The need for redefining the role of the state and the government for achieving sustainable and inclusive growth cannot be over-emphasised.

One can witness the long lingering debate on two key issues in governance coming under the spotlight after the livelihood and health crisis triggered by pandemics. Firstly, will a big or small government deliver? Secondly, does the solution lie in return to a highly centralised system or wider dispersal of authority and responsibility?

Looking at the historical legacy, the centralisation at the cost of democracy and the corresponding command economy led to the collapse of the Soviet empire. In Pakistan, the mixed economy has left scores of sick state firms, currently surviving on taxpayers’ money. The denial of provincial autonomy led to the 1971 tragedy.

Yet even in free-market economies, governments have expanded over time with GDP growth resulting in a surge in inequality and authoritarianism. Britain former prime minister Margaret Thatcher and former US president Ronal Reagan did not leave a sustained legacy of small governments. And the governments’ spending particularly after the outbreak of pandemic as a ratio of GDP is going up in both countries.

The country is surrendering a bit of sovereignty every time it approaches lenders for more money

The view currently gaining ground is that the welfare state should be nimble and efficient. It should focus on redistributing cash and letting those in need choose what to do with it, and not set up new bureaucracies. Income support for households should be automated, where possible, as the financial sector becomes more digitalised. The aim should be to build societies that are fairer and more prosperous.

Projecting the above approach, analysts at London-based The Economist note that the state has particularly grown during the pandemic while its failures have been in full display.

“Instead of focusing on revenues, we need to rationalise (civil-military) expenditure,” says former State Bank Governor Shahid Kardar. The current expenditure of the federal government rose by 37.9 per cent in the first quarter of this fiscal year compared to the same period last year, according to the latest Economic Review of July-September released by the Ministry of Planning and Development.

Simultaneously the centre was only able to contain the fiscal deficit at 0.9pc of the GDP owing to a provincial surplus of 0.4pc of the GDP, up from 0.1pc.

Owing to bad governance, the findings of the Auditor General of Pakistan show that irregularities incurred on Covid -19 operations were to the tune of Rs40 billion. Payments were made to ineligible people by all entities provided funds. The release of the audit report was one of the five prior actions that the International Monetary Fund (IMF) had asked of Pakistan for the $1bn loan tranche in January.

The cash-strapped hybrid federal government, trapped in debt with shrinking policy choices cannot manage sustainable and inclusive economic development alone. Referring to IMF prior actions and the Saudi conditions attached to the dollar deposits lent to Pakistan, an analyst notes that the country is surrendering a bit of sovereignty every time it approaches lenders for more money. And this indicates that Pakistan’s excessive external indebtedness has deep structural roots.

Nor do foreign loans lead to inclusive growth. “Foreign aid is an excellent method for transferring money from poor people from rich countries to rich people in poor countries,” according to Hungarian born British development economist Peter Bauer. The Afghan economy and the government finances are in shambles despite billions of dollars poured into the country by the US for over two decades.

Devolving authority and responsibility to the grassroots level where local problems can be better identified and more effectively resolved is a must for reducing the widening social inclusion. It is also easier for local residents to access municipal bodies or community organisations for getting their problems resolved.

Unfortunately, devolution has stopped at the provincial level. The Sindh Local Government Amendment Bill 2021 passed by the provincial assembly on November 26 gives total control over municipal bodies to the provincial government, depriving them of whatever semblance of autonomy they enjoyed. The bill is in violation of Article 140-A of the Constitution, granting administrative, legislative and financial autonomy to the third tier of government.

Most of the key functions of the local bodies (LB), such as health and education, water supply and solid waste removal or enacting laws regarding food and drinks have been transferred to the provincial government.

Neither is the PTI’s performance encouraging. Despite its election pledge, it has yet to establish fully autonomous elected local bodies in Punjab, Khyber Pakhtunkhwa and Islamabad. However, the management of primary, elementary and secondary education facilities will come under the supervision of (to be) elected mayor of Islamabad, according to an ordinance promulgated by President Arif Alvi on November 22. The relevant federal ministry will supervise college and university education.

Punjab is reported to be planning to hold elections in March next year. No date has yet been fixed for Islamabad polls. The first phase of the polls in KP is due to begin on December 19.

While upholding the Peshawar High Court judgement, a two-member bench of the Supreme Court headed by Umar Ata Bandial on November 30 turned down KP’s move to hold elections of the village and neighbourhood councils on a non-party basis. The court also did not accept KP’s advocate general’s plea to order the Election Commission of Pakistan to change the election schedule which, it noted, had already been delayed by two years.

Unlike in Pakistan, the local governments have played a significant role in China’s sustained economic growth and poverty reduction. They are currently stepping in to minimise the impact of the toxic debt stated to be threatening to ripple the property sector and small banks.

“To keep the building sites ticking,” says a foreign media report, “local governments are taking control of some unfinished projects. At smaller banks, many corporate shareholders are being forced out and replaced by local government’s asset managers.”

In the US, the federation gave funds to local governments to eradicate Covid-19. They initially imported foreign vaccines directly.

Published in Dawn, The Business and Finance Weekly, December 6th, 2021