THE resistance to change in Pakistan is an old problem but it wears a new face every few years. These days the resistance to change is wearing the face of an accounting problem. In other words, everything from our debt management to reforms in the power sector and tax machinery appears to us as little more than an accounting problem.
This resistance to change has been the country’s key defining theme for decades now. It was laid down by Ghulam Ishaq Khan as the principal strategy with which the country would deal with the massive changes sweeping the world, starting in the 1980s and accelerating through the 1990s. GIK and a small coterie of bureaucrats around him, including but not limited to people like A.G.N. Kazi, H.U. Beg, V.A. Jafarey, Saeed Qureshi, I.A. Hanfi among others, practically ran Pakistan’s economic management in those years.
They were serious men, rightly famous for their professionalism and intellect, and they operated like an exclusive club of power-wielding civil servants where admission was by invitation only. Mahbub ul Haq hovered on the outer edges of this group, a one-man army trying to champion change at a time when this coterie manned the ramparts to keep all change at bay and protect the status quo.
What was the change they were trying to keep at arm’s length? In a nutshell, it was the declining ability of the state to shoulder all the responsibilities it had picked up, first during the heady growth years of the 1960s, and then again following the disastrous nationalisations of the 1970s.
From financing the development of the country’s infrastructure to maintaining a pricing regime for agriculture and energy, to deciding who gets how much credit and on what terms, and who gets to invest how much and where, and fetch what returns on that investment, the state played an overriding role in the country’s economy in those days. And this coterie of bureaucrats selected all winners and losers in the economy.
Daronomics rarely works, and when it does, it racks up a tremendous bill.
Pakistan was not alone in facing this pressure for change in those days. It was near universal. Around the world, governments were finding their power to hold a pre-eminent position in all national economic decision-making challenged. Some responded by digging in, others by searching for a way out, and yet others by trying to externalise the costs of staying the course. It was not until the late 1980s and the early 1990s that proper reform strategies began to appear in the global conversation about breaking out of this confinement and finding new ways for economic growth to continue.
Crucially, those strategies included a template for tax and power sector reforms. But they also included a more general withdrawal of the state from areas administering pricing, credit allocations, ownership of commercial enterprises and more. Taken together, these strategies came to be called ‘the Washington Consensus’.
In those days, GIK laid the foundations of how Pakistan would tackle the growing crisis of state and economy. It was his approach to first agree to wide-ranging reforms, then find ways to blunt their impact, stymie their implementation and where necessary, simply renege on commitments once the funds promised under the agreements had been released.
The first Benazir Bhutto government was overwhelmed by the scale of the challenges it had to face — the aftermath of the Afghan jihad was smouldering to the west, while to the east, an Indian arms build-up had drained Pakistan’s coffers. A bankrupt economy at home and a strident IMF programme signed by the interim government prior to her taking power necessitated structural reforms so deep that governments since her time have struggled to implement them.
The first Nawaz Sharif government brought in some of the changes envisaged. They changed the debt management strategy, brought in the first non-DMG State Bank governor in the person of Muhammad Yaqub, undertook the first privatisation, liberalised trade, passed the Sales Tax Act (by a sleight of hand where they disguised it under a money bill), and opened up the capital account to free up the flow of capital into and out of the country. They also successfully wrested control of economic policy from GIK and his coterie and brought their own people into key positions, such as Sartaj Aziz and Ishaq Dar.
This is what lay at the heart of the big fight between president Ghulam Ishaq Khan and Nawaz Sharif, ending eventually with both being brought down. But what started as a fight over changing the direction of the economy, eventually became little more than a changing of the guard. The reforms of the first Nawaz Sharif government were not built to do much, other than spur short-term growth, and encourage an inflow of dollars through the foreign currency deposit scheme that became an albatross around the government’s neck by the end of the decade.
What emerged from all this is a type of economic management that today goes under the name of ‘Daronomics’, and whose principal aim is not that different from that of GIK. Daronomics aims to find ways to retain the state’s pre-eminent role in the economy, while allowing enough space to private sector energies to continue the process of investment and growth. This strategy rarely works, and when it does, it racks up a tremendous bill that eventually lands up in the fiscal and public debt part of national accounts.
The challenge of our times has been to find a way to pull the state out of this role and, instead, have empowered regulators to safeguard the public interest. But the nature of the political power struggle in our country is such that all power has to flow upwards and be subservient to the requirements of this struggle. The non-stop struggle for power has paralysed the state at the top, and stymied its attempt to develop a sound reform strategy.
The writer is a business and economy journalist.
Published in Dawn, June 20th, 2024
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