Top left: Atif Mian; top right: Miftah Ismail; bottom Madiha Afzal
Brookings Panel Explores Pakistan’s Economic Challenges
By Elaine Pasquini
Washington: As Pakistan continues to recover from historic floods which devasted the country last year, its economic crisis continues with little improvement.
On February 1, the Brookings Institution hosted a discussion between former Pakistani finance minister Miftah Ismail, Princeton University professor Atif Mian and Brookings fellow Madiha Afzal to address these issues. On the same day in Islamabad, the International Monetary Fund met with Pakistani officials regarding its proposed current bail-out – one of 21 it has provided to Pakistan since 1960.
Afzal enumerated Pakistan’s economic woes, including foreign reserves of only $3.7 billion which covers less than three weeks of imports and an inflation rate of 25 percent per month which is expected to increase.
In addition, the rupee which experienced its largest single day devaluation last month, now trades at around 255 rupees per US dollar. Fuel prices are rising, and the country experienced a nation-wide power outage in January.
“This all comes on the heels of…a summer of biblical floods in Pakistan which in themselves had clear humanitarian and economic repercussions in addition to the 1,700 lives lost and billions of dollars in infrastructure damage across the country,” she said.
Former Pakistani finance minister Miftah Ismail noted the main short-term cause of Pakistan’s current economic crisis is the central bank’s small number of reserves as the country is required to pay $9 to $10 billion between now and the end of June.
“If Pakistan is able to get IMF tranches, that would also start some loans from the World Bank…and would also start some deposits from Saudi Arabia and the UAE, and hopefully perhaps some money from China as well,” the economist explained, “then I think we should at least be able to avoid the probability of default.”
Professor Atif Mian of Princeton University argued that there is not much difference between short-term or long-term causes, and that a major cause of Pakistan’s problem is that the leadership does not always appoint the most competent people to deal with important issues. “The most important responsibility of leadership is to appoint competent people… to deal with the most important issues of the day which for Pakistan have been economic issues for a long time.”
“This is the short-term cause and the long-term cause whether we like it or not,” he continued. “If you don’t take some level of responsibility for the very basic things that you are supposed to do, like appointing people who have a level of credibility and competence, the rest of the world is not going to take you seriously and this is one of the big problems Pakistan is facing right now.”
The core long-term issue, however, is productivity and productive capacity, the professor said. One important element of productivity, he argued, is that “people with knowledge who have the highest productivity are willing to stay in your country and come to your country.”
Increasing workplace opportunities for women would enhance productivity and while Mian praised the achievements of Pakistan’s women over the past 20 years in education, he criticized the government for not including enough women in positions of power or leadership. “Even though they are twice as likely to get an “A” grade as boys or men…. I don’t think we have even half the number of women in leadership,” he said. “We should have twice the number of women than men in leadership positions.”
With respect to the IMF’s role, Pakistan needs to have a plan, Mian asserted. “I have never seen a Pakistan plan from any political party that is worth the paper it is written on.”
“I have said repeatedly that Pakistan’s nervous system is broken,” Mian continued. “Pakistan’s decision-making process is broken.” But the government has the ability to “turn things around in the sense that there will be hope going forward.”
Former finance minister Miftah Ismail said one long-term problem is Pakistan’s circular debt ( a public debt which is a cascade of unpaid government subsidies, resulting in accumulation of debt on distribution companies.) “It’s been going on since Musharraf’s time…it keeps going and no one has addressed it,” he lamented. “So, yes, there is a lack of competence and sometimes a serious lack of understanding of economics, but also the government systems in Pakistan, because of accountability and toxicity in the process, are such that even when there are competent people there is very little room for them to get anything done.”
According to Ismail, Pakistan’s growing population is one cause of its economic problems. “We have 5.5 million babies born every year – second highest after India, slightly more than China,” he said. “But we just don’t have the infrastructure or capacity to feed or educate these people.” He believes, however, that Pakistan can successfully address this situation as Tunisia and Bangladesh have managed to do.
In addition, the US-led 20-year war and occupation of Afghanistan – which shares a 1,660-mile border with Pakistan – was quite costly to Pakistan’s economic growth, he pointed out.
While the next six to eight months may be difficult, if Pakistan can stay on track with the IMF program, “We can come back from the brink,” Ismail argued. In addition, he suggested the country increase talks on population planning and improving young children’s education. Restructuring the power sector and gas distribution system would help the economy, while increasing the income transfer system would help with education and poverty reduction, he added.
“Our priorities should be that we will do all of the things that help us develop our economy and not do things that are otherwise distractions,” Ismail said. “You just need to grow [the economy] by eight or nine percent for 20 years and you can have a substantial middle class. The world is not going to wait for us and it’s about time we start doing that.”
(Elaine Pasquini is a freelance journalist. Her reports appear in the Washington Report on Middle East Affairs and Nuze.Ink.)
