy, the political polarization, the weakened institutions and an enfeebled people points to the fact that far more needs to be done without getting bogged down in the morass of the past. This is where the capacity of the present government comes in.

The economy requires urgent attention given the rising debt levels, downgrades, and fiscal deficits. A parallel economy estimated to be as big as or even bigger than the documented economy has for decades supported the system and been ignored by the State. A hard crack-down by the Government would push the parallel economy into a declining mode and in the absence of productive development and growth in the real economy, it would have a detrimental impact on the overall economy. Money always finds safe havens, and threatened by accountability and a possible witch hunt there is a high probability that this money would leave Pakistan. A much more productive strategy could have focused on channelizing the ‘undeclared’ funds into productive use, through provision of incentives and imposition of taxes. Parallel to this, long-term future policy reforms should have been instituted to stem the corruption in the State system and an expansion of the real economy.

The retail sector is starting to feel the pinch as funds go underground. Inflationary pressures are building up with the devaluation and interest rate hikes. Unfortunately, a witch hunt of sorts is underway where the existing tax payers are being hounded and ‘bullied’ for extracting additional taxes. There are rumours that an additional Rs.190 Billion in taxes would be imposed through the expected January 2019 min-budget. The Government continues to dither on the bail-out package through the International Monetary Fund (IMF) and the delay is doing more harm than good. Pakistan continues to suffer on the international arena with heavy penalties imposed after losing the Karkey, Reqo Diq and Broadsheet cases. Accountability is good, if it is conducted impartially and based on a system. It is bad when it is lop-sided and unable to achieve its purpose due to inefficiencies within the state accountability process. The system needs to be reformed and the political rhetoric by the Government tuned down with a focus on stemming the rot in the future.

The ongoing uncertainty is creating an environment that is not conducive for investment and Pakistan desperately needs to attract foreign direct investment at this point to rejuvenate the industrial sector. An environment born out of fear, based on extractive policies and imposition of a guilt without proof is hardly amenable to inflows through investment. Wealth should not be equated with corruption, and being rich should not be construed as a sin. Where there is proof of corruption there should be accountability in the system which should address the issue.  While long term reforms are good the need is to immediately consolidate what we have and improve it to deliver results. There is a vast network of private and government schools, colleges and universities with elaborate administrative and management structures. This entire apparatus needs to be made functional while the curriculum reforms and a national system of education is being worked out. It is the same story in the vast health care sector—make what you have functional and responsive as future improvements are planned. Apply the same logic to the bureaucracy and the entire governance structure. The economy needs the most urgent attention. The bailouts that are trickling in will give us breathing space but will not ward off what is coming in 2019 especially if we go to the IMF. The people need to know where they are headed. The country should not stumble into hard times it needs to go in fully prepared and resolved. This means spelling out the immediate steps as well as the longer term measures and unless this happens our foreign and security policies will not be reoriented to accept reality and reset course— and reset we must no matter how bitter the pill is that we have to swallow.

(Spearhead Analyses are collaborative efforts and not attributable to an individual)