The PTI-led ruling coalition has inducted three technocrats – Hafeez Shaikh, Adviser to the PM on finance, Reza Baqir, Governor, State Bank of Pakistan and Syed Shabbar Zaidi, Chairman Federal Board of Revenue – to manage our national economy. Since each one of these three gentlemen has come from different backgrounds, it would be wrong to expect them to gel into a well-oiled team immediately following their joining the government. But that is exactly what one saw happening as within a couple of days the trio in a unified move successfully managed to negotiate a deal with the IMF that had appeared over the last so many months an unachievable goal.
Even from what little one knows about their respective careers, experiences and academic backgrounds it would not be difficult to conclude that none of these three official economic managers of the government subscribe to the political philosophy of the ruling Party, Pakistan Tehreek-i-Insaf (PTI), whose main political objective has been to establish an Islamic social welfare state in Pakistan on the lines of Madina ki Riaysat.
On the contrary, all the three belong to Milton Friedman’s school of thought which is based on the principle that ‘small is beautiful’ and ‘greed is good’. They are believers in free market economy, in trickle-down theory and in the motto that ‘it is not the business of the government to be in business’.
That is why perhaps even without having gelled into a team the three have, within days of their induction in the government, successfully finalised a staff agreement for an Extended Fund Facility (EFF) of three years amounting to about $6 billion from the IMF which is subject to approval by the Fund’s Executive Board. And now the three are busy putting together the next year’s federal budget which is expected to be a document reflecting more or less the conditionalities listed in the agreement signed on May 13, 2019 between the government and Fund’s technical team.
Non-PTI Official Economic Managers
But the question is why has the ruling Party handed over the national economy to a trio which not only does not subscribe to its political philosophy, but instead has been known to have worked to demolish this very political philosophy?
PTI Chief Imran Khan has taken a number of unexpected political U-turns since coming to power but the U-turn that the trio managing his government’s economy is expected to force on him would negate the very raison d'être of his being in politics.
The EFF agreement signed between the IMF’s technical team and the official trio managing the PTI government’s economy flies directly into the face of PTI’s election manifesto. And here is what Imran Khan said in his brief victory speech on July 26, 2018: When I came into politics, I wanted Pakistan to become the kind of country that our leader Muhammad Ali Jinnah wanted.
He said his inspiration was Prophet Muhammad (PBUH), “the city of Medina that he founded, how it was based on humanity. For the first time, the state formed was based on humanitarianism.”
That is my inspiration, that Pakistan should have that kind of humanitarian state, where we take responsibility for our weaker classes, he added.
But those who subscribe to the trickle-down theory of the infamous Washington Consensus work against the very weaker classes while pushing for macroeconomic stability.
Indeed, while macroeconomic stability is a highly-desirable goal yet by the time a country succeeds in achieving this goal, it invariably ends up with high debt, chronic resource constraints, high current account deficit, unemployment rate shooting through the ceiling, inflation spiraling out of control, causing widespread poverty and increasing inequality to criminal levels.
Big Business Takes Over
Meanwhile, it appears that big business has taken over the PTI-led coalition government. All those powerful lobbies representing various vested interests like the automobile industry, the sugar mafia, the real estate racket, the engineering bonanza etc., led from behind the scene by the even more powerful Overseas Investors Chambers of Commerce and Industry have over the nine months chewed away the entire socio-economic road-map of Naya Pakistan to implement which the ruling Party had entered the government in August, last year.
Signaling the complete take-over was the ouster of Asad Umar from the finance ministry. Asad’s team has disappeared along with him. The Finance Secretary has already been changed. The SBP governor, Tariq Bajwa withdrew submitting his resignation and the FBR Chairman, Dr Jahanzeb Khan stood transferred.
But then the big business on its own would not have accomplished all this. Someone with a bigger political clout must have decided to detach the government from what had appeared in the last nine months to be highly incompetent hands of Imran Khan and his under-16 team before bringing in Hafiz Shaikh, Reza Baqir and Syed Shabbar Zaidi. Could it be the all-powerful establishment (read Army)? But those who claim to have inside information insist that it is not the omnipotent establishment but Jehangir Tareen who they claim is now functioning as the Prime Minister with Imran having been reduced to no more than an impassive façade.
Hard to believe. But with the economic management going out of the hands of the ruling party, such stories, even if they are no more than self-serving gossip start sounding authentic.
Failed Economic Model
No matter how it has been maneuvered the management of our economy is now back in the hands of those people who have shaped and served the economic model that this country has been using all these 71 years and which has consistently failed to deliver.
In early decades this model was based on the so-called ‘trickle-down’ theory propounded by the Harvard Advisory Group and since mid-1970s on the one propounded by Milton Friedman’s Chicago School. Interestingly the Chicago School also promoted almost the same ‘trickle down’ theory with three trade-mark demands: privatisation, deregulation and deep cuts in social spending.
This economic model has served to expand the size of Pakistan’s economy to about $300 billion in the seven decades that it had been put to use. But it is too small an economic size compared to the size of our population. In this context even an annual average growth rate of 7 to 8 per cent remains meaningless in view of its gigantic lags in terms of physical and social infrastructure, stagnating export volume and ever-higher volumes of its imports.
Pakistan’s economy needs to grow at an annual average rate of at least 10 per cent of the GDP over the next 10 to 15 years to be able to lift the teeming millions from below the poverty line and generate enough jobs to absorb its ever-expanding youth bulge in gainful employment, provide to the majority of its population affordable educational facilities, health cover, public transport, telecommunication facilities and housing. But in order to grow at this rate, the economy would need investment to the tune of at least 35-40 per cent of the GDP at an annual average for the next 10 to 15 years.
However, our current rate of savings has been stagnating at around 12-14 per cent of the GDP for the last several years. The gap of almost about 25-30 per cent between the required rate of investment and the existing rate of saving could be filled with borrowed resources and FDI. Borrowing is not bad as long as the borrowed resources are invested in economically and socially-profitable avenues.
But over the years, resources from this source, especially the concessional loans, have come down to no more than a trickle because our traditional lenders now feel that it would be unfair to their own taxpayers to keep pumping their hard-earned resources into a country which has shown no willingness to tax the incomes of its own citizens.
Black Economy
But most of the revenues collected domestically are through indirect taxes which are regressive in practice and a big chunk of direct taxation is collected through what is known as withholding taxes which again amounts to no more than a minuscule residual of huge settlements made through black cash in most of the major transactions.
The biggest source of black economy which has reached almost the size of the white economy is the exemption allowed to incomes from agriculture. Today, most big businesses own huge land-holdings in barren regions.
On books they show the profits earned from their other businesses as income from agriculture and declare losses from the former. Most of the professionals like doctors, engineers, lawyers, high-end educational institutions, hospitals, etc., share their taxes in three ways keeping a large part of the amount in their own private lockers, distributing the remaining balance between the tax collector (bribe) and the treasury (under-declaration).
During General Zia’s rule of 11 years and that of General Musharraf for nearly nine years, absentee land-owners (including mighty generals who received state lands as gallantry awards or otherwise!) did not pay a single penny as agricultural income tax or wealth tax.
Taxation of ‘agricultural income’, at present, is the sole prerogative of provincial governments under the 1973 Constitution. All four provinces have laws to this effect, but total collection in 2013-14 was less than Rs2 billion (share of agriculture in GDP was about 22 per cent). No one has calculated how much tax loss Pakistan has suffered perpetually since 1977 on account of non-taxation of agricultural income alone as suggested under the Finance Act, 1977.
If we add total loss of revenue through various exemptions, non-taxation of benefits given to the state oligarchy and through Statutory Regulatory Orders issued during the last four decades, the number comes to more than Rs100 trillion — this explains how unprecedented concessions to the rich has made the state poorer, rendering every citizen of this country to enormous indebtedness. We would not have required any borrowing at all, if tax losses were historically not incurred.
Simplistic Assumptions
The model of Imran’s Naya Pakistan was presumably built around simplistic assumptions such as, tax collection would double to Rs8 trillion simply because people trusted Imran Khan and therefore would pay their due taxes honestly, that foreign exchange reserves would go up steeply because Imran’s well-wishers in foreign countries would start remitting billions of dollars because they trusted him, the annual loss of $10 billion due to money laundering would stop forthwith because the corrupt rulers would have disappeared as soon as Imran took over the reins of the country, and the siphoned off money amounting to $200 billion stashed outside Pakistan would be brought back the very next day after he is installed in the PM’s office, with this money all our foreign debt would be repaid and Pakistan would still be left with $100 billion, with no more foreign debt to repay and foreign reserves going up by a colossal $100 billion, the PTI government would be able provide 10 million jobs over five years and construct 5 million housing units for the poor in the same period.
Within the first 100 days of his rule, the dream turned sour.
Most of his team along with Imran Khan himself being outsiders, having never before managed the affairs of a government (the KP experience was too meagre compared to the challenges of the federation) they were finding it increasingly difficult to make the federal bureaucracy work the way the government wanted. Most of the civil servants had stopped working because of the NAB sword over their heads.
Political Blunders
The biggest political blunder that the PM committed was the appointment of Usman Buzdar as Punjab Chief Minister which led to an unending political chaos in Pakistan’s biggest province with three centres of power, the other two being manned by Governor Sarwar and Speaker Pervez Elahi.
The next blunder of the PM or for that matter, one bigger than that of Buzdar was his misplaced faith in the financial acumen of his finance minister, Asad Umar. His third blunder was to gather around him as many as half-a-dozen media experts. And a couple of members of his team, like health minister Kiyani and Hoti were seen indulging in blatant corruption.
Indeed, it is not very difficult not to disagree with Mohammad Taqi, a Pakistani-American columnist of the Wire (Pakistan Army’s Imran Khan Project Is Going Belly Up) that Pakistan’s government and its army handlers are in a disarray and the reason is not some concerted domestic political opposition or foreign pressure; it is the sheer incompetence of the army’s political protégés and the outfit’s ignominious tradition of biting off more than it can chew.
“Pakistan’s economy is in a virtual free-fall … [since the engineered ouster of] former Prime Minister Nawaz Sharif’s ouster in 2017. Within a span of the past few weeks, finance minister Asad Umar – touted for a decade as the economics whizz-kid – was unceremoniously shown the door, the State Bank of Pakistan’s governor eased out and the chairman Federal Bureau of Revenue fired.
“In the face of a massive economic turmoil, cricketer-turned-politician Imran Khan’s Pakistan Tehrik-e-Insaf (PTI) government … is running around like a chicken with its head cut off.”