ASSUME a policy is ‘bad’ to begin with. Implemented consistently, it will likely get some groups to favour it, and some stakeholders to trust it. Thus, counter-intuitively, even if a policy starts with a weak basis, it may become a success over time; thanks to the thrust from its politico-economic dividends to various interest groups. Though not ideal, the economy gets the impetus it needs. Sometimes, this is unavoidable.
Contrast this with a neatly crafted policy, with fairness at its core, which may even be revolutionary in spirit. Try to change everything at once, and it is bound to become erratic. Ultimately, the desire to build an overnight paradise results in failure brought about by the exuberance of good intentions.
Policy inconsistency is perhaps the reason for Pakistan’s abysmal development record. While our South Asian peers focused on human development, and building better institutions, we have been obsessed with the illusion of growth.
Autocratic governments in Pakistan did catalyse growth, and even accelerated human development in some respects. Yet, at the same time they wreaked havoc on institutional development. Thus Pakistan had bouts of dictator-led growth, but without a trajectory ever taking hold. It was growth without deeper groundwork or an ecosystem to carry the momentum.
The desire to build an overnight paradise results in failure.
Whether in the 1960s, 1980s, or the 2000s, the aim remained to legitimise the regime on the basis of growth, which was in turn helped by aid, and assent for international financial flows from the US. In the 1960s and 1980s, we were partners in the Cold War, and in the 2000s, in the embarrassment that was called the ‘War on Terror’.
Institutions and the capacity for independent thinking and developing indigenous solutions were largely irrelevant for these times. The focus remained on enforcement of the reveries of the person at the helm. The democratic times, in the precious few windows they were permitted, were only nominally democratic. Political governments were weak and remained on edge.
But there was also an opportunity for politicians in, what Oscar Wilde would call feigning the ‘charm of weakness’. Political governments were absolved of responsibility. While dictatorships did derail the establishment of institutions, a political byproduct of this was the facility of conveniently accusing the military for essentially every issue that got out of the politicians’ hands.
Thus, the unrelenting interruptions of democratic governments by autocratic regimes created problems that extended into relatively democratic times. In terms of economics, unless someone is naive enough to calculate the average of erratic values, Pakistan, unlike other South Asian countries, did not develop a long-term growth trend.
What about the shorter run? The time horizon of five years for a country like Pakistan was always daunting. Each government faced a trade-off between long-term reforms that could benefit the country and short-term spending on flashy projects that would charm the voters.
No rational politician would choose the former. Even if someone did take the plunge, longer-term projects and reforms were sabotaged by the governments that followed to prevent the initiator from gaining political mileage.
So things turned out to be even more testing in the shorter run.
Enter Khan. Pressed by his ambition and grand promises on one hand, and limited time and resources on the other, what transpired was a terribly mercurial policy. Ministries in a constant state of flux, bureaucracy in perpetual rotation, a new adversary provoked every dawn — it has been chaos.
The latest is the fate of the IMF-programme which hangs in the balance with Shaukat Tarin, a Fund-sceptic, chosen to head finance. If his interviews are any indication of his thought process, there is confusion on the monetary vis-à-vis fiscal functions of the economy. His solution begins with lowering the policy rate, goes to bringing down inflation simultaneously, and proceeds seamlessly into the blessed land of economic growth. How this will be seen by the clear-headed State Bank chief Dr Reza Baqir and the IMF is anybody’s guess.
To revert, when the economy was already under stress due to the double curse of stagnation and inflation (stagflation), the government created a new crisis. The confidence that was just developing from the improvement in exports, an increase in remittances and the strengthening of the rupee (one of the best-performing currencies in 2021) reflected in the successful issuance of the Eurobonds, received a fresh blow — not from Brutus but from Caesar himself.
Khan Sahib, thanks to his illustrious cricketing past, still seems to cherish his aggressiveness and unpredictability. But what he considers daring and bold, the markets see as unthoughtful and erratic. Ad hoc and inconsistent policymaking in the shorter and longer term needs to change for good, if a real change there is to be. Will it?Usman Masood, "Ad hoc policymaking," Dawn. 2021-04-27.
Keywords: Economics , Economic growth , Policy rate , Policymaking , IMF