Pessimism with Growth, Why?

Officials or near officials are asking “why are we so pessimistic?” The president himself has publicly expressed this concern. Perhaps the chattering classes are too pessimistic?

True, the economy has made gains recently, and policy has found a rational professional footing. Let us review the positives.

• Fiscal policy, our biggest problem through the nineties is on a firm footing following our rescheduling. Thank you, Shaukat Aziz for this and for leading a clean and competent finance team!
• Confidence has returned and reserves have been built as remittances appear to be doing well. Ishrat Husain truly has done our first competent SBP governor.
• Exports have begun to grow as the exchange system seems to be neat and well managed.
• The main sectors manufacturing and agriculture are beginning to show growth.
The result is that economic growth is likely to return the 6 percent level and perhaps we will see a few good years.


More importantly, lasting institutional changes have occurred and this augurs well for the future. Let us review these:

• The finance policy complex is technocratized; State Bank is independent and professionally run. Thankfully, following GIK’s departure, convention was developed that the governor and finance minister will be professionals politicians or bureaucrats with inadequate qualifications. Of the professionals recruited, so far, only Shakat Aziz has done a good job.
• Even more importantly the entire financial institutions are now virtually all privatized. This is the best thing that could happen to the country and foretells of many good things to come.
• Decentralization--fragile and with design flaws--has significantly jolted the overcentralized and rigid polity as well as the anti-reform civil service. This is the first tentative step towards the development of a more open, professional, meritocratic and flexible system of public administration (Good Job Danial Aziz).
• The recent rapid push for privatization is perhaps the most important new initiative. Thanks to another professional, Hafiz Sheikh, it is now deepening into the energy and other infrastructure areas.


For these improvements we do thank this government. But this trend has slowly been gathering momentum. Nawaz government did adopt central bank independence and BB respected it. Banking sector reform began with Nawaz Sharif’s surprising appointment of Shaukat Tarin and Zubair and M. M. Soomro to head banks with substantial autonomy. The current government pushed this policy to the completion of restructuring and now privatization of Habib, United and a part of National Bank. Bravo!

People are generally feeling good. “Why then are the opinion makers gloomy?” they, the policymakers and their friends are asking. Indeed it is a question worthy of analysis.

I can think of five factors that contribute to this divergence of feeling between the government and opinion-makers.

1. The structure of governance remains virtually the same. Economic gains have been made on shallow changes in the institutional infrastructure. Parliament and the cabinet show no appearance of modernity, education and technocracy. The current economic miracle has been made by fragile appointments of a few technocrats. The uneducated feudal power-hungry politicians look on hungrily. Musharaf has missed the opportunity a “glorious revolution” where political power would have been wrested out of the hands of the feudals. The constitutional reform smacks too much of Zia and too little of enlightenment to be a lasting solution.

Not only is the colonial administration extant with distortions, so too is the fundamentalist infrastructure of Zia. Musharaf has wisely initiated a public debate on its dismantling. But it is time to remove those laws into the oblivion of our sad past. Otherwise honor killers remain bold even as we fight fundamentalists. The community will live under threat unless the unjust Zia laws are not dismantled and our institutions put on the path of modernity.

2. The rule of law has not been established. The judicial system remains weak and does not inspire faith. Media is frowned upon; injustices published are ignored. The feudal baradari system stifles wrongdoing of the local feudals and their cronies. Qabza and fraudulent land deals make politicians and ministers; stories of generals and ministers involvement in questionable deals like Park View make the rounds without raising an official eyebrow, even of NAB.

3. The middle class and the poor are hurting. Yes interest rates are at historical lows and loans for housing and cars are available. Yet WAPDA remains intact –inefficient and big. Monopolies—car and motorcycle, hotels, internet gateway—continue to receive official blessing. As a result, electricity and gasoline prices are high and cars extremely expensive, even sold at a black market premium. We have returned to the days of Ayub—assembling cars behind tariff barriers! This artificial industry will probably go the same way! Meanwhile the middle class is paying a huge price for vehicles. Low interest rates and limited corporate governance and financial markets mean that the middle class has no savings and pension vehicles, which makes their future uncertain.

4. Where are the opportunities? On the one side there is the handicap of the poor quality of education and on the other is the burden of excessive regulation. Before the education bureaucracy and syllabi-tampering, poor and middle class kids had opportunities through education. SDPI (hats off to SDPI!) has shown how syllabi have been altered for ideological reasons and education destroyed. Some education reform has been initiated but the need of the hour is to eradicate the education ministry and let education go down to the local level and let localities compete to make the best education possible.

Government can no longer employ people, yet private sector and self employment opportunities are few. Regulations everywhere prevent private enterprise except for the lucky few who have clout. Absurd real estate regulation prevents development and favors big cities (see my article and Faisal Bari’s in Nation 2 weeks ago). The little man has no room for investment: middle class motels, entertainment industry, small neighborhood enterprises are all not possible. Our urban development paradigm based on the rich (DOHS takes priority) rather than flats for the middle classes does not develop middle class neighborhoods. Without middle class neighborhoods, small opportunities do not exist.

5. Community has been disabled! (An important point to reflect on.) Our focus of development has been the rich feudal and his crony leading to the stifling of not only democracy, merit and professionalism but also enterprise and community. Recent research shows that long term sustained growth is strongly founded only when community and enterprise is strong. Our urban regulation gives space for community development only for polo and Punjab clubs. No community institutions such as community centers, clubs, libraries, theatres, lecture halls exist for the middle or working classes. Mosques have been taken over by the fundamentalists and no longer serve as community centers. Is it any wonder that social capital is declining, despondency setting in, and fundamentalism on the rise?


Progress made by this government has not gone unnoticed. Pessimism persists reflecting 50 years of missed opportunities and a feeling that we are lagging similar countries. For example, India has stable democratic institutions, judiciary, academia and media to be proud of, and a middle class-based society. Professionalism and merit reign there (generals do not take over institutions--especially not universities after retirement). In the heart of Delhi, there are huge well run buildings for middle class community and knowledge development -- India International Center and the Habitat. Should we not have similar expectations?

People everywhere desire modernity, good community-based governance, a broad based society and rule of law. Pakistanis too have that right. Forgive them if they do not respond euphorically to every increase in growth. It is not that they are ungrateful to what this government has done. It is because the yardstick has risen and they deserve more fundamental reform!