“The Development Set”

This beautiful poem – by Ross Coggins – aptly captures the profligate approach of international development agencies…

The Development Set

Excuse me, friends, I must catch my jet –
I’m off to join the Development Set;
My bags are packed, and I’ve had all my shots,
I have travellers’ cheques and pills for the trots.

The Development Set is bright and noble,
Our thoughts are deep and our vision global;
Although we move with the better classes,
Our thoughts are always with the masses.

In Sheraton hotels in scattered nations,
We damn multinational corporations;
Injustice seems so easy to protest,
In such seething hotbeds of social rest.

We discuss malnutrition over steaks
And plan hunger talks during coffee breaks.
Whether Asian floods or African drought,
We face each issue with an open mouth.

We bring in consultants whose
circumlocution
Raises difficulties for every solution –
Thus guaranteeing continued good eating
By showing the need for another meeting.

The language of the Development Set,
Stretches the English alphabet;
We use swell words like ‘epigenetic’
‘Micro’, ‘Macro’ and ‘logarithmetic’.

Development Set homes are extremely chic,
Full of carvings, curios and draped with batik.
Eye-level photographs subtly assure
That your host is at home with the rich and the poor.

Enough of these verses – on with the mission!
Our task is as broad as the human condition!
Just pray to God the biblical promise is true:
The poor ye shall always have with you.

by Ross Coggins

(“Adult Education and Development”, 1976)

Sisi’s Fall from Grace

Even though the ouster of Morsi may have represented the Egyptian people’s will, General Sisi’s actions are diluting any legitimacy he might have initially drawn from the masses and institutions like Al-Azhar, the Coptic Church, and the parliamentary Opposition. His gross handling of the whole issue reflects his political myopia.

Right from the start, he has been taking all the wrong steps. First, in a grossly impolitic move, the elected President was abducted and his disappearance continues to date. Even though the crime of his forced ouster could have been veiled by the will of the other half of Egypt – that was on the roads – his detention echoes the US‘s not-to-be-spoken word, coup d’etat, very loudly.

As if that were not enough to disgruntle the Morsi supporters, the interim setup declared that the deposed president will be tried on a range of grounds, even though their previous excuse for his disappearance had been ‘his own safety.’ Senior leaders of the Brotherhood have been detained and their assets frozena way of telling the Brotherhood to end the protests or get blacklisted (again).

And now the 9 letter convenient connotation of ‘terrorism’ has finally been used by Sisi, along with his intentions of beefing security up. This means Egypt’s military may be instrumentalised to launch a full-fledged crackdown on not just the Muslim Brotherhood but democracy’s supporters there, on the pretext of controlling terrorism. Hosni Mubarak did the same in 2005, but the Brotherhood managed a majority in 2012 elections anyway.

It seems that General Sisi is over-relying on the might of guns, his pacifist-of-the-last-resort. He should be mindful of the dynamic and inflammable political landscape he is operating in. Use of brute force may not only result in a backlash in the form of lawlessness but may even avalanche into a full-fledged civil war.

Rather than issuing provocative and nonsensical deadlines to the Brotherhood, Sisi should free Morsi and other Brotherhood leaders first, and then offer them with any political alternatives. The sooner he figures that out, the better it will be for Egypt. Unfortunately, as of now, he seems to be putting the cart before the horse. The Brotherhood is more organised than ever and oppressing them this time around will not be a cakewalk.

Provinces, the Centre and the NFC

(A slightly modified version of the article was published in The News on July 18, 2013)

In his article ‘Safeguarding the IMF programme‘ (July 15), Dr Ashfaque H Khan stressed the need for making the Federal Board of Revenue’s revenue target less wishful for striking a realistic deal with the provinces. That is, not to expect surpluses from the provinces unless the centre achieves the promised revenues. If there is a stalemate, and the provinces fail to agree with the centre on the requisite provincial surplus targets, the expected IMF programme may be in jeopardy.

It is difficult, however, to see the IMF agreeing on a lower revenue target for the federal government. From the IMF’s point of view, a revised revenue target might have the opposite effect: the will of the federal government for overhauling resource mobilisation may be seen to have dampened. By that line of argument, a reduced revenue target will result in even lesser revenues, with no actual effect on provinces hitting their fiscal targets.

Perhaps a parliamentary review of the anomalies in the current NFC Award is the only option the government has, the importance of which is strongly echoed in Dr Ashfaque’s article. As for the short term, it is hoped that the provinces and the centre both act responsibly and don’t get too shaky even before the programme starts. After all, a few slippages are allowed even in ‘successful’ IMF programmes.

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Mr Dar should take responsibility for his policy

It will be difficult to say whether the economic team of the PML-N is itself confused or is inadvertently up to a zero-sum game. What is clearer is that the finance bill 2013 was a disappointment to the public, the IMF and economists alike. Yet the finance minister is intent upon hoodwinking IMF in the name of public and public in the name of the IMF.

The public was given the message that preparations for an IMF programme made the budget difficult. IMF team, now visiting Pakistan, was told that their conditions – of imposing ‘harsh’ policies, including ‘more’ taxes – were not acceptable to the government in wider interest of the public. So the excuse-narrative travels from the IMF to the public and all the way back, missing the budget-architects altogether.

First, it needs to be appreciated that the budget was not IMF-oriented at all. While the IMF had been pressing for widening the tax base for more than a decade now, the steps taken in the budget were modest. The group that has come to be known as the ‘tax captives’, was crushed further under additional levies. While the IMF was, and remains, against imposing more and more taxes on those who are already paying it and favours instead to bring the non-tax paying classes in the tax net, the public is conveyed a draconic image of the IMF.

Predictably, some other measures like salary raises, rise in federal development expenditure, and later a lowering of interest rate were not to go well with the IMF. Thus, the budget might have had a tinge of austerity, but not every austere budget is an IMF-budget.

Second, contrary to the compassionate image the government tried to create, the budget was not public-friendly either. The increase in the rate of sales tax and decrease in corporate tax rate were not social measures by any measure. Moreover, squandering money over populist policies such as laptop distribution (research culture absent), roads rebuilding and other ‘bridge-to-nowhere’-kind projects will divert tax-payers’ money from socially optimal to politically advantageous projects.

The budget could have been an austere one focusing on correcting chronic fiscal imbalances through restraint in spending and an efficient and equitable tax regime. Or it could have had a greater Keynesian flavour to it, focusing on funnelling money into people’s pockets through greater government expenditure and expecting economic activity to pay its fiscal dividends. Unfortunately, it was none of the above.

The government seems to be torn between its desires. It does not want to be profligate but at the same time believes spending is a good way to revive the economy. Hence we have austerity on one side, and hike in development expenditure (and Aashiana-like schemes) on the other. Perhaps, the economic wizards in office are in a hurry to fix the economy and have compromised sequencing the policies. Wearing an optimist’s hat, one can only wait and see if this double-barrelled policy for eliminating the economic ills proves any useful.

But until then it would be great if Mr Ishaq Dar can blow sense into his economic plan through proper articulation of what he intends to achieve with his policy mix rather than blaming IMF and the public for what are essentially his plans to fix the economy.

Economic Priorities

(Published in The Express Tribune on May 21, 2013)

This is with reference to Shahid Javed Burki’s article “Economic priorities” (May 20), in which he suggests that the government should take its time and prepare its own plan before going to the IMF. Given the bitterness of the prescriptions expected from the IMF, devising our own plan would be a natural choice.

Ironically, there is no difference of opinion between the IMF and Pakistani economists about governance issues in the power sector, untargeted subsidies, swelling public debt, performance of public sector enterprises, and other major issues faced by the economy. Therefore, it would help if he can advise on what the government’s own plan should essentially consist of, and what alternative channels may be used to tackle external payments in the meanwhile.

Economy of Pakistan: 2008-2012/13

Admittedly, the last government was faced with difficult challenges which undermined its economic performance. The world was experiencing the worst recession since the Great Depression, the US’s war in Afghanistan was worsening the security situation in Pakistan, and the energy crisis was bleeding the economy of potential income every day. But just as accusing Pakistan Peoples Party (PPP) for every wrong thing that happened during its tenure is flawed, so is vindicating it for what was a below-average economic performance. Let us see if the key economic indicators have a story to tell.

When the PPP assumed office, the economic fundamentals spoke explicitly of the tough times ahead. The global recession had directly hit Pakistan’s exports’ demand while the food and oil price hikes internationally had made imports pricier. Thus, in fiscal year 2008 (FY2008), trade deficit was growing, reserves were falling, the fiscal deficit was looming at 7.6% of GDP, inflation was hovering around 12% and economic growth had fallen by 3.1 percentage points to 3.7%.

The circumstances made borrowing from IMF inevitable and a 23-month Stand-by Arrangement was entered in 2008. As is a norm with any country under IMF-programme, the growth rate for the immediately following year fell further down to 1.7%, making output growth for that year one of the lowest in country’s history. But even without the programme, growth hovered around 3-3.5%.

The average growth rate in 2008-12 period was 3%. Sub-Saharan Africa grew at 4.6% and South Asia grew at 6.4% during the same period.

What about welfare, which remains among PPP’s key areas? For this the government initiated its flagship poverty relief programme, the Benazir Income Support Programme (BISP). According to former World Bank President, Robert B. Zoellick, the Secretary General of United Nations, Ban Ki-moon, and the Asian Development Bank, the performance of BISP has been first-rate.

On the other hand, various poverty estimates show poverty to have worsened in the past few years. The two seemingly contradictory claims may be reconciled by hypothesising that the beneficiaries of BISP may have actually become better off, yet more and more people could have been falling below the poverty line due to lack of opportunities and economic stagnation.

Other policies  may have made farmers better off in some way but sadly did not translate into significant agricultural growth. Agricultural output grew by a modest 2% a year in 2008-11 period, compared to 4.4% in Bangladesh and 3.1% in India.

Similarly, industrial output registered a negligible growth of 2% a year, compared to 7% in Bangladesh and 6.6% in India, in 2008-11 period.

Agriculture and especially industry, both were affected by the energy crisis, which was not an overnight happening, but an outcome of previous governments’ criminal negligence. It may be said that PPP just ended up at the wrong place at the wrong time. Yet the onus for not being able to improve the situation lies on PPP’s shoulders. Ironically, less than a week before dissolution of the assembly, Mr Zardari inaugurated the Iran-Pakistan gas pipeline – which has meagre chances of becoming operational anyway, given the security situation in Balochistan.

Finally, consolation could have been found had the government not ransacked the fundamentals. But it did not happen.

Inflation skyrocketed in 2008 to 20.3% but was brought down to 11.9 by 2011. The year-on-year inflation fell to 5.8% in April 2013. Though, some are of the view that it is merely the changes in methodology and artificially low prices of utilities – which are being heavily subsidised and will soon become expensive – that are mirroring in the low CPI inflation figures. Also, the effect of government borrowing will fully come to effect in 1.5 to 2 years, and may affect inflation adversely.

The fiscal deficit for FY2013 is estimated to be around 7.5% of GDP by the IMF. If this is considered correct, average deficit for fiscal years 2009-13 turns out to be 6.7%. Troubling is the fact that more recent guesses put the deficit for FY2013 at 8.5% to 10%. Reflecting this, public debt to GDP ratio reached 62.5% in FY2012, significantly higher than Asian Development Bank’s recommended 30-40%.

Lack of exports growth and rise in import prices did not let the external account improve either. Trade deficit rose from 4.1% during FY2000-07 to 8.9% in FY2009-11 in percentage GDP terms. Adding figures for FY2012-13 to the average would paint a grimmer picture.

Capital and Financial accounts worsened year-on-year primarily on account of net outflows of direct investment. The level of reserves remained much lower than international norms throughout the PPP tenure. What is worse, they have now fallen to a level where not even two months imports may be covered. It has been predicted that if inflows from the coalition support fund or IMF do not come soon, the State Bank’s reserves would fall to a zero.

But investors do not wait for a country to go default on its obligations. They can panic on any given day at any time, pulling their money out of the economy. This may cause exchange rate of rupee to plunge, dollar debts to substantially rise, cost of further debt to skyrocket, imports to become very expensive, and conditionality over loans to become draconic.

So this is where the PPP left us. Arguably, chalking the state of economy with a few economic indicators risks oversimplification. But if all indicators narrate the same story, faith should serve us better than scepticism. It is now up to the Nawaz Sharif government to take the challenge of bringing the economy back on the right track.