By Dr. Shahida Wizarat
The way forward formulated out of the present crisis for Pakistan is one that facilitates the local elite and foreign partners to benefit, while the entire cost is borne by the middle and lower middle classes in Pakistan. This can be observed from the god-fatherly role adopted by the World Bank (WB) to protect the interests of IPPs, the bogus arbitration pointed out by Jeffrey Sachs given by ICSID in the Riko Diq case resulting in the imposition of a $5.9 billion fine on Pakistan.
And the recent WB proposal to increase the tax rate to 35% on all those earning Rs 5 lakh p.m. The economic turmoil resulting from IMF conditionalities has been causing a massive decline in growth rates, rendering one crore fifty lakh people unemployed, a phenomenal increase in the inflation rate including food inflation which is making Pakistan food insecure, increasing our foreign debts by $100 billion in the last 4 years alone due to IMF conditionalities.
This along with the proposals on corporate farming, export of minerals in raw form, and privatization of strategic assets are efforts to facilitate and increase elite capture for Pakistanis in the corridors of power and foreign collaborators. This elite capture is reflected by the royal living style of the government, the increase in top-heaviness in organizations, with a sharp increase in their salaries and perks.
As a result, there is a massive increase in the income differential between the top management and the lower cadres. The major focus of the reform agenda should be to provide solutions that result in maximum benefits to the people of Pakistan, instead of accentuating the elite capture by the local and foreign elite.
Government expenditures
The lavish life styles of the Government have to be brought down drastically. The royal life styles, the protocols, lavish and frequent travels abroad have to be slashed drastically. Public sector institutions’ top heaviness needs massive cutting to size, and the perks and privileges of those drawing salaries and perks between Rs 20 million and 4 million per month in public sector institutions, banks, and financial companies need to be slashed drastically.
Balance of payment
Pakistan has closed its eyes to its own vital economic and strategic interests. We don’t have foreign exchange reserves to pay for our most vital and strategic goods. These can be made available from countries against payment in local currencies and barter. Let me re-emphasize that we do not have the foreign exchange reserves to pay for these, and we cannot turn to the IMF for further borrowing as our foreign debts have become unsustainable.
Unsustainability of debts means that if we engage in fresh borrowings we will not be able to service our debts. There is, therefore, no other option but to trade in local currencies. And it is our sheer good luck that the Peoples Republic of China, the Russian Federation, and other regional countries are amenable to trading in local currencies and barter.
The external sector strategy proposed by me in my book ‘Alternative to the IMF and Other Out of the Box Solutions’ is a better alternative to the IMF strategy on account of the following: First, an increase in exports is expected to be brought about through quality enhancement and exploring new commodities and markets. Second, the cost of adjustment which is quite marginal is passed on to the wealthy classes, who bear a nominal burden in the short run only.
Third, the proposed strategy tries to break the trade-off between economic adjustment and economic growth by trying to bring about an ‘expansionary adjustment’ rather than a ‘recessionary adjustment’. Fourth, while the IMF model tries to increase foreign exchange reserves by increasing exports only, the alternative strategy proposed by me focuses on expanding exports, reducing imports, charging market rates for the use of our infrastructure, natural resources and financial assets to increase the inflow of foreign exchange.
Mineral resources
Our mineral extraction methods are very dated resulting in huge losses. We should import technology that will help in the safe extraction of minerals and stones. This requires exploring state-of-the-art technology from companies in the Russian Federation, China, Turkey, and other friendly countries.
We are exporting our gold, copper, precious stones, rock salt, rare earth, apricot kernels, indigo plants, etc., in raw form at nominal rates. Countries that do not have these resources, import them from Pakistan and establish industries converting our natural resources into finished products, creating wealth for themselves.
While we are selling them for peanuts and suffer from the ressource curse. We should invite open bids through international tenders for prospecting, exploration, and mining of precious metals. It also requires formulation of an industry cum area-specific industrial policy, which gives incentives to only those industries whose natural resources are found in abundance in those areas. For Baluchistan, KPK, and Azad Kashmir this means that we develop fuel, mineral, fruit, and vegetable processing industries. This way we can change the resource curse that afflicts exporters of minerals and fuels in raw form into a blessing.
Privatization
In order to pass on the benefits from privatization to Pakistan and the local population the following recommendations are being made. First, the privatization policy of the GOP will have to distinguish between strategic and non-strategic sectors. For the non-strategic sectors, GOP may resort to full privatization or partial privatization. Second, strategic sectors should not be privatized. All the loss-making strategic sectors should be restructured rather than privatized.
The GOP should start with the restructuring of loss-making strategic units. Third, the GOP should use its power to benefit the poorer segments of the Pakistani population, rather than teaming up with big foreign companies, which will create misgivings in the minds of the public about government motives.
Agriculture
A cheaper and healthier alternative to the problem of food insecurity is organic farming which does not entail the import of seeds, fertilizers, and insecticides. Since it does not require these high-tech inputs, organic farming does not require foreign exchange. It also does not require large amounts of water which is already scarce in Pakistan. Organic farming would, therefore, not only be cheaper but a healthier alternative as well.
If the government is serious about making Pakistan food secure it should give 7 to 10 acres of hitherto uncultivated land to landless peasants in areas where water is not a serious problem. Improved irrigation methods like sprinkle irrigation, building of dams, etc., should be undertaken by the government.
Small loans from the Agricultural Development Bank can take care of seeds, natural manures, and natural insecticides. The produce from these organic farms should first be for the home market in Pakistan. This would be a far more effective and sustainable way to make the country’s food secure. And what is left over can be exported.
Conclusion
Pakistan’s present economic policies put a severe burden related to debt servicing on the middle, lower middle, and poor classes of Pakistan. While the wealthy segments of the population are the major beneficiaries as they don’t bear the cost of adjustment. The wealthy classes also gain on account of the devaluation of the Rupee and the rise in the value of the $, and the steep rise in the interest rate enables them to earn fantastic wealth without making any effort.
They also stand to gain through non-transparent privatizations, giving away Pakistan’s natural resources in raw form for peanuts, fantastic pay, and benefits ranging between Rs. 20 million to 4 million to top management in public and private banks, financial companies, and state enterprises. This elite capture is further compounded by the pay, perks, and privileges enjoyed by federal and provincial cabinet ministers, prime minister, chief ministers, and the president.
While at the lower strata are those whose wages are in the range of Rs. 30,000 to 10,000 or even less. World Bank and IMF borrowings and the accompanying conditionalities are accentuating the elite capture in Pakistan. True to their predatory instincts and behavior Pakistani leadership has been sharing Pakistan’s resources, strategic assets, highways, motorways, airports, and other infrastructure with foreigners, but have not shared these with the people of Pakistan, who are the real owners of these resources and assets.
All the benefits/rents accruing from our assets and resources are shared between those in the corridors of power and their foreign masters who bring them to power. While the people of Pakistan who are the real owners of these resources and assets are struggling for one square meal, which is too expensive, and too contaminated with GMOs to give them proper nutrition and good health.
Dr. Shahida Wizarat serves as the Dean of the College of Economics and Social Development (CESD) at the Institute of Business Management (IOBM) in Karachi.