PAKISTAN has dodged the bullet — it has managed what Sri Lanka and Ghana could not do. Some would argue that Pakistan is too big to fail; as a large nuclear-armed nation in a tough neighbourhood, we think it’s too dangerous to fail. Then there is the challenge of illegal immigrants risking their lives to leave a country with limited prospects.

The $3 billion, nine-month Stand-by Arrangement is a blessing, especially considering where the country was just a week ago. Lobbyists have already started making their pitch.

Aptma says it will triple Pakistan’s annual textile exports in five years, which is more ambitious than its previous claim to double exports in five years — although none of its boastful claims have ever panned out.

After Dar’s tumultuous term in office (perhaps the worst in Pakistan’s history) and the economic pain looming in the future, one wonders who would want to take responsibility for managing the economy. But some aspirants are gearing up.

The path to power is simple in terms of the required narrative: economic growth is necessary and must be driven by the private sector; the dispossessed need social safety nets; the tax net must increase despite the political cost; loss-making state-owned enterprises (SOEs) should be restructured and privatised; and key to all this is good governance.

Besides securing key stakeholders’ support to own the required reforms, good governance involves oversight by professionals with no financial stake in the undertaking.

What are proposed as pro-market policies become pro-business, which means economic growth is to be driven by established business interests. We have seen this before: from Ishaq Dar’s fixed exchange rate regime that sparked consumer demand and complemented the real estate boom (2015-2017), to the Covid-justified monetary stimulus (State Bank’s temporary economic refinance facility — TERF), which took Pakistan’s economic growth over six per cent in FY22 but also created a balance-of-payments crisis. The policy focus has always been on elite interests.

Elite capture will become tighter.

In 2019, the World Bank argued that elite capture of policymaking was a significant impediment to sustained economic growth. It identified four groups: (1) civil servants; (2) large landowners (who become politicians); (3) big business; and (4) the military. Securing key stakeholders’ support means accommodating their wishes. This becomes difficult when the policy space is constrained by a weak economy and the austerity required by the IMF programme.

The economic pain ahead is obvious, but the next two governments will point to the IMF. On the other hand, managing the financial interests of the elites, or how to go about restructuring SOEs (with complex political repercussions), and the distinct possibility that Pakistan may have to sell state assets to settle bilateral debts, adds an interesting dimension to the job of future economic managers.

While the blame for economic misery will surely be directed at the economic team, the latter will have substantial power as they intermediate elite interests.

Dar will soon leave the public sphere, and if the PPP and PML-N find common ground and contest the next elections on friendly terms, the position of finance minister will become critical. Restructuring SOEs and expanding the tax base requires a stern conviction to do the right thing.

Since the current crop of politicians is too tainted, but these decisions could threaten elite interests, the preference will be for a ‘technocrat’ who is willing to accommodate as many of the economic interests that are beginning to manifest.

If this happens, structural reforms will be selective and compromised. After the events of May 9, each of the above-mentioned groups will have its wish lists, which means elite capture will become tighter.

As we read and hear the various pitches that will be made, one should ask whether there is any difference from the economic arguments made in the past. The same promises, the same narrative — just fresh faces championing old interests. Sovereign default would have been a harrowing and sobering experience, with possible social unrest and longer-term political and social implications.

It would have forced all power centres to rethink their positions and hopefully change their behaviour accordingly. However, the PML-N government has successfully averted this, not just to protect the country from default but also to safeguard its own political/commercial interests and the interests of the other groups. This ecosystem protects itself.

The status quo will not give up its power easily, and new people are always eager to join the power game. So, it is back to square one in the old board game, whereas playing a new game with new rules would have benefited the people.

The writer runs an advisory.
mushtaq@doctoredpapers.com

Published in Dawn, July 8th, 2023