As Pakistan’s finance minister, Asad Umar, stepped down within a couple of days of announcing that Pakistan will soon get its 13th IMF bailout in 30 years, it is safe to speculate that the discussions with the IMF are not going as well as Pakistanis would like. Umar’s departure from Imran Khan’s cabinet has come in a virtual coup that has brought military favourites from previous regimes into office.
The Pakistani military has a view on everything, including management of the economy, although military officers are not trained in economic matters. The generals who really rule Pakistan cannot accept that the country’s resources cannot sustain an over-sized military and the periodic wars it initiates. Nor do they see the connection between their preferred policies, such as support for Jihadi terrorism, and declining investment or foreign trade.
Under the generals’ influence, Pakistan prides itself as a warrior nation. Investors and traders are looked down upon although in prosperous countries they are seen as drivers of economic growth and prosperity. Politicians and civil servants are frequently sent to prison for signing projects with foreign investors, along with cancellation of those contracts.
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Tax collection remains low because land-owning politicians, often beholden to the military, do not agree to paying taxes. Loss-making public sector corporations, which provide lucrative post-retirement jobs to military officers, are neither shut down nor sold off even though their privatisation has been part of the promised reforms offered each time Pakistan borrows from the International Monetary Fund (IMF).
Economies grow amid stability, rule of law, enforceability of contracts, and security for both capital and the capitalists. None of those are available in Pakistan. Instead, policies are often driven by myths, such as the notion that billions of dollars of ‘ill-gotten money’ belonging to Pakistanis is lying in foreign banks that can be confiscated and repatriated by an ‘honest’ (read pro-army) leadership. Or, the fantasy that multi-billion-dollar projects like huge dams can be built by raising donations from well-meaning Pakistanis.
Pakistan’s military-driven economic decision-making is based on ‘Jazba’ (passion, spirit, and strong feeling or emotion) and Chanda (donations). In economic matters, Prime Minister Imran Khan has been a civilian advocate of the Pakistan military’s simplistic paradigm. His assurances to Pakistanis that they should not worry – “Aap nay Ghabrana Nahin hai”— have become a joke or a legend, depending on which side of Pakistan’s political divide one stands.
But economists look at hard numbers and are seldom swayed by the belief that God makes special provision for nations led by honest patriots. That is why Khan had to beg for $10 billion from Saudi Arabia, China, and the UAE to stave off a balance of payments crunch soon after coming to office in the hope that this would preclude his government from having to go to the IMF. That money is now running out.
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Turning to the IMF is the economic equivalent of a sick individual being in intensive care. Considering that Pakistan has spent 22 years in the last three decades in the IMF’s intensive care, the country’s economy obviously suffers from some serious ailment. This might be the time to reflect on the source of the disease rather than focusing on the symptoms of the latest bout of illness.
Pakistan has battled budget and trade deficits for years. Its exports and tax revenues have failed to increase sufficiently, and its foreign currency reserves have never risen beyond the value of a few months’ imports. Pakistan has often borrowed heavily to make up for insufficient revenues and exports, increasing sovereign debt. In recent years, that has led to onerous external debt payments and a weak rupee.
Pakistan’s repeated knocks on the IMF’s door come whenever the country faces a balance of payments crisis. Pakistan has borrowed from the IMF 18 times since 1972. Compare that with only 10 IMF loans for Bangladesh in the same period. Pakistan’s IMF borrowings ran to an estimated $19 billion, while Bangladesh’s dealings with the IMF were a modest $2.7 billion. With rising exports, Bangladesh has not sought help from the IMF since 2015.
The comparison with Bangladesh is important because Pakistan’s Punjabi elite looked down on what was their country’s Eastern wing from 1947 until the Bengalis successfully fought for independence in 1971. On the eve of its independence, Bangladesh was more populous, more illiterate, and much poorer than Pakistan. It now has a smaller and more literate population and its GDP, which stood at $6 billion in 1972, has grown to over $249 billion.
While Pakistan invested in its army and nuclear weapons, Bangladesh invested in its people. Its literacy rate rose from 17 per cent in 1971 to 72 per cent in 2016, putting Pakistan’s 58 per cent literacy rate in 2018 (up from 22 per cent in 1971) to shame. The more literate Bangladeshis create a better human capital pool, which in turn allows their country to produce value-added goods.
While Pakistan still sells cotton yarn to the world, Bangladesh exports garments that fetch higher prices. Literate Bangladeshi tailors produce garments that meet foreign buyers’ specifications; as a result, cotton textile exports of Bangladesh, which does not produce cotton, exceed in value against those from Pakistan, which is one of the world’s major cotton producers.
Instead of addressing these fundamental issues, Pakistan’s generals constantly search for a well-connected international banker, multi-national corporation executive, or a former World Bank official who would straighten Pakistan’s balance sheet with a few more loans or donations. That keeps the Jazba and Chanda cycle going but does not create a healthy economy.
Just before he was forced to quit, finance minister Umar had been quoted in the magazine Euromoney, promising to end Pakistan’s addiction to the IMF. Ironically, the same magazine had cited General Pervez Musharraf’s finance minister, Shaukat Aziz, making the same promise while anointing him as ‘Finance Minister of the Year’ in 2001.
Euromoney, which has sometimes been accused of “surviving on soft advertorial” and whose “various annual awards seemed weighted towards clients that had bought the most advertising” also saw “encouraging signs of a sustainable period of growth” in Pakistan’s economy in April 2017, just before General Qamar Bajwa pulled the rug from under former Prime Minister Nawaz Sharif’s feet.
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If the army’s meddling did not allow previous IMF programmes to pave the way for sustainable economic growth in the past, it is unlikely that their latest efforts at engineering will result in anything better.
A new finance minister might be able to borrow money from the IMF on different terms than the outgoing one. But at the end of the day, Pakistan will have to address its huge military burden, poor social indicators, and unreliable investment climate or remain on life support.
Husain Haqqani, director for South and Central Asia at the Hudson Institute in Washington D.C., was Pakistan’s ambassador to the United States from 2008-11. His latest book is ‘Reimagining Pakistan’. Views are personal
You conveniently left out the single biggest cause of Pakistan’s economic troubles: the gluttonous and corrupt regimes of Zardari and Nawaz, both of whom enriched themselves (and their cronies) while looting Pakistan dry. And you were part of those regimes, Mr Haqqani, and still support them. Enough lies, we’ve had enough of corrupt liars.
Complete version
Beg Borrow Bailout Repeat
The comments of the writer are not going to change the behaviour of military establishment in Pakistan…. Even the military is running the economic policies of whole of the Pakistan tells itself the state of affairs of Pakistan…. So leave Pakistan at the mercy of Allah….
Haqqani’s truth hits home, otherwise I am sure some pak trolls would have made some negative remarks on his patriotism as in his other articles.
Pak cannot afford the army of the size it has unless it is subsidized by american dollars – cold war and afghan war phenomenon – that is unlikely to be replaced with chinese subsidies.
Asad Umar should have announced tough measures after saudi and uae coughed up a lot of money to keep pak going temporarily. Such as a 40 or 50% cut in civil and military, freeze on recruitment, and announce plans to sell off all loss making govt companies. Its fair to assume that imran khan would have wanted asad umar to propose such tough steps, and even announce them, and then maybe imran khan might have stood by him even if umar became a target for removal by those affected.
Now that umar is out, Imran Khan is his own finance minister even if he has someone as advisor, so now the onus of all proposals and decisionmaking falls squarely on Imran Khan.
Sir,
Your writings are so spot- on( especially the Jazba – Chanda part ) and blunt, no wonder these guys hate you so much back home…
Unless Pakistan manages to get rid of it’s costly military machine, who are eating at the very roots of economy by taking away almost 10% of it’s GDP in real terms, it is doomed to death, one feels sad. The Fauj has to be reasonable with it’s own citizens, and restrict the take to normal 2-3%.
I never feel happy or gratified to read about Pakistan’s woes. Ordinary citizens in both countries have hard lives, are struggling to feed and educate their children. Take away the nuclear arsenals, all this unnecessary bravado and machismo, and there are two desperately poor countries whose governments should be moving more resources to education and healthcare.
Mr. Ashok, you seem to have very simplistic attitude – far from realities. China attacked India as JLN had similar views. Mind you, it is Pakistan (read mainly naPaki ruling elite/ military) who attacked India 4 times besides scores of terrorist attacks… Their ultimate real aim is “Ghazawae Hind” – nothing less. In a way terror attacks seem to be “net practice”. Kashmir or any other issues they make noise of – are smokescreen.
India did not have great arms and ammunition or even nuclear bomb before 1974 – Why did India had to face 3 attacks from Pakistan and 2 from China? By your logic that should have been the MOST peaceful time with neighbors no? I think you should understand reality rather than living in some kind of utopia.
After watching today’s Cut the Clutter, felt I sometimes act like a sentimental Punjabi on Pakistan. However, the two sides have now come to an uneasy draw, neither can impose its will on the other. So we might as well find a way to coexist more peacefully.
Agree completely!!