The debate around the current state of Pakistan’s economy is picking up pace, with claims and counter-claims being made from different quarters. Critics claim the economy is heading towards an imminent collapse while the government’s camp rubbishes such fears.
The Chief of the Army Staff General (COAS) Qamar Javed Bajwa publicly expressed concerns over the country’s debts, the ever-growing external imbalances, the need to expand the narrow tax base and raise the tax to GDP ratio considerably. He made these comments at a day-long seminar on ‘Interplay of Economy and Security’, held in Karachi under the joint collaboration of the Inter-Services Public Relations (ISPR) and the Federation of Pakistan Chambers of Commerce and Industry (FPCCI).
Both the interior minister and the finance minister responded to the ‘charge sheet’ in different ways. This was followed by a meeting between the prime minister’s team and the military leadership and a briefing by the Federal Board of Revenue (FBR) at the General Head Quarters (GHQ), reportedly aimed at clarifying certain issues.
This situation calls for a thorough analysis to find out how real are the fears of an economic collapse. Why is the military leadership speaking so vehemently about purely economic issues?
Khurram Husain, a Karachi-based columnist, believes “there is no financial emergency at the moment but things are moving in that direction and if corrective measures are not taken collapse will be closer than what people think.” In his view the top concerns at the moment are “depletion of foreign reserves, the inability of the government to meet fiscal deficit targets and the recurring circular debt. These are somehow linked to what the COAS had said in his address”.
How does this affect the working of the state and compromise its interests? As Husain mentions, “the situation becomes critical when the foreign reserves of a country are less than the worth of its three months’ imports. We have almost touched this limit and are not in a position to lose further.”
The fiscal deficit is not likely to come down because it’s the election year and both the federal and the provincial governments want to woo their voters with excessive spendings on development work. Similar is the case with circular debt which keeps increasing since the government cannot afford to take unpopular decisions like increasing electricity prices.
Husain does not oppose or defend the right of the COAS to speak on economic issues but points at what is going on behind the scene. In his view, the army and the government have been defining state priorities for long and this dialogue has come into public notice recently. “Army needs more resources to upgrade its arsenal while the government terms these (resources) finite and urges the need to distribute these judiciously.”
The army chief did have his supporters in the leader of the opposition in the National Assembly and even the prime minister said there was nothing wrong with his comments. Economists and analysts like Dr Ashfaq Hasan Khan, Dr Ishrat Hussain, Dr Farrukh Saleem, Dr Ainul Hassan and Dr Salman Shah present at the FPCCI-ISPR seminar in a way endorsed the chief’s address through their own speeches.
Dr Faisal Bari, a Lahore-based economist and researcher, thinks the issue has to be discussed at both micro and macro levels. “At the macro level the government somehow manages to tackle the challenges by taking measures such as taking foreign loans, offering bonds etc but at the micro level there is little homework done.
“The regulatory mechanisms, quality structures, initiatives to facilitate businesses, investments on health and education etc. are not there.” So, he says, “the economy is simply fighting for its survival, and growth is just an elusive dream”.
Bari’s point is that restructuring of economy should be put before anything else if real results are needed. Expecting to increase tax revenues and boost forex reserves without reviving manufacturing and exports is like putting the cart before the horse.
Contrary to the reservations about government’s economic performance, economist Akbar Zaidi has some words of praise for them. “It was assumed the economy is one area which the civilians ought to be allowed to manage without much interference, especially when there is clear evidence that the economy has improved every single year for the last ten years, and is at its best over the last decade today. Much credit is due to civilian elected representatives for this.”
Zaidi thinks there is a reason for army chief’s concerns on economy. “In a country where there has been a historic imbalance between institutions, the hegemony and dominance of the military over all other institutions is still evident. The military seems to believe that it is the rightful hegemon when it comes to most things concerning Pakistan, such as foreign policy, relations with India, Afghanistan and other countries, Pakistan’s nuclear policy, and even internal, domestic, matters.”
Economist Kaiser Bengali terms the military’s demands “legitimate in view of the security challenges the country faces. But it is not possible to fulfil them due to the paucity of resources. The issue, however, is that those making the demands are not ready to compromise. The demand about raising the GDP-to-tax ratio without reviving the economy is a bit unrealistic. From where will these taxes be collected if there is no industry?”
Bengali, who has also worked with provincial governments, says “there are two views about the current state of country’s economy. One is that it is on the verge of collapse whereas the other is that the government will survive by managing a quick-fix, like in the past, but it will be short lived. The real situation is that the country’s economy has been on the decline for the past 20-25 years and the future also does not look bright. Because both industry and agriculture, which are engines of economic growth, are not performing well so any growth we see is artificial and volatile.”
Bengali believes that economy is more important than security “and that is why the economically strong nations have won wars in the past. If the economy is in trouble and there are not enough foreign exchange reserves, how will it be possible for a country to import fuel for tanks and jet fighters?”
Zaidi terms the COAS’ comments a “complete interference in civilian affairs, when it is clear that numerous areas are taboo for civilians. The economists are far better trained to pass judgement about the economy, and as far as I know, the COAS is not a trained economist.
“It has become fashionable for people who know nothing about the economy to make comments about something which requires some amount of specialisation. Even if what the COAS said was correct, merely as a throw-away comment, one assumes he does not have the training or the competence to understand the intricacies of how tax collection and the economy work.”
Khurram Husain says “the army’s demands have always been there but have recently become louder and there are reasons for this. The expenses related to anti-terror operations carried out by Pakistan Army and the far-more-than-expected CPEC security costs have pushed the army to up the ante.”
“On the other hand, the political government has its own reservations — including some about the army spending the budgets allocated to it on business ventures — but they cannot say this openly.”
That the country’s economy is facing several challenges is undeniable. Apart from the usual problems, the security scenario and the costs it entails are putting a further burden on the state that has finite resources at its disposal. How these additional costs can be met without cutting on the expenses of the civilian government is a question that will keep haunting the different arms of the state.