June 2024

GENESIS OF UNEVEN GROWTH

Genesis of uneven growth

During the latest Democracy Forum panel discussion, speakers reflected on the interplay between political and economic forces in Pakistan, and how this has impacted the country’s economy.

Pakistan stands at a cultural and strategic crossroads, seemingly unable to shake off its branding of mismanagement, war and insurgency. Looking at the genesis of uneven economic growth in Pakistan, panellists at a recent TDF debate considered what lies behind such imbalance: a flawed British legacy, powerful ruling families, the military, corruption, or simply an inability to move on?

In his introduction, TDF Chair Lord Bruce alluded to Pakistan’s ‘unsustainable economic model’, and PM Shehbaz Sharif’s caution, in light of last July’s $3bn IMF loan, that while the country could achieve economic stability, ‘nations are not built through loans’. Against a background of rising state indebtedness to international creditors – principally China – successive Pakistan governments have failed to invest in productive sectors of the economy and have been forced to borrow more to meet existing debts, now reaching the point where interest payments are currently absorbing almost 60% of total state revenue.

Unlike its neighbours, India and Bangladesh, added Lord Bruce, Pakistan has not benefitted at all from globalisation: indeed it suffers from persistently low levels of labour productivity growth and wholly inadequate participation in global value chains and trade openness.  Thus it has been unable to sustain necessary growth levels, instead suffering regular boom and bust cycles. Particularly vulnerable to supply shocks, the country experienced inflation of 38% last year as its import-dependent economy was hurt by the surge in commodity prices following the Russian invasion of Ukraine. Shehbaz Sharif is now obliged to honour the IMF agreement by privatising state-owned enterprises, reducing the budget deficit, improving export performance, and undertaking a very contentious programme of tax reforms. Does his plan, concluded Lord Bruce, have any chance of succeeding?

tdf seminar June 2024
Panellists at TDF’s May 28 round-table discussion on Pakistan’s political economy

The IMF, debt distress and social inequalities were some of the areas of focus for Dr Juvaria Jafri, a lecturer in International Relations at the University of East Anglia’s School of Politics, Philosophy, Language & Communication Studies. Considering Pakistan’s broader structural challenges, Jafri pointed out that the IMF identifies those as a narrow export base, low private investment and foreign direct investment, a weak revenue base relative to public investment needs, low levels of spending on health and education in the context of major human capital development needs, elevated poverty levels, and income and gender inequality. Given that these are very legitimate concerns, Jafri said the focus of the discussion could be on what the government has, or very often hasn’t, done to address these specific issues, and said it would be helpful to think of the debate in a global context.

Regarding the central question of the debate, Jafri believed it was important to put that in the context of events such as the Cold War, military support from the US leading to closer collaboration with the IMF, and neoliberal reforms, which could be seen as some of the genesis behind Pakistan’s uneven growth. One must keep in mind that Pakistan globalised very quickly, adopting liberal Washington consensus reforms, so dissecting those might help us to really understand what went wrong, she added, rather than putting all the emphasis on the government. Like the rest of the Indo-Pacific, successive governments in Pakistan did prioritise trade and the economy, but they faced the problem of a low export base and haven’t been able to diversify exports efficiently; hence imports are higher than exports, leading to a recurrent balance of payments crisis.

Pakistan globalised very quickly, adopting liberal Washington consensus reforms

Examining the central issue through the lens of colonial structures – more specifically the role played by civil-military bureaucracy in uneven growth and economic development in Pakistan – was Dr Zahid Mumtaz, a Fellow in Social Policy at the LSE. Like many other post-colonial societies, Pakistan inherited some institutions from the period of colonisation and he said that two key institutions need to be analysed which played a very important role in Pakistan’s policy-making: namely, the military and the bureaucracy. While we have seen much debate and literature on the role of the military in both Pakistan’s politics and economy, less emphasis has been placed on the role of bureaucracy or the civil service, which Pakistan inherited from British rule in India, Both the military and the civil service, argued Mumtaz, have seen little reform since Independence, and although some happened in the civil service, they were not structural reforms and so they did not change the overall structure of the civil service in Pakistan. Essentially, therefore, the control of policy-making still very much remains in the hands of the civil service and the military. Mumtaz related these two institutions to the genesis of uneven growth in Pakistan because they hold significant sway over public policies in the country that are linked to productivity and economic growth. The military remains at the forefront in making those policies and the bureaucracy both advises on and implements them. So, the civil service and military has a deep nexus in Pakistan.

Looking at the policies which started back in the 1950s and 60s, he said they were focused mainly on benefiting the richest elite in the country. Pakistan relied heavily on import substitution, which is still continuing today, and entered into various wars – that was the policy of various military governments, as was going into the IMF, and all these successive policies related to economic growth. Ironically, none of these policies was challenged by the civil service in Pakistan, who always remained hand-in-glove with the military in implementing them. On policies relating to the power sector, which is causing a huge burden for Pakistan’s economy, Mumtaz questioned how those initial contracts were made and who were the people involved, while when it comes to defence spending, we see a continuous increase over a period of time. So, he concluded, it is Pakistan’s unreformed colonial legacy and institutions, due to a lack of democracy, which are proving to be a major cause of uneven economic growth, and an impediment to further growth.

The civil service and military has a deep nexus in Pakistan

Dr Shandana Mohmand, a Senior Fellow and Governance Cluster Lead at the Institute of Development Studies, looked at voter-party linkages in Pakistan, and how these have affected the country’s political trajectory and policy-making patterns. On the question up for debate, she pondered ‘uneven for whom and growth for whom?’, adding that we must think about it from the point of view of citizens, which is true for any country. Growth for the citizenry is key and then all of these institutions come into play because they are making certain kinds of public policy that works to deliver to that citizenry.

Mohmand addressed the structure of rural politics in Pakistan, saying it was an important issue because about 65% of the country still lives in rural areas and so it is a crucial part of the voting population. They have lived under structures set up during colonial rule in a particularly extractive way, which was you really just needed certain revenues to come out of the countryside that ran the colonial government. But as Pakistan moved on, a lot of that didn’t get reformed because, during the initial years, the power structure became one between the civil service, and then, with the first military coup, between the civil service and the military as a partnership. While there have been fissures and some changes in this, the idea still prevails that politicians and political parties are the junior partners in a power dynamic that has the civil service working with the military. The reason for this, argued Mohmand, is the continuing extractive nature of the state, which still has this colonial logic that there are certain things that are required to keep the country moving, and politics is quite unnecessary to that.

Development trajectories in any country work when citizens have a seat at the table

During his March 5 address to delegates of the National People’s Congress and Chinese People’s Political Consultative Conference, President Xi outlined a programme of ‘new productive forces’

But what we end up forgetting in all of this is the citizenry, the voters that come out and still participate in elections, yet a lot of policy is not being made for these groups. So we must focus on who sits at the policy table, because in any country, if you look at the development trajectory, it works when citizens have a seat at the table, and it doesn’t work when they’re left out because the civil service or the military are playing a very different game that doesn’t require citizens and politics in the same way. What is needed, said Mohmand, is a ‘vertical relationship’ that connects voters to political parties and that’s really where the power of political parties is going to come from, as well as a politics of ‘horizontal relationships’ between political parties that sit in Parliament, the civil service, the military and the judiciary. Policy is not made to focus on two very essential things, education and health – those are not a part of policymaking in Pakistan because the focus is elsewhere.

During a general discussion between the panellists and journalist/author Humphrey Hawksley, who was moderating, other issues highlighted included Pakistan’s relationship with India and how the closed borders have limited Pakistan’s trade potential and economic growth; how the military’s perceived focus on security and conflict has shaped Pakistan’s global image as a security risk, thus deterring investment; and how Pakistan’s debt crisis has been exacerbated by factors such as borrowing in foreign currency and reliance on private creditors, particularly China.

MJ Akbar is the author of several books, including Doolally Sahib and the Black Zamindar: Racism and Revenge in the British Raj, and Gandhi: A Life in Three Campaigns

To watch the full discussion, tune in to https://youtu.be/BSsZ4bxWAHI