SMN

The Diaspora View of the Economy by S. M. Naseem

*Originally published in the Dawn, 30 December, 1998. Comments welcomed, the author can be reached at: syedm@paknet2.ptc.pk. The author was Professor of Economics at Quaid-i-Azam University (1968-81) and Director of the Development Planning Division, UN-ESCAP(1987-92).

As 1998 comes to a close, Pakistan finds itself engaged in intense soul searching in the quest for a way out of the deep morass it is engulfed in on the eve of the next century. Faiz's famous poem about the disillusionment at the bleak dawn of independence rings more true now than it did fifty one years ago. At least, then there was hope. Even those who were much more sanguine about its economic performance and prospects of the country find themselves groping for the light at the end of the tunnel which the economy is trapped in. The nuclear explosions of last May which were expected to herald the dawn of yet another new era and boost the sagging morale of a near-bankrupt nation proved as meaningless as many other historic turning points the nation's leaders have promised it in the past.

    Indeed the tests have deepened the crisis being faced by the nation as it has put the country's economy in deep trouble and its main source of pride of high GDP growth-the achievement of which remained the supreme objective of its policymakers-is now becoming a vanishing mirage. The country has been on the brink of international default on its external debt for almost a year and its economic troubles have been exacerbated by the sanctions imposed by the U.S. and other developed countries, affecting not only their bilateral financial assistance, but much more importantly that from the multilateral donors and private investment inflows on which Pakistan has increasingly relied for balance of payments support.

    Pakistan's impressive growth record until recently led many optimists to forecast its joining the ranks of the middle-income group of countries before the end of the century, contrasted with its human development record which resembled more with the humbler category of least develop countries. Yet with a literacy rate-especially of females-much lower than its other South Asian neighbours, the country could presumptuously claim, along with India, parity with the five most powerful, though not the most prosperous, countries of the world as a member of the elite nuclear club.

    These striking imbalances and weaknesses in the Pakistani economy have resulted in a major reassessment of the Pakistani economy in recent months not only in the press but also by serious scholars and former policy makers. Among the most notable and recent of these are three which have been written during a period of last six months by senior Pakistani economists associated with the World Bank (viz., Dr. Parvez Hasan, Mr. Shahid Javed Burki, Dr. Ishrat Husain). The three authors share not only their affiliation with the World Bank, but also their experience as policy makers and advisors to the Government of Pakistan before joining the World Bank in the 1970s. Between the three of them, the authors are privy to first hand knowledge and share a wealth of expertise in economic policy making spanning almost the entire period of Pakistan's developmental odyssey.

While the space in these columns does not permit a detailed review of these assessments, the cavalier way in which the Government has chosen to respond to such critiques, from both within and outside the Government, is itself an enigma. Instead of strengthening the professional expertise needed to cope with the situation, the Government has decided to put its economic management machinery-weak and obsolescent as it already was-in the reverse gear. With the demise of Dr. Mahbubul Haq, who continued to be an ardent supporter of and advisor to the present Government until his death, the shifting of Mr. Sartaj Aziz-who belonged to the same cohort -- to the Ministry of Foreign Affairs, and the rather mysterious resignation of Dr. Hafiz Pasha, the present Government's chief economic policy advisor and its main interlocutor with the IMF and the World Bank and other donors, there is no competent policy adviser to the Government on economic affairs at a senior level.

The only survivor belonging to this group in the new economic team, headed by Mr. Ishaq Dar, chosen more for his close association with the Prime Minister and his family than for his economic expertise, is Dr. Muhammad Yaqub, the Governor of the State Bank of Pakistan. Dr. Yaqub, who was openly critical of Government policies during the Benazir Government and in the early period of the present Government and had actively campaigned for the central bank's autonomy, which was eventually granted by the Parliament. However, after having had several confrontations with Prime Minister Nawaz Sharif and having threatened to resign, the Governor seems to have now decided to stick out the remainder of his term which expires in 2000 in a rather low key role. The mishandling of the foreign currency accounts amounting to $11billion which were frozen under the cover of emergency after the nuclear tests in May has further tarnished his image and put him in a defensive position. The autonomy that he so persistently strived for his institution also appears to have vanished in the process.

In Mr. Nawaz Sharif's second tour of duty as Prime Minister, the technocrats have been steadily losing out to party stalwarts and close confidantes of the Prime Minister, in the management of the economy, especially since the relationship with the IMF has soured and taken a more political turn in the wake of the sanctions imposed by the U.S. and the G-5 as a reprisal against the nuclear tests in May. These developments also signify a changing pattern of management of the Pakistani economy, which evolved as a result of the interaction of political and economic factors and the continuous crises that the country has faced.

Mr. Nawaz Sharif's dislike of technocrats is well-known and recent developments have only served to reconfirm it. He seems to perceive them as standing in the way of implementing his populist agenda and strengthening his political base through fiscal concessions (often camouflaged as supply side economics) to those sections of the population who are vulnerable to his many political opponents, religious, regional and ethnic, and who can help him stand the onslaught from domestic and external threats to his regime. Mr. Sharif's open quarrels with two former Presidents, Mr. Ghulam Ishaq Khan and Mr. Farooq Leghari, both of whom he succeeded in consigning to political oblivion, also were based on his perception of them as being the representatives of bureaucracy and technocracy.

However, the mutual disenchantment and distrust, if not animus, that now seems to exist between the technocrats, especially expatriate technocrats, and the present Government raises some important questions about the future of economic management in Pakistan. It is, of course, possible for the Government to differ with the policies advocated by those who, to some extent, through their guilt by association with the past policies that they now criticise, share the responsibility for the economy's present predicament. However, there seems to be no signs of a paradigmatic shift in the Government's policies, except in the hyperbole of self-reliance and the populist measures to make credit available to the small and medium enterprises and the unemployed, which, as in the past, are likely to be abused by the privileged and bypass the poor and the deserving.

The Government's best hope of getting out of the current economic hole, even if for a brief period, is based on the bail-out package underwritten by the IMF which demands hard conditionalities and policy measures similar to those advocated by the three authors. It is doubtful if the Government will have the political will to challenge the IMF-World Bank orthodoxy and adopt policies significantly different from those being advocated by the Fund and the Bank, notwithstanding the chorus of rhetoric which has been gullibly joined in by many otherwise well-meaning people. Indeed the problem is that the Government can't seem to adhere and implement any set of reasonable economic policies because of the heavy political baggage it carries and is unable to discipline both itself and its political constituency of rent-seeking and tax-evading vested interests. The mask of defiance against the IMF and the U.S. that it occasionally puts on and the extravagant claims about the homespunness of the policy package it often makes are simply to keep at bay the political opposition that can capitalize on the seething discontent among the impoverished masses as a result of its failure to manage the economy with consistent and transparent policies arrived at through competent technocratic scrutiny and oversight and political debate and consensus.

Having said this, however, there is plenty to disagree with the analyses of the three distinguished Pakistanis associated with the World Bank. Although their accounts differ a great deal in both the diagnosis of and the prescriptions for the ills afflicting the Pakistani economy, there is a common thread running through them weaved by a shared perspective on the workings and management of Pakistani economy over a period of last four decades as well as from the experience of a number of developing economies assigned to them at the World Bank.

However, these analyses represent a definite departure from the generally strident view of the Pakistani economy that Pakistani economists working with the Government and the World Bank had held in the past and the sinking in of ground realities which were often ignored in the euphoria of Pakistan's high growth in the first two decades. Although the change towards greater analytical realism and a less complacent attitude towards future prospects is heartening and greatly to be welcomed, their vision is still coloured by the inherent biases and myths associated with working in the World Bank and other international institutions for over half of one's working life, inevitably resulting from their oversanitised and eerily unreal environment. The value of these contributions is not so much in the adverse economic trends chronicled and analysed in them, since they have been well-known for some time and have been analysed by others as well , but in their candid acceptance by a group of technocrats who themselves had some hand in their making. This will serve to remove many of the earlier controversies about Pakistan's development.

In a more general way, the writings of these authors can be seen as articulating the view of the overseas Pakistanis, who number over 4 million and have, according to Mr. Burki's estimates, a combined income of $60 billion, equal to the GDP of Pakistan. Thus these 3% Pakistanis earn over half the combined income generated by people of Pakistani origin. As Mr. Burki points out, this group of Pakistanis has been ardently wooed by successive Pakistani Governments for remittances, long-term investments, as well as political support, especially in the US and other Western countries.

This Pakistani diaspora is, however, not homogeneous. The temporary migrant worker in the Gulf can hardly compare his life-style with that of the Pakistani professionals and businessmen in the US and UK or even in the Gulf, for that matter. Many of the permanently settled Pakistanis in North America, however, now hardly send any remittances, the bulk of which still comes from the Gulf. Indeed most of the non-Gulf emigrants facilitate capital flight from Pakistan by helping their relatives and friends to immigrate. Mr. Burki argues for a greater role of this new expatriate elite in policy making in Pakistan. However, this is likely to promote the nexus between the domestic elite and the expatriate elite and strengthen the trend towards elitist development, which Mr. Ishrat Husain argues against.

The affluent Pakistani diaspora is, therefore, as much a part of Pakistan's current economic problems, as its solution. One hopes that its leaders will exercise greater humility, selflessness and pragmatism in playing a positive role in the country's development. After all, the overseas Chinese whose example Mr. Burki extols, did not ask for their pound of flesh in the development and policy making of China.