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One Step Forward, Two Steps Backwards

Ishrat Hsa!n
In 1998 I was invited by Dr. Sarfraz Qureshi, the then Director of PIDE to deliver
a lecture on !he Political Econo"y of #efor"s$ % &ase Study of Pa'istan(
lecture was subse*uently +ublished by PIDE as a "ono,ra+h. % year later, in
Dece"ber 1999 I had the honour of beco"in, the -overnor of the State .an' of
Pa'istan and actually +artici+ated actively in the for"ulation and i"+le"entation of
econo"ic refor"s. Durin, the si/ year +eriod of +ublic +olicy "a'in, I realized that
"y 'nowled,e about the +olitical econo"y as "anifested in "y PIDE lecture was
inco"+lete. !he narrative was "ore co"+le/ than I had develo+ed as an outsider.
0ow, si/ years later after "y retire"ent fro" the State .an' of Pa'istan I a,ain
reflected u+on this to+ic as an observer and analyst rather than a +artici+ant. I
realized that "y learnin,s have beco"e "uch richer by a++lyin, these different
+ris"s 1 those of an international develo+"ent econo"ist, a +ublic +olicy "a'er and
now an inde+endent analyst. I a" ,rateful to Dr. #ashid %"2ad and Dr. 3uslehuddin
and their collea,ues at PIDE for +rovidin, "e this o++ortunity to share these
learnin, with "y collea,ues, +eers and other scholars +resent here today.
!he +olitical econo"y of econo"ic refor"s and structural ad2ust"ent has
beco"e focus of ,rowin, attention in the literature drawin, at the inter4disci+linary
tools of analysis and cross4country co"+arative +ers+ectives. Detailed case studies
1 Quaid-e-Azam Lecture presented at the Annual Conference of Pakistan Society
for Development Economics !ovem"er 1# $%1$&
$ 'usain (shrat )1***+ , -he Political Economy of .eforms )(slama"ad Pakistan
(nstitute of Development Economics+&
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% 0ords
of country situations do throw useful insi,hts which are not ca+tured throu,h cross4
country studies. !he 'ey *uestion that is e/+lored by this ,rou+ of researchers is$ if
+olicy and institutional refor"s are associated with hi,h econo"ic +ay offs, then why
are these refor" +ro,ra"s not sustained and i"+le"ented consistently5 6hy are
they derailed5 I would li'e to focus the discussion on Pa'istan only and address the
followin, *uestions$
6hy is Pa'istan sli++in, relative to other develo+in, and e"er,in, countries5
6hy is the record of refor"s so +oor and uneven5
6hy are +olicy and institutional chan,es not sustained over ti"e5
.efore I address these *uestions I should establish the case as to why econo"ic
refor" should ta'e +lace in the first instance. If a country is an e*uilibriu" state with
"ar'ets functionin, well, "acroecono"ic balances in +lace, institutional fra"ewor'
stron,, "icroecono"ic distortions not affectin, efficiency of resource allocation then
there is hardly any need for econo"ic refor"s or institutional restructurin,. .ut if
chan,es in these +re4conditions have dis+laced the e*uilibriu" then the refor"s
beco"e necessary to brin, the econo"y bac' to a new state of e*uilibriu". !he
chan,es in the +re4conditions can be tri,,ered by unfavorable e/ternal 7ter"s of
trade, interest rate, abru+t withdrawal of ca+ital flows, worldwide recession8 or
do"estic shoc's 7lar,e scale forei,n borrowin,, cu"ulative effect of unsustainable
+olicies8. !he shoc's can be sudden, abru+t, discrete and lar,e or they can
cu"ulate throu,h slow, ,radual, s"all and continuous chan,es. !hese can be
antici+ated or unantici+ated. %s I would show the contents of econo"ic +olicy refor"
do vary with the +assa,e of ti"e as the intellectual and acade"ic thin'in, and
research findin,s chan,e in the li,ht of new evidence and cross country e/+eriences
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overti"e. 9or e/a"+le, the recent I39 "antra
is that fiscal "ulti+liers are *uite
lar,e and therefore e/+ansionary fiscal +olicies are to be encoura,ed to sti"ulate
econo"ic ,rowth. ;ntil recently, the conventional wisdo" advocated by the 9und
was that fiscal consolidation i.e. contractionary fiscal +olicies were the cornerstone of
sound econo"ic "ana,e"ent.
!here is a widely shared consensus about the nature of refor"s that Pa'istan
should e"bar' u+on. !his consists of two co"+onents 1 stabilization and lon, ter"
structural refor"s. ;nder the first co"+onent the econo"y has to be stabilized with
the hel+ of fiscal consolidation, widenin, of ta/ net and "obilization of do"estic
resources, cuttin, down the losses of state owned cor+orations, curtailin, wasteful
develo+"ent e/+enditure and assi,nin, +riority to re"ovin, su++ly4side bottlenec's
such as ener,y and infrastructure, 'ee+in, inflation under control and "aintainin,
e/chan,e rate stability. !he second co"+onent re*uires ,overnance refor"s in the
structure, +rocesses and hu"an resource +olicies of the 9ederal , Provincial and
<ocal ,overn"ents, ta/ation and tariff refor"s, re"ovin, "icroecono"ic distortions
such as issuin, selective Statutory #e,ulatory =rders 7S#=s8 for s+ecific fir"s,
liberalizin, and dere,ulatin, ,oods and factor "ar'ets, stren,thenin, re,ulatory
architecture, +ro"otin, "ar'et co"+etitive forces and buildin, hu"an ca+ital
+articularly in science and technolo,y.
6e should now e/a"ine the record of last si/ty five years in res+ect to these
THE RECOR" 1#$%&'(1'
1 (nternational 2onetary 3und )$%1$+ 4orld Economic 5utlook 5cto"er
)4ashin/ton D&C& (23+
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<ast five decades have witnessed a re"ar'able chan,e in the econo"ic fortunes
of various countries and continents. !he +oor, underdevelo+ed, develo+in, and
e"er,in, countries that account for two4fifth of the world +o+ulation have, by and
lar,e, under,one structural transfor"ation of the "a,nitude that is un+recedented
and was not antici+ated. !he econo"ic +ower e*uilibriu" is ,radually shiftin, fro"
the advanced countries to develo+in,, countries. !he distinction between advanced
and develo+in,, 0orth and South, 9irst 6orld and !hird 6orld is beco"in,
redundant and irrelevant. 9or the first ti"e since cross4country data on +overty is
bein, co"+iled all the si/ continents have recorded a decline in the incidence of
+overty. !he 3illenniu" Develo+"ent -oal of reducin, +overty by one half has been
achieved five years ahead of )>1?. !he two la,,in, re,ions of the 6orld4South %sia
and Sub4Saharan %frica 1 are ,rowin, ra+idly and liftin, "illions out of +overty.
In the 19@>s Pa'istan was considered as a "odel develo+in, country and its
"anufactured e/+orts were hi,her than those of !hailand, 3alaysia, Phili++ines and
. 6hile our lar,er ne/t door nei,hbor was stuc' with : +ercent ,rowth rate
Pa'istan was avera,in, si/ +ercent annual ,rowth rate. !he Eastern win, of the
country felt left behind in this ra+id +ro,ress and decided to beco"e inde+endent in
19B1. %t that ti"e .an,ladeshCs econo"ic +ros+ects were dubbed by the
international co""unity in "ost uncharitable ter"s. In the 19B>s Diet 0a" was
co"+letely devastated by a +rolon,ed war fou,ht a,ainst a su+er +ower.
%dvance the cloc' forward. 9orty years later not only all the four East %sian
&ountries "entioned above have beco"e econo"ic +ower house but India, Diet
0a" and .an,ladesh 1 way behind us in al"ost all the indicators 1 have not only
cau,ht u+ but are sur,in, ahead. India, des+ite its lar,e +o+ulation and
6 4orld 7ank )$%%$+ Development Policy .evie0 )4ashin/ton D&C& 4orld 7ank+
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uninterru+ted +eriod under de"ocracy, has beco"e one of the drivers of ,lobal
econo"ic ,rowth "o"entu". % slowdown in Indian econo"y is considered with
serious tre+idation by the rest of the world.
6hy has Pa'istan ended u+ in its current econo"ic condition5 &ons+iracy
theories ,alore that the %"ericans, Eews and Indians have ,an,ed u+ on us to
destabilize the country. !hey have ,ot us e"broiled in unnecessary wars in
%f,hanistan, +ro"oted all 'inds of ethnic, sectarian, civil4"ilitary, reli,ious divisions
in the society, "ade us de+endent on forei,n aid 7I39 and the ;S +articularly8 and
de+rived the country of its soverei,nty in decision "a'in,. %ccordin, to the", the
last decade has seen intensification of these nefarious activities and the recent
econo"ic re,ression faced by us can be directly attributed to the intensity of these
!he +roble" with this e/+lanation is that it assu"es that we a +roud nation of
18> "illion +eo+le are so naFve, ,ullible, easily a"enable to "ani+ulation by others
and e/ternal influences that we are unable to distin,uish what is ri,ht fro" the
wron, for ourselves and our children.
So leavin, this +o+ular "yth aside, let us try to e/+lore other +lausible
e/+lanations for this relative econo"ic decline of Pa'istan. 9or this we have to
e/a"ine the cu"ulative e/+erience of econo"ic ,rowth and develo+"ent in various
+eriods of Pa'istanCs history 'ee+in, the chan,es in acade"ic thin'in, in different
eras in the bac',round.
Econo"ic +olicies are under+inned by certain intellectual +rece+ts, a/io"s,
theory and evidence. !his body of 'nowled,e does not re"ain static and 'ee+s on
chan,in, with the +assa,e of ti"e and e"er,ence of new evidence. !he +ost4
colonial inde+endence +eriod of "ost develo+in, countries was "ar'ed by a ,rou+
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of charis"atic +olitical leaders who were sus+icious of the +olicies and advice of
their erstwhile rulers and wanted to 'ee+ the"selves at a distance fro" what the
colonial "asters were +reachin,. !his +eriod also coincided with the a++earance of
a new field in econo"ics called Develo+"ent Econo"ics that focused on the
+roble"s of newly inde+endent countries. !he acade"ic tradition at that ti"e hi,hly
e"bedded in Post4Geynesian Econo"ics ca"e u+ with the notion of H.alanced
-rowthC, H.i, PushC, H&ontrollin, &o""andin, Iei,htsC, H&ritical "ini"u" effortC,
HE/+ort elasticity +essi"is"( and low level e*uilibriu" tra+C. !he end result of this
strand of literature was advocacy of a do"inant role of the State in +lannin,,
directin, and "ana,in, the econo"y. ;nder five year +lans, State4owned
enter+rises settin, u+ new industries beca"e the "ain instru"ents of resource
allocation. It was ar,ued that a,riculture e/+orts were inherently unstable and could
'ee+ the countries in low level e*uilibriu"( and hence I"+ort Substitutin,
Industrialization led by the State owned enter+rises would "a/i"ize econo"ic
,rowth with e"+hasis on +roduction of ca+ital ,oods and +ri"acy to heavy industry
9or these e"bryonic industries to achieve industrial traction they had to be +rotected
fro" i"+ort co"+etition, +rovided subsidized ca+ital and forei,n e/chan,e at
+referential e/chan,e rate. !he i"+ressive success of 0on4&olonial Soviet ;nion in
achievin, hi,h rates of econo"ic ,rowth acted as a validation for this inward loo'in,
Pa'istan in the 19@>s did not follow this strate,y but had a "i/ed econo"y "odel
in which the state set u+ the industries but then divested the" to the +rivate
businesses. Profit "otive then ins+ired these +rivate business"en to invest and
# 3or a revie0 of the post 4orld 4ar (( academic thinkin/ please see Shahid
8usuf )ed+ )$%%*+ Development Economics thou/h the Decades )4ashin/ton
D&C& -he 4orld 7ank+
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e/+and in other sectors of the econo"y. Econo"ic refor"s were initiated in
%,riculture, Education, <e,al, <and and other !rade and !a/ation at the sa"e ti"e.
!he initial results were *uite s+ectacular and the "odel attracted the attention of
outsiders 1 both the acade"ics as well as +olicy "a'ers fro" other countries. =ne
of the distin,uishin, features of the 3i/ed econo"y "odel was that Pa'istan had a
stron, bureaucracy that ,uided and directed the +rivate sector. Plannin,
&o""ission of the 19@>s was a +owerful, technocratic institution assisted by forei,n
econo"ic e/+erts
. &orru+tion and +arochial interests had not +er"eated the hi,her
level decision "a'in, to the de,ree that subverted the econo"ic +ro,ress or
institution buildin,.
!he acade"ic influence of the state4led industrialization and control on the
co""andin, hei,hts of the econo"y by the state s+illed over in Pa'istan in the late
19@>s and in the early 19B>s and ,ave a""unition to the +olitical o++onents of the
re,i"e. !he slo,an of )) fa"ilies(
controllin, the wealth of the country and the hue
and cry of re,ional econo"ic dis+arities fro" the +rofessional econo"ists of the
Eastern win,
stren,thened the "ove"ent a,ainst %yub Ghan. !he 19@? 6ar with
India also ,ave a sense of vulnerability to the +eo+le of East Pa'istan and econo"ic
"o"entu" also suffered a setbac'. !his co"bination of events therefore led to a
nationwide a,itation and subse*uent overthrew of the %yub re,i"e. %lon, with hi"
9 3or an insider:s revie0 depiction of the plannin/ process in Pakistan sec Parvez
'asan ;the 'eydays of Plannin/ in Pakistan 1*9#-<%= in 2y Life 2y Country
)3erozson Pvt& Ltd&+
< -his slo/an /ained respecta"ility as it 0as coined and popularized "y non
other than the then Chief Economist of the Plannin/ Commission Dr& 2ah"u" ul
? Pakistan Development .evie0 )PD.+ issues of the 1*9%s contain most of these
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the inci+ient econo"ic and sectoral refor"s that were be,innin, to "a'e +ositive
difference were also overturned. !hese refor"s would have ta'en at least another
five years to ta'e fir" roots.
!he se+aration of East Pa'istan and the ascendancy of the socialist leanin,
Pa'istan Peo+lesC Party in +ower in the new Pa'istan ,ave an abru+t death 'nell to
the refor"s of the 19@>s. !he PPP, inter+retin, the econo"ic refor"s +olicies of
19@>s as res+onsible for concentration of wealth and re,ional inco"e ine*uality, and
seein, the +aradi," shift in acade"ic thin'in, about develo+"ent econo"ics turned
the tables. %ll "a2or industries, ban's, insurance co"+anies, educational institutions
were nationalized overni,ht without ade*uate thin'in, or +re+aration. Private
invest"ent in these industries and sectors was +rohibited and the intrusive hands of
the bureaucrats in ,rantin, licenses, +er"its, financial resources beca"e too
entrenched. #is' ta'in, and enter+rise too' a bac' seat and bureaucratic controls,
inertia and "alfeasance do"inated the econo"ic landsca+e. -overn"ent officials
with no trainin, or e/+erience in runnin, business were entrusted with the
"ana,e"ent of "ulti"illion ru+ees lar,e enter+rises so critical for the rest of the
econo"y. .ereft of "ar'et co"+etitive +ressures and +reoccu+ied "ainly with
a++easin, their +olitical bosses they co""itted resources to ventures and activities
that were neither econo"ically feasible nor co""ercially viable. In the na"e of
redistribution to the +oor, econo"ic ,rowth was sacrificed "a'in, the +oor worse off.
!he nationalization of ban's and the +roliferation of ,overn"ent4owned and
"ana,ed develo+"ent financial institutions 7D9Is8 o+ened another "a2or avenue of
+atrona,e. Debt ca+ital was +rovided by these ,overn"ent controlled institutions to
the +olitically influential borrowers who never re+aid the loans. !hrou,h over4
invoicin,, collusion with ban' officials and "ani+ulations of accounts these state4
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s+awned industrialists financed their own e*uity share of the industry 7other than
those reserved for the state owned enter+rises8 fro" these loans. =nce the s+onsors
had recovered their ca+ital several ti"es over, the enter+rises were abandoned as
Hsic' industriesC and left in the tender care of the creditors. .y the end of the 199>s,
"ore than half of the non4+erfor"in, loans advanced by the 0ationalized
&o""ercial .an's 70&.s8 and D9Is were bloc'ed in these sic' industries. !he
losses incurred by the ban's and D9Is were, in turn, borne by the ta/ +ayers.
!his was also a +eriod in which so"e desirable refor"s were also initiated.
E/ternal trade re,i"e was liberalized and the "ulti+le e/chan,e rate syste" was
re+laced by a "ore unified e/chan,e rate with an effective devaluation of )? +ercent
for e/+orts and A> +ercent for i"+orts. !he de+reciation of the e/chan,e rate
+roduced a lar,e su++ly res+onse and hel+ed to divert ,oods +reviously e/+orted to
East Pa'istan to international "ar'ets. Iowever, by the 19B?, the co"+etitive effect
of devaluation was eroded by inflation
!he "ilitary re,i"e that too' over in Euly 19BB and lasted until Dece"ber 1988
did not denationalize the industries or ban's or institutions ta'en over by the
+revious re,i"e. !hey carried on with the business as usual with the e/ce+tion that
new invest"ent and industrial e/+ansion was o+ened u+ to the +rivate sector. .ut
the continued reliance on state4owned enter+rises and nationalized ban's created
distortions and inefficiencies in the econo"y. %lthou,h ,rowth rates did +ic' u+ to the
level of the 19@>s the structure of the econo"y was no different fro" that inherited
fro" the +revious re,i"e. !he 3iddle East =il boo" that started in 19B> also
favored Pa'istan as the wor'ers e"+loyed in those countries re"itted forei,n
e/chan,e which eased the balance of +ay"ents situation. !he war in %f,hanistan to
* !a>vi S&!&' and @ha0aAa Sarmad )1**<+ EBternal Shocks and Domestic
AdAustments )5Bford Cniversity Press+
Pa/e 9 of 29
throw out the Soviets also +roved to be a boon for Pa'istan as international aid flows
rela/ed the forei,n e/chan,e and bud,etary constraints. !he co"+ulsions for
do"estic +olicy refor"s therefore beca"e wea'.
.y the 198>s there was a shift in econo"ic thin'in, arisin, fro" disenchant"ent
with the state4led "odel of inward loo'in, i"+ort industrialization strate,y. !he
19B>s were a decade of cree+in, disillusion"ent not develo+"ent(
. !he bla"e for
the crisis of the 19B>s was laid +ri"arily on do"estic +olicy errors due to distorted
+rices. !he "essa,e distilled fro" the East %sian econo"ies was that "ar'et 1
,uided industrialization within the "ilieu of a relatively o+en econo"y could result in
ra+id ,rowth if industries were able to co"+ete in e/+ort "ar'ets
. E"+irical cross
country studies on forei,n trade re,i"es
in develo+in, countries +rovided the
intellectual ar,u"ents for abandonin, the strate,y of I"+ort substitutin,
Industrialization. Ele"ents of a new consensus be,an to a++ear that e"+hasized
"onetary restraint, 'ee+in, real interest rates +ositive, fiscal deficit at a sustainable
level, real e/chan,e rate that i"+roved international co"+etitiveness and +ro"ote
e/+orts, reducin, the stoc' of e/ternal debt to "ana,eable levels and structural
refor"s such as financial sector refor"s, re"unerative +roducer +ricin,, trade
liberalization and ta/ refor"s to "a'e the econo"y fle/ible and efficient.
!his +ac'a,e of outward4oriented +rivate sector 1led develo+"ent strate,y
'nown as Structural %d2ust"ent Pro,ra" was widely +ro"oted by the 6orld .an'
1% Shahid 8usuf - i"id
11 4orld 7ank )1**1+ East Asian 2iracle )4ashin/ton D&C&+
1$ A multivolume student of 3orei/n trade re/imes in several developin/
countries includin/ Pakistan 0as commissioned and produced "y 5ECD Little
(&2&D Scitovosky and Scott&
Pa/e 10 of 29
and International 3onetary 9und 7I398. !he 6ashin,ton consensus
that weaved
the above "entioned ele"ents of +olicy refor"s beca"e the do"inant +aradi," in
develo+in, and e"er,in, in econo"ies for the ne/t two decades. Pa'istan entered
into a +ro,ra" of this ty+e with the I39 in 1988. !his was followed by several other
+ro,ra"s in the decade of 199>s 1 none of which was co"+leted. 0awaz Sharif
-overn"ent in 1991 introduced a "a2or refor" +ro,ra" throu,h Econo"ic #efor"
order consistin, of liberalization, +rivatization and dere,ulation. 9orei,n e/chan,e
re,i"e was liberalized, invest"ent controls were rela/ed, state owned4enter+rises
were +rivatized, and incentives were +rovided for do"estic and forei,n +rivate
.ut it is ar,ued that +olitical instability and +oor ,overnance acted
a,ainst these refor" efforts. Instead, the ,reater o+enness of the econo"y
contributed to the financial crisis
%t the sa"e ti"e, the &on,ress -overn"ent with Dr. 3an"ohan Sin,h as
9inance 3inister introduced si"ilar refor"s in India. !hese refor"s did not "a'e
"uch i"+act until they were ado+ted and continued by the .EP -overn"ent that
ca"e to +ower after defeatin, the &on,ress +arty. Indian and ,lobal investors
realized that the <icence #a2 was over and the refor"s underta'en in 1991 were
. 0othin, of this sort ha++ened in Pa'istan althou,h .enazir
11 4illiamson Dohn )1**%+ Latin American AdAustmentE 'o0 much has
happenedF )4ashin/ton D& C& (nstitute of (nternational Economics+
16'usain (shrat )1***+PakistanE -he Economy of an elitist state )5Bford
Cniversity Press+
1# 'asan Pervez )1**?+ Pakistan:s Economy at Cross .oad )5Bford Cniversity
19 3or a comparative analysis of Structural reforms in (ndia and Pakistan see
(shrat 'usain and .aAir @umar ;Comparin/ structural reforms in (ndia and
Pakistan= in Philippa Policy .eforms in South Asia ).outled/e De+ )Ed+)$%1$+
Pa/e 11 of 29
-overn"ent did not reverse these refor"s they were unenthusiastic in ownin, and
i"+le"entin, the" because the credit would have ,one to their o++onents.
!he +eriod 1988499 saw fre*uent chan,es in ,overn"ent because of four
,eneral elections with four interi" ,overn"ents. 0one of the elected ,overn"ent
lasted "ore than two years on avera,e. !he *uest for out"anoeuvrin, the other
+olitical +arty was the "ain +reoccu+ation of the successive ,overn"ents in the
199>s. Econo"ic "ana,e"ent too' a bac' seat. .enazir -overn"ent introduced a
+olicy to brin, +rivate invest"ent into +ower ,eneration sector. .ut this +olicy was
+ut in the cold stora,e and in*uires a,ainst the Inde+endent Power Producers 7IPPs8
were initiated soon after the -overn"ent was dis"issed. Iad that +olicy been
continued uninterru+ted over ti"e alon, with ,overnance refor"s in the ener,y
sector we would not have faced the su++ly shorta,es which we are facin, today.
!he 3usharraf -overn"ent that assu"ed +ower in =ctober 1999 did underta'e
"a2or econo"ic refor"s in the si/ year +eriod between )>>> and )>>@ which slowed
down in )>>B due to the i"+endin, elections and confrontation with the 2udiciary.
!he intensity and fre*uency of the refor"s were hi,h in the initial three year +eriod
before the transition to the elected ,overn"ent in end )>>).
Pa'istan successfully
"et all the +erfor"ance criteria under the Stand4by +ro,ra" and the Poverty
#eduction and -rowth 9acility 7P#-98 ne,otiated with the I39. !he "a2or areas of
successful refor"s were !rade and !ariff, 9inancial Sector includin, the +rivatization
of nationalized co""ercial ban's, brea'in, u+ the "ono+oly of Pa'istan
!eleco""unication &or+oration and o+enin, u+ the sector to the +rivate sector and
Pro"otion of Ii,her Education. Devolution to <ocal -overn"ents and Police
1< 3or detailed catalo/ue and analysis of these reforms see (shrat 'usain
)$%%1+ Economic 2ana/ement in Pakistan 1*** to $%%$ )5Bford Cniversity
Pa/e 12 of 29
#efor"s were hi,hly si,nificant but ,ot e"broiled in controversy, bac' trac'in, and
+ower stru,,le between the Provincial -overn"ents and <ocal -overn"ents.
%ccountability 1 trans+arent and effective 1 acted as a +owerful deterrent a,ainst
corru+tion and "isuse of +ublic offices in the first three years. .ut it fell victi" to
selective use of 0ational %ccountability .ureau 70%.8 for winnin, +olitical allies and
coercin, others to fall in line. %ctions were li"ited only to those who stayed in the
o++osition. !he action a,ainst 2udiciary and the co"+ro"ises "ade under the
0ational #econciliation =rder 70#=8 +reci+itated the downfall of the P3<4Q led
re,i"e at the )>>8 ,eneral elections. President 3usharraf had to resi,n in %u,ust
!he newly elected ,overn"ent that ca"e to +ower in 3arch )>>8 started out as
a coalition of all "a2or +olitical +arties of the country. !his s+ar'ed so"e o+ti"is"
that the country would be able to steer itself in the ri,ht direction. .ut this coalition
lasted for a few "onths only. =nce their co""on ob2ective of re"ovin, President
3usharraf fro" the office was achieved, the coalition fell a+art and the survival of the
-overn"ent beca"e the "a2or +olicy ,oal of the "a2ority +arty. !he lin,erin, crisis
beca"e *uite un"ana,eable in )>>9 forcin, Pa'istan to a++roach the I39 in
0ove"ber )>>9. % Hho"e,rownC refor" +ac'a,e consistin, "ainly of "obilizin,
additional ta/es to brin, fiscal deficit under control was a,reed u+on. <ac' of +olitical
consensus on -eneral Sales !a/ 7-S!8 and %,riculture Inco"e !a/ 7%I!8 a"on, the
coalition +artners led to the brea'down of the a,ree"ent with the 9und but after
incurrin, a heavy financial obli,ation of J8 billion to be re+aid in )>1) and )>1:.
Econo"ic ,rowth has been ane"ic in the )>>841) +eriod, +ublic finances have been
heavily distressed, and hu,e borrowin, fro" the ban'in, syste" to finance widenin,
fiscal deficit resulted in double di,it inflation. E/chan,e rate de+reciated stee+ly and
Pa/e 13 of 29
+rivate do"estic and forei,n invest"ent dried u+. 0arrow +olitical considerations of
+atrona,e and +elf have not allowed econo"ic refor"s "a'e any headway e/ce+t
the devolution of +owers fro" the 9ederal to the Provincial -overn"ents under the
18th &onstitutional a"end"ent and an enlar,ed share to the +rovinces out of
Divisible !a/ +ool under the 09& award. !he unintended conse*uences of these
well4"eanin, refor"s have ,enerated so"e dislocations in the short ter". !he
devolution re"ains inco"+lete as the local ,overn"ent refor"s have been +ut on
!he above historical survey of the econo"ic refor"s and structural +olicy
chan,es since 19@>s to date shows a hi,hly erratic and volatile +ath. So"e analysts
have hy+othesized that althou,h over the last four decades Pa'istan has
e/+erienced over ? +ercent avera,e -DP ,rowth rate, industry has not been the
"ain en,ine of Pa'istanCs ,rowth which has led to, on avera,e, a low and variable
,rowth rate
. 3eanin,ful actions with hi,h +otential of success were initiated and
carried forward so"e distance. .ut as soon as a new ,overn"ent 1 de"ocratic or
"ilitary 1 ca"e to +ower these +olicies were either reversed, bac'trac'ed or not
i"+le"ented fully. !he e/+ected benefits were either +ost+oned or accrued only in
dribs and drabs. 6e, therefore, have to turn to understand the factors that can shed
so"e li,ht in e/+lainin, this uneven 1 one ste+ forward, two ste+ bac'ward 1 record
of econo"ic refor" i"+le"entation.
=ne of the critical success factors for refor"s is its ownershi+ by the country. In
Pa'istan with the e/ce+tion of few occasions, there has never been a broad based
1? Government of Pakistan )$%1$+ (ndustrial PolicyE its spatial aspects and
cluster development )(slama"ad 2inistry of (ndustry+
Pa/e 14 of 29
ownershi+ of the refor"s nor has the refor" +ac'a,e been desi,ned and for"ulated
by the econo"ic "ana,ers of the country. In al"ost all cases 7e/ce+t two +ro,ra"s
entered with the I39 that were successfully co"+leted8 the "ain "otivation has
been to secure infusion of short ter" li*uidity to avert the i"+endin, forei,n currency
crisis. !he International 9inancial Institutions 7I9Is8, on the other hand, wanted the
country to underta'e both stabilization "easures and structural refor"s that could
set the country on the ri,ht direction. Pa'istan, as a +rolon,ed user of the I39
,ot addicted to this infusion at re,ular intervals of ti"e. %s soon as the
li*uidity situation i"+roved Pa'istan ,ot off the trac' after receivin, a few initial
tranches because the -overn"ents found the tou,h corrective "easures a,reed
with the I9Is +olitically difficult to i"+le"ent. Pa'istan ac*uired the re+utation a"on,
the International 9inancial &o""unity as a one4tranche country. In a few instances
where so"e +ainful ad2ust"ents had to be "ade, the +olicy "a'ers, in order to
avoid the bla"e, deflected the res+onsibility towards the I39. Structural refor"s
ca"e to be associated in the +ublic "ind with the conditionalities of the I39 and I9Is.
!he +olitical resistance to i"+le"entin, *uite sensible "easures that, otherwise
would have hel+ed the country, beca"e fierce as they were considered an e/ternally
dictated i"+osition. !his entan,le"ent of what should have been done by the +olicy
"a'ers in the first +lace to set the econo"y on the ri,ht +ath with a +o+ularly held
+erce+tion that these difficulties and +ain were bein, caused under e/ternal
influences did not allow Pa'istan to build a consistent and credible trac' record. !he
lac' of do"estic ownershi+ translated into hi,hly fra,ile i"+le"entation of refor"s.
1* A historical revie0 of Pakistan:s relations 0ith the (23 can "e found in (ndependent
Evaluation 5Hce )$%%$+ Evaluation of Prolon/ed Csers of (23 .esources )4ashin/ton
D&C& (nternational 2onetary 3und+A more recent analysis appeared in (shrat 'usain
)$%1%+ Pakistan:s EBperience 0ith the (nternational 2onetary 3und )(23+ $%%%-$%%6
7usiness .evie0 vol&# !o& 1 )@arachi (nstitute of 7usiness Administration+
Pa/e 15 of 29
!here was hardly a ,enuine and consistent desire to brin, about lon,4ter"
i"+rove"ent in do"estic econo"ic +erfor"ance.
!here is no evidence fro" the country studies that e/ternal actors have ti++ed
the +olitical scales in favor of refor". 6hen the do"estic institutional and &oalitional
environ"ent was unfavorable, lendin, in such settin,s +ost+oned ad2ust"ent.
Studies clearly show that +rovidin, su++ort to co""itted ,overn"ent did, however,
increase the do"estic +olitical credibility of the refor"ers
%nother factor i"+edin, the +ro,ress on refor" +rocess alluded earlier has been
the reversal, discontinuity, uneven and lac' luster i"+le"entation record. % fli+ flo+ in
desi,n and i"+le"entation is the only feature that has a++eared consistently
irres+ective of the nature of the +olitical re,i"e. 3ilitary, de"ocratically elected,
*uasi4de"ocratic, authoritarian and "i/ed technocratic4elected have all been found
,uilty of this behavior. !he ti"e +eriod for the refor"s to +roduce the desirable
results ,oes beyond the nor"al five year electoral cycle. %ssu"e that the
-overn"ent that co"es to +ower in )>1: earnestly e"bar's u+on a set of econo"ic
refor"s and "a'es so"e +ro,ress in the ri,ht direction. .ut the chances that a
successor ,overn"ent that co"es in its +lace in )>18 and had been o++osed to the
out,oin, +olitical +arty will reverse, by +ass or show indifference towards these
refor"s and associated invest"ents are *uite hi,h. 6ith the loss of "o"entu" the
country would be worse off as all the costs have been incurred but when the ti"e
co"es for rea+in, the dividend the +ot has been bro'en. !he new ,overn"ent will
start its own 2ourney ab4initio without buildin, on the "o"entu", nurturin, and
brin,in, to fruition the refor"s that they had inherited. It is hard to fatho" as to why
the successors do not ca+ture +olitical credit for the"selves by co"+letin, the
$% 'a//ard S& And Steven 4e"" )eds+ )1**6+ Iotin/ for .eform )5Bford
Cniversity Press+
Pa/e 16 of 29
+rocess. <et "e illustrate this +oint with the e/a"+le of Ii,her Education #efor"s.
Iad the -overn"ent in )>>8 decided to continue and su++ort the on,oin, refor"s
initiated in )>>1 by the +revious re,i"e the access, *uality and out+ut of all
universities by )>1: throu,h the cu"ulative ,ains of the +revious 1) years would
si"+ly have been astoundin,. !he rulin, +arty would have ta'en credit for this
+erfor"ance at the ti"e of elections. Si"ilarly, if instead of abolishin, the entire
<ocal -overn"ent syste" the +resent re,i"e had brou,ht about chan,es to
i"+rove the syste" they would have earned votes of ,rateful beneficiaries of the
devolved syste" of delivery of basic +ublic services in )>1:. .ut these e/a"+les
de"onstrate that there has been a setbac' to both tertiary education and delivery of
basic +ublic at the ,rass root level and the country is worse off in both these areas.
!he rulin, +arties lost an enor"ous o++ortunity of translatin, this national loss into a
+olitical ,ain for the"selves and wide s+read benefits to the +eo+le of Pa'istan.
!here is also a "ore dee+ rooted da"a,e that is done by reversals and
discontinuities of refor"s, +olicies and invest"ents. &redibility and indifference by
those co""itted to refor"s sets in and the +ublic4at4lar,e also does not believe the
+olitical leaders when they announce their own +et +olicies or refor"s or +ro2ects.
!hey have heard it all before but have never seen, with so"e e/ce+tions, any
tan,ible and +erce+tible results. !he "edia, in its usual ne,ative "ode, further adds
fuel to the fire and the +ace of i"+le"entation is retarded or slowed down. =f
course, in so"e instances there is a ti"e inconsistency +roble" also. !he +ains
caused by initiatin, "ost of the refor"s or +olicy chan,es are incurred u+front while
the benefits accrue over ti"e. !he +olitical re,i"e which has to underta'e these
refor"s and thus bears the costs is reluctant because they ris' losin, +o+ularity by
enforcin, harsh and +ainful "easures. %ccordin, to their calculation they have
Pa/e 17 of 29
everythin, at ris' while nothin, to ,ain +olitically within the s+an of the electoral
cycle. !hey a++rehend that they would loo' bad in the eyes of the +ublic as the
beneficiaries of these refor"s will attribute the benefits, when they occur, to their
o++onents who "ay be in +ower at that ti"e. !his asy""etry in the ti"in, of the
incurrence of costs and the a++ro+riation of ,ains fro" refor"s, in so far as the
o++onents rea+ the +olitical dividends and ta'e credit for the" +olitically while the
+arty initiatin, these refor"s bears all the bac'lash and criticis", therefore, beco"es
a stu"blin, bloc'.
!hird, each set of refor"s has winners and losers. !he losers fro" refor"s are
identifiable, i""ediate and cohesive. If subsidies are eli"inated or i"+orted ,oods
beco"e e/+ensive or wa,es decline and +ublic sector e"+loy"ent is either frozen
or cut down as a result of refor"s, those +resently benefittin, fro" these +olicies
would raise hue and cry i""ediately. !hey will coalesce, or,anize +ublic
de"onstrations, a++roach their elected re+resentatives, coerce the "edia into ,ivin,
the" wide covera,e and create difficult conditions for the rulin, +arty. %t ti"es they
could beco"e unruly and resort to violence or disru+tion of +ublic services. <et us
ta'e two e/a"+les to illustrate this +oint. !he retail and wholesale traders 718.)
+ercent of -DP8 in Pa'istan account for as "uch as a,riculture sector 7)> +ercent8
in national inco"e. =ut of al"ost 9 "illion +ersons e"+loyed in this sector only a
"iniscule +ro+ortion +ays any ta/ to the e/che*uer. Per ca+ita earnin,s in this sector
are about #s.A>>,>>>K4 annually 1 "uch above the inco"e ta/ threshold of #s.
:?>,>>>K4. It can be safely esti"ated that at least one "illion of those e"+loyed in
this sector have ta/able inco"es above this threshold with the +otential to add at
least #s. @> billion to ta/ revenues. .ut every ti"e any atte"+t is "ade to brin, the"
into the ta/ net either by the "ilitary ,overn"ent or the de"ocratic ,overn"ent they
Pa/e 18 of 29
,o on a shutter down stri'e disru+tin, econo"ic activity in the country. !he
o++osition +arties and the "edia co"e out o+enly in their sy"+athy and su++ort.
!he -overn"ent has to bac' down and let the" re"ain out of the net. !he losers
fro" the ta/ refor"s are therefore alive and 'ic'in, but the winners are un'nown,
diffused and li'ely to e"er,e in the future. !hey will never ,rou+ to,ether and co"e
in the forefront in su++ort of refor"s. 0owhere in the world where refor"s have been
successfully i"+le"ented there was an identifiable, ho"o,enous ,rou+ that
+ublically a,itated or de"onstrated in favor of refor"s such as widenin, the ta/ net.
It is always a visionary and co""itted leadershi+ that wei,hs the benefits and costs
and ta'es the initiative. !o hi" or her the winner fro" the ta/ refor" will be the
countryCs fiscal situation as deficit will be brou,ht down, e/ternal and do"estic
borrowin,s will be reduced and inflation will be controlled. .ut have we ever heard of
+ublic de"onstrations in favor of fiscal disci+line.
!he other e/a"+le is that of +rivatization of State4owned enter+rises 7S=Es8. %
country that is allocatin, only 1.BL of -DP on Education is s+endin, about )L on
the losses of S=Es. It is not only the bud,etary i"+act but "isallocation of
resources, hi,h +riced +roducts to consu"ers, +oor service standards etc. .ut
+rivatization has beco"e a dirty word in Pa'istan because the +olitical leaders find
the" a convenient vehicle for +rovidin, e"+loy"ent to their su++orters and en2oyin,
"any +er's conferred u+on by the" by these enter+rises. !he very "ention of
+rivatization brin,s to,ether the alliance between the e"+loyees of these S=Es and
the +oliticians. !he losers fear loss of e"+loy"ent and loss of +rivile,e res+ectively
and coalesce to,ether to subvert any atte"+t to restructure or +rivatize these
enter+rises. !he winners fro" this refor" will be "illions of out4of4school children in
the bac'ward districts and re,ions of Pa'istan who will be able to ,et education and
Pa/e 19 of 29
a decent livelihood in the future. %re these children or their +arents ,oin, to co"e
out on the streets in favor of +rivatization5
!he fourth factor is the ca+acity issue of i"+le"entin, the refor"s. &ivil services
inherited fro" the .ritish era +erfor"ed e/tre"ely well in the early +eriod of
Pa'istanCs history. !hey were co"+etent, dili,ent, dedicated and honest. 3illions of
refu,ees fro" India were settled, new businesses and industries were established as
the Iindu owners left the country, basic +ublic services were restored throu,hout the
noo' and corner of the country, law and order and security of life and +ro+erty were
assured and institutions of ,overnance and econo"ic develo+"ent were setu+ and
!he Plannin, &o""ission in the 19@>s en2oyed the stature and autono"y and
had the co"+etence to initiate, and "onitor the i"+le"entation of various refor"s. In
&hina, this tas' has been +erfor"ed by the 0ational Develo+"ent #efor"
&o""ission 70#D&8 aided by a thin' tan' the &hina Society of Econo"ic #efor"s
7&SE#8 3alaysia had its Econo"ic Plannin, ;nit 7EP;8, Indonesia .%PPE0%S,
!hailand 0ational Econo"ic and Social Develo+"ent .oard 70ESD.8, the
Phili++ines 0ational Econo"ic Develo+"ent %uthority 70ED%8, Gorea Econo"ic
Plannin, .oard 7EP.8 and Gorea Develo+"ent Institute 7GDI8. Pa'istan does not
have si"ilar institutions in +lace for a lon, ti"e althou,h the Plannin, &o""ission
does e/ist on +a+er but has beco"e +ri"arily a +ro2ect clearin, a,ency. !he East
%sian countries had hi,hly "eritocratic and insulated bureaucracies with a core of
technocratic "ana,ers. !he hi,h4*uality bureaucracies and rules and +rocedures
were institutionalized and insulated fro" +olitical interventions. In +articular,
recruit"ent and +ro"otion were "erit based
. .ut in Pa'istan since the 19B>s the
$1 -he East Asian 2iracle i"id
Pa/e 20 of 29
civil services have beco"e +oliticized, ,ot overstretched and entered areas in which
they had little e/+ertise or trainin,. &onstitutional ,uarantee for the security of
service was ta'en away and the co"+ensation and benefits ,ot diluted. .ri,ht and
talented youn, "en and wo"en stayed away fro" civil service and those o+tin, for
the" were "otivated by considerations other than +ublic service. %li,nin,
the"selves with the interests of the +olitical +arty in +ower beca"e the nor" for
survival and career +ro,ression. !his ali,n"ent also hel+ed the civil servants in
accu"ulatin, enor"ous "onetary benefits. Des+ite "any co""issions, co""ittees,
e/+ert ,rou+s etc. which have "ade reco""endations for the refor" of civil services
nothin, "uch has ha++ened. %s a "atter of fact the refor"s of )>>1 abolishin, the
+osts of &o""issioners, De+uty &o""issioners and +lacin, the +olice under the
control of District 0azi"s ,ave a bi, blow to the &ivil Services. !he Inta'e has
deteriorated both in ter"s of nu"bers as well as *uality. Positions re"ain unfilled as
the Public Service &o""ission is unable to identify suitable candidates for filin, in
the vacancies. =nly "ediocre and those with ulterior "otives a++ear at the
co"+etitive e/a"inations. !hose who are in the service face "any dile""as.
;ncertainty abounds as Secretaries to the -overn"ent are +ushed around various
"inistries every three to si/ "onths. !here is hardly any institutional "e"ory to
,uide the" in their wor' or any +assion as they are not sure as to how lon, they will
stay on their 2ob. If we can have si/ Secretaries in 'ey "inistry such as 9inance or
si/ chair"en of 9.# over a four year +eriod what should we e/+ect fro" the" in
ter"s of +erfor"ance or out+ut5
!his serious dis+lace"ent of "erit and co"+etency based a++oint"ent syste"
has eroded the ca+acity to for"ulate +olicies, i"+le"ent refor"s and e/ecute
+ro2ects. Even if there is a well4intentioned ,overn"ent that is willin, to ta'e the
Pa/e 21 of 29
+lun,e it ,ets stuc' because of these ca+acity constraints. !his +roble" has beco"e
"ore acute since the 18th a"end"ent and 09& award as "ost of the ad"inistrative
+owers and financial resources have been devolved to the +rovincial ,overn"ents
but they do not have the ade*uate ca+acity to carry the" out. !his disconnect
between the +owers and resource availability on one hand and the li"ited ca+acity
to i"+le"ent is ,oin, to ,et worse unless serious efforts are "ade to refor" the
structure, +rocesses and hu"an resource "ana,e"ent +olicies at the +rovincial and
local ,overn"ent.
!he infor"al asy""etric +ower relations within the bureaucracy also create an
incentive for +oor ,overnance. %ccountability of the &ivil Servants and +ublic sector
e"+loyees has been li"ited "ostly to the officer class or to+ and senior "ana,ers.
In for"al ter"s and accordin, to the distribution of duties within the or,anization on
+a+er the res+onsibility lies on the shoulders of these officers. .ut in actual +ractice
the infor"al but effective +ower resides in lower echelons of bureaucracy. !he
cler's, Patwari, SI=s, Ins+ectors, and &ourt #eaders en2oy enor"ous discretionary
+ower and indul,e in institutionalized corru+tion. Iowever, they re"ain unscathed
fro" accountability "easures because they do not have any for"al authority and
cannot be held res+onsible in strict le,al sense. %ll the +ur,es, screenin,s and
dis"issal under the "ilitary re,i"es were tar,eted at the senior officers and so did
the 0%. in*uiries and +rosecutions in the recent years. %s their su+erior officers
'ee+ rotatin, while these lower ran'in, officials re"ain entrenched al"ost se"i4
+er"anently in their +ositions they create dee+ seated fears a"on, those who wish
to co"+lain a,ainst their hi,h handedness and e/tortionary +ractices. If they lod,e a
for"al co"+laint a,ainst these lower functionaries to their su+eriors two +ossible
outco"es are li'ely to ensure. 9irst, if the su+eriors are in cahoots with the
Pa/e 22 of 29
subordinates the co"+lainant "ay ris' harass"ent and +ersecution. In the event
there is an honest officer at the hel" of the affairs the co"+lainant "ay incur the
wrath after the transfer of that officer 1 a +ost+oned +unish"ent. % resident of the
area who de+ends u+on the whi"s and discretions of the bureaucracy for day to day
survival can hardly afford that.
!he ne/t factor +ertains to the structure of +olitical institutions, +atterns of
leadershi+ includin, ty+e of re,i"e and the dyna"ics within the +olitical +arties
includin, their su++ort bases. Econo"ic refor"s i"+ly i"+ortant shifts in the balance
of +olitical +owers a"on, contendin, interests$ for e/a"+le, between the e/+ort and
i"+ort 1 co"+etin, sectors and between ca+ital and labor. !he shar+ s*ueeze on
-overn"ent resources also s+ar' funda"ental debates about the role of the state in
the develo+"ent +rocess
. So"e analysts have ar,ued that econo"ic liberalis"
and +olitical de"ocracy "ay be in conflict for countries at certain sta,es of ,rowth.
3ar'et4oriented refor"s "ay e/acerbate social dislocation as hi,hly une*ual
distribution of assets and inco"es +ose threat to +olitical stability(
. Pa'istanCs lon,
e/+erience with the authoritarian rule has +roved that the +o+ular and widely held
notion that refor"s can be carried out only under authoritarian or "ilitary re,i"es
has also lost its luster. ;nli'e other countries where "ilitary ,overn"ents undertoo'
econo"ic refor"s +rior to initiatin, the transition to de"ocracy and those refor"s
havin, yielded tan,ible benefits, +olicy ,ains were not reversed by the transition
the o++osite has been the case for Pa'istan.
$$ 'a//ard S& and .o"ert @aufman )eds+ )1**$+ -he Politics of Economic
AdAustment )Princeton Cniversity Press+
$1 'a//ard and @aufman , i"id
$6 'a//ard S& and Steven 4e"" )eds+ )1**6 Iotin/ for .eform )5Bford Cniversity
Pa/e 23 of 29
!he %yub and 3usharraf -overn"ents did underta'e so"e serious econo"ic
refor"s which, if allowed to continue and sustain over a lon, ti"e horizon, would
have brou,ht about funda"ental structural chan,es. Iowever, these refor"s were
reversed or disfi,ured or "ade inconse*uential by the subse*uent ,overn"ents.
!his observation su,,ests that econo"ic acco"+lish"ents devoid of +olitical
le,iti"acy, however i"+ressive they "aybe, +rove to be short4lived in our cultural
conte/t. 6ithout the involve"ent and +artici+ation of the +eo+le, ele,ant and
technically sound econo"ic solutions develo+ed by authoritarian re,i"es have a
short shelf life as they are *uic'ly re+laced once the re,i"es chan,es, causin,
irre+arable loss to the econo"y
!he inner dyna"ics of +olitical +arties also betrays so"e insi,hts as to why
econo"ic refor"s are not underta'en by de"ocratically elected re,i"es and if they
are, do not survive for lon,. Personality4cult, authoritarian style of leadershi+,
centralized decision "a'in,, de"and by the leader for absolute loyalty, intolerance
of dissent, reliance on a s"all coterie of syco+hants and cronies and no"inations
rather than elections of the +arty +osts at all level have ,er"inated so"e unhealthy
tendencies within the +olitical +arties. 3inisters of 9inance could be the natural
cha"+ions for econo"ic refor"s. .ut they fear u+settin, their collea,ues and
leaders and losin, their 2obs if they vi,orously +ursue un+o+ular +olicies, the
constituency for these refor"s within the rulin, +arty, therefore, re"ains wea' or
non4e/istent. In absence of a cha"+ion, there is hardly any sco+e for these tou,h
refor"s to "a'e any headway.
!he +revalent social and cultural nor"s in Pa'istani society also +ose a +owerful
deterrin, force to refor"s +articularly in the area of econo"ic ,overnance. !he
$# 'usain (shrat )$%%*+ ;-he role of politics in Pakistan:s Economy= Dournal of
(nternational AJairs )!e0 8ork Colum"ia Cniversity+
Pa/e 24 of 29
Pa'istani society is characterized by stron, bonds of 'inshi+, biradari, class,
friendshi+ and fa"ilial relations. !he o+eratin, social behavior is ,overned by
considerations of H<ihaz, Shara" and 3urawatC, in,rained and nurtured ri,ht fro" the
childhood. 9or"al or,anizations are, on the other hand, driven by edicts, evidence,
due +rocesses, neutrality and ob2ectivity. !his in4built tension between the
a++ro+riate social behavior re*uired as a "e"ber of the society and or,anizational
rules i"+osed as +art of +rofessional res+onsibilities inhibits +ractice of ,ood
,overnance. 0e+otis" and favoritis" are the e/+ected outco"es of de"and +laced
by social and cultural nor"s while "erit and i"+artiality are e/+ected to rei,n
su+re"e under the for"al or,anizational rules of business. &onstituency +olitics and
coalitions reinforce these social nor"s. It is only with the s+read of urbanization,
nuclear fa"ilies, e/+andin, "iddle class, +rofessionalis" and wea'enin, of feudal
and tribal hold on the society that the balance will shift in favor of the for"al
or,anizational rules. 0o *uic' fi/es are available as even so"e of the hi,hly
educated +ersons co"in, fro" tribal and feudal fa"ilies do not deviate si,nificantly
fro" these nor"s.
I now co"e bac' to revisit the *uestion. 6hy is Pa'istan sli++in, relative to other
develo+in, countries5 In li,ht of the record of last si/ty five years and the factors
i"+edin, the sustainability of refor" I would identify four broad underlyin, trends.
9irst, sustained econo"ic develo+"ent does not ta'e +lace in absence of +olitical
stability. In the19?>s we had seven chan,es of ,overn"ent and in the 1988499
+eriod ei,ht different ,overn"ents ca"e and went out of office. In between there
were decade4lon, "ilitary rulers in +ower who disru+ted the +ath of lon, ter"
Pa/e 25 of 29
stability and evolution of the +olitical syste". Second, the +o+ular "ind4set in
Pa'istan has beco"e hi,hly sus+icious of +rivate enter+rise and "ar'ets. E/ecutive
branch, Eudiciary, Parlia"entary co""ittees, %ccountability .ureaus and the "edia
have all created an at"os+here in which it has beco"e difficult to "a'e lar,e
invest"ents and earn decent returns. 6e are drivin, out and discoura,in, even
honest and hardwor'in, businesses by our collective witch4huntin, "ode. Prices are
ordered to be fi/ed arbitrarily, +rofits are loo'ed u+on with conte"+t, enforce"ent is
ca+ricious and corru+tion is ra"+ant. =ther countries throw welco"e "ats to
investors for attractin, the" but not us. =ur overzealousness and "edia frenzy is
costin, us too "uch. !hird, the battle lines between those who wish Pa'istan to
beco"e a +art of ,lobal syste" and those who want the country to withdraw, isolate
and disen,a,e itself fro" the international arena are bein, drawn shar+ly. !he
isolationists have a very different econo"ic "odel i.e. an inward loo'in, self4reliance
that does not fit in with the +revailin, world view of those who thin' Pa'istan can
,ain i""ensely fro" ,lobalization. 9inally, Pa'istan hasnCt faced a "a2or abru+t and
shar+ downfall in its econo"ic fortunes. =nly twice in its history it has recorded a
ne,ative ,rowth rate. Pa'istan has never faced an econo"ic colla+se des+ite
+redictions on "any occasions. !he +rivate infor"al sector has always been
buoyant +rovidin, overall resilience to the econo"y.
#ecent history has shown that "ost countries have underta'en refor"s and
ad2ust"ent in res+onse to so"e crisis 1 do"estically induced or e/ternally
+reci+itated. !he <atin %"erican debt crisis of the 198>s, the Indian balance of
+ay"ents crisis of 1991, the 3e/ican crisis of 199A, the %sian crisis of 199?49@, the
#ussian crisis of 1998 and "ore recent -lobal financial crisis of )>>84>9 have all
invo'ed refor"s and ad2ust"ents of various de,rees and duration. In "ost cases,
Pa/e 26 of 29
the financial assistance of International 3onetary 9und was sou,ht to tide over the
crisis. Pa'istan hasnCt faced a dee+ crisis of the "a,nitude or intensity faced by
these other countries. !here has been a cree+in, but continuous( crisisC that has
forced the country to see' to I39s assistance on "any occasions. !hus, Pa'istanCs
need for refor"s has been distinct fro" those of the crisis countries. !he volatility
and fluctuations in Pa'istani econo"y have been too +ronounced but the root cause
was not e/ternal shoc's but do"estic "is"ana,e"ent, +oor ,overnance and
reluctance to ta'e tou,h econo"ic decisions.
&rises that are not lar,e or abru+t do not ,et "uch attention and the +olicy
"a'ers do not feel the need for any action. S"all doses of ,ood news are
e/a,,erated and bad news are i,nored or su++ressed in the +olicy "a'in, circles. It
has been ar,ued
that a society that faces no "a2or crisis e/+eriences a buildu+ in
the +ower of +ressure ,rou+s and a conse*uent decline in fle/ibility. Policy "a'ers
beco"e the +risoners of s+ecial interest ,rou+s. !his characterization fits in well with
the case of Pa'istan.
6hat are the +ros+ects of econo"ic refor"s in Pa'istan in the future5 !his is a
tou,h *uestion to answer as I donCt have a crystal ball. .ut let "e s'etch out the
broad landsca+e of develo+"ent that is bein, resha+ed in the )1st century.
-lobalization 7trade, invest"ent, +eo+le, and ideas8 <ocalization 7fiscal and
ad"inistrative decentralization8, cli"ate chan,e, ra+id urbanization, de"o,ra+hic
transition and shift in econo"ic +ower e*uilibriu" fro" advanced to develo+in,
countries such as &hina will be the drivers of chan,e. &hinaCs leader are su++osed
to have decided to underta'e their refor" +ro,ra" when they realized that their
nei,hbors were ,rowin, "ore ra+idly than they were. !he ad2ust"ent initiated by
$9 5lson 2& )1*?$+ -he .ise and Decline of !ations )!e0 'aven C- 8ale
Cniversity Press+
Pa/e 27 of 29
3alaysia in the second half of the 198>s also fits this descri+tion
. 6ould our
leaders wa'e u+ to "eet this challen,e5 Inclusive and +ro4+oor ,rowth that s+reads
the benefit to the "a2ority of the +o+ulation will be the acce+table outco"e of a
develo+"ent strate,y. !he Inco"in, -overn"ent in Pa'istan and the visionary
leadershi+ if it e"er,es as a result of the elections have to ca+italize on the
honey"oon +eriod to shift the direction of econo"ic +olicies and ,overnance and
establish credibility by ta'in, so"e tou,h but inevitable decisions durin, that +eriod.
;nless this directional shift ta'es +lace the +ros+ects for inclusive ra+id econo"ic
,rowth do not loo' very +ro"isin,. =n the other hand, if this shift is en,ineered
Pa'istan can ,et bac' to the ,rowth tra2ectory it had attained in the early and "id4
)>>>s and will be able to catch u+ with so"e of the countries which are leadin, the
race at +resent.
$< 3ischer S& and Iittorio Cor"o )1**#+ Structural AdAustment Sta"ilization and
Policy .eform in 'and"ook of Development Economies vol&17 )!orth 'olland El
Pa/e 28 of 29
-overn"ent of Pa'istan 7)>1)8, Industrial Policy, its s+atial as+ects and &luster develo+"ent
7Isla"abad, 3inistry of Industries8
Ia,,ard S., and #obert Gauf"an 7eds8 7199)8 !he Politics of Econo"ic %d2ust"ent 7Princeton
;niversity Press8
Ia,,ard S. and Steven 6ebb 7eds8 7199A8 Dotin, for #efor" 7=/ford ;niversity Press8
Iasan, Pervez 719988 Pa'istanCs Econo"y at the &ross #oad 7=/ford ;niversity Press8
Iasan, Pervez 7)>118 3y <ife 3y &ountry 79erozsons Pvt. <td.8
Iusain, Ishrat 719998 1 !he Political Econo"y of #efor"s$ % case study of Pa'istan 7Isla"abad,
Pa'istan Institute of Develo+"ent Econo"ics8.
Iusain, Ishrat 719998 Pa'istan$ !he Econo"y of an elitist state 7=/ford ;niversity Press8
Iusain, Ishrat 7)>>:8 Econo"ic 3ana,e"ent in Pa'istan 19994)>>) 7=/ford ;niversity Press8
Iusain, Ishrat 7)>>98 !he role of +olitics in Pa'istanCs econo"y( Eournal of International %ffairs 70ew
Mor', SIP%, &olu"bia ;niversity8
Iusain, Ishrat 7)>1>8 Pa'istanCs E/+erience with the International 3onetary 9und 7I398 )>>>4)>>A(,
.usiness #eview Dol.? 0o.1 7Garachi, Institute of .usiness %d"inistration8
Iusain, Ishrat and #a2iv Gu"ar 7)>1)8 &o"+arin, Structural #efor"s in India and Pa'istan(, in
Phili++a De 7ed87)>1)8 Policy #efor"s in South %sia 7#outled,e8
9ischer, S. and Dittorio &orbo 7199?8 Structural %d2ust"ent, Stabilization and Policy #efor" in
.ehr"an E and !0 Srinivasan 7eds8, Iandboo' of Develo+"ent Econo"ies vol :. 70orth Iolland El
International 3onetary 9und 7)>1)8, 6orld Econo"ic =utloo' =ctober 76ashin,ton D.&., I398
International Evaluation =ffice 7)>>)8, Evaluation of Prolon,ed users of I39 #esources 76ashin,ton
D.&., I398
Ghan, 3ohsin, Peter 3ontiel and 0adee"ul Ia*ue 7eds8719918 3acro "odels for %d2ust"ent in
Develo+in, &ountries 76ashin,ton D.&., I398
0a*vi S.0.I. and Ghawa2a Sar"ad 7199B8, E/ternal Shoc's and Do"estic %d2ust"ents 7=/ford
;niversity Press8
0elson, Eoan 7199>8 Econo"ic &risis and Policy choices 7Princeton ;niversity Press8
=lson, 3. 7198)8 !he rise and Decline of 0ations 70ew Iaven &!, Male ;niversity Press8
6illia"son, E. 7199>8 <atin %"erican %d2ust"ent$ Iow "uch has ha++ened5 76ashin,ton D.&.,
Institute of International Econo"ics8
6orld .an' 7199:8 East %sian 3iracle 76ashin,ton D.&., !he 6orld .an'8
Musuf, S. 7ed87)>>98 Develo+"ent Econo"ics throu,h the Decades 76ashin,ton D.&., !he 6orld
Naidi, %. 7)>>@8 Issues in Pa'istanCs Econo"y 7=/ford ;niversity Press8
Pa/e 29 of 29