Five years on: A poorer, hungrier nation

If electoral democracy were a cake, Pakistanis would be coming off of a five-

year binge. Instead, the nation is poorer, hungrier, and more deprived today
than it was in March 2008.

For the first time since independence in 1947, democratically elected

legislatures are completing their constitutionally mandated tenures in
Pakistan without being summarily uprooted by a military regime or its civilian
proxy. This is indeed a significant landmark in Pakistan’s democratic journey.

Despite the historic achievement, the sorry state of the federation where law
and order has disappeared and corruption is ubiquitous, and where economy
and utilities have faltered, would prompt the electorate to question the real
value of electoral democracy. Has electoral democracy been able to deliver
jobs to the unemployed, and food to the poor? A quick economic recap of the
past five years is in order.

The Zardari government took over from General Musharraf who reluctantly
relinquished control after it became apparent that a showdown between the
General and political forces was imminent. What started with a great promise
turned quickly into a major disappointment? Within months, the naïveté of
the new government was evident as one sector of the economy was
mismanaged after the other. While the Musharraf regime posted 6 per cent to
8 per cent economic growth rates, the Zardari government couldn’t muster
even a 4 per cent GDP growth.

It is, however, true that the good fortune did not favour the elected
governments. Whereas, the Musharraf regime enjoyed the dividends of a
rapidly growing global economy in which the Americans and the Europeans
were keen to shower cash for Pakistani mercenaries and bounty hunters, the
Zardari government came to power in 2008 when the global economies
experienced the worst economic recession since the great depression of the
30s. The demand for Pakistani goods declined and investment flows dried up,
thus starving Pakistani industries.
And while the economic growth was dismal at best, the stock markets in
Pakistan continued to reach new heights. Even with the worsening of law and
order and a near complete collapse of the power sector that crippled the
manufacturing sector, the KSE 100 index continued to grow, fuelled most
likely by ‘irrational exuberance.’

Source: Tradingeconomics.com (2013). KSE 100 Index.

The lackluster economic growth resulted in a sustained higher than usual
unemployment rate that lasted throughout the five year democratic rule. The
per capita GDP (measured in US$ in constant 2000 prices) during the same
period grew by mere $30. At the same time, the economic managers fail to
arrest the sharp increase in consumer prices that grew by 80 per cent in a
short span of five years. The result was catastrophic for low to mid-income
households who faced limited opportunities to earn a living, while the cost of
living continued to climb.
Good governance, amongst others, is as much a part of democracy as
electioneering is. However, governance has not been a core value of the
political parties that controlled legislatures in Pakistan. We are indeed
indebted to the Zardari government in the centre and the four provincial
governments to have the fortitude and ability to complete their constitutional
tenures. However, the same left the nation buried under a mountain of foreign
debt that ballooned from $45 billion in 2008 to over $65 billion in 2012. The
government debt to GDP ratio, which was down to 55 per cent in 2008, rose to
60 per cent in 2012.

The economic scorecard of the democratically elected government in Pakistan

suggests that the past five years have been a major disappointment for the
electorate. The government failed to recognise its responsibility to create the
necessary environment in which commerce could flourish and the private
sector could create jobs for the rapidly expanding younger cohorts.
The past five years have left the nation poorer and hungrier. A 2011
national survey revealed that widespread malnutrition in
Pakistan has caused 44 per cent of the children under 5 years of age to have
stunted growth. In Sindh, the power base of the Zardari government, three in
four households were food insecure.

Democracy is all about the fulfillment of physical and spiritual needs of a

people. For Pakistanis though, the democratic rule has meant darkness,
hunger, and violence. Surely, Pakistanis deserve much better and are justified
in expecting improved governance from the next cadre.

The worst era ever?

THE last PPP government is frequently termed as Pakistan’s worst.

Some use such assessments to merely lambast the PPP.Others
argue that incompetence was so extraordinary that it proves that
democracy is unsuitable for Pakistan.

The PPP’s performance was indeed disappointing. However, the assertion that
incompetence was so acute that extra-constitutional steps are justified rests on
spurious statistics and hyperbole.

Many claim that the PPP destroyed the economy.

Pundits report that it incurred more debt than all previous governments
combined. This is an evocative and hair-raising but meaningless comparison.

Firstly, nominal debt values cannot be compared over time since inflation has
reduced rupee values significantly since 1947. A small debt from 1950 equals a
debt several times larger today in real terms.

Secondly, as the real size of economies increases, so do their debt-carrying

capacities. Thus, anyone employing this comparison is a bad economist or a
good politician.

Good economists compare debt ratios over time, eg, annual debt-servicing
levels compared with exports and/or tax revenues. World Bank databases
show that Pakistan’s external debt service-to-export ratio deteriorated from 10
per cent in 2006 to 15pc by 2010 but improved to 9pc in 2011. However, it was
worse (26-40pc) in certain years under Musharraf, Sharif and Zia!
The Pakistan Economic Survey shows that the public debt-public revenue
ratio deteriorated from 404pc in 2008 to 474pc in 2011 before improving to
419pc. It once touched 589pc under Musharraf!

Analysts portray the 2008-2013 GDP growth as Pakistan’s lowest. (World

Bank databases show that growth was actually slightly lower during 1997-
2002 under Sharif and Musharraf.)

If one takes a dozen critical indicators, the 2008-2013 performance may

emerge as the worst. However, this period experienced Pakistan’s worst-ever
combination of external threats, including the worst recession since 1929
globally and the worst floods since independence nationally.

Would the 2008-2013 performance still be the poorest, and that too poor
enough to justify extra-constitutionalism, once the impact of these factors is
removed? This determination requires rigorous econometric analysis which
unfortunately is unavailable. Off-hand, the latter outcome is extremely
unlikely.

Critics claim that this was Pakistan’s most corrupt government by spuriously
highlighting Pakistan’s post-2008 deterioration on Transparency’s corruption
perception index rankings. However, Pakistan’s rankings could deteriorate
even because of decreased corruption perceptions in other countries.

Pakistan’s corruption trends can only be gauged through its own absolute
scores over time on this index, which journalists rarely report. Pakistan’s
scores have fluctuated between 2.1 and 2.6 (out of 10) since 1999.

The worst score within this narrow band occurred under Musharraf. Media
reports about astronomical corruption increased after 2008, though without
court convictions, they must be treated with caution. Transparency reports
Rs18 trillion of post-2008 corruption, media headlines scream. However,
reading further, one discovers questionable inclusions, which represent weak
economic performance rather than corruption.

One hears repeated claims about unprecedented post-2008 insecurity.

However, under Musharraf, the Taliban’s physical control extended close to
Islamabad and even inside it if one counts their Lal Masjid fortress.

The Pakistan Institute of Peace Studies reports that suicide attacks/fatalities

have decreased after 2009-2010. Baloch nationalists are now contesting
elections unlike under Musharraf. However, Karachi violence, sectarian
attacks and crime have increased recently.
In summary, PPP’s performance was the poorest on many immediate
dimensions but also better than earlier periods on some, despite a tougher
environment.

Most major immediate problems (energy-related, inflation and insecurity)

were legacies inherited from Musharraf.

Despite inheriting these issues, it could have resolved them instead of making
some of them worse eg, by initiating poor-friendly taxation given the
persistent stagflation; holding early, credible elections in Balochistan; and
tackling militants forcefully. However, this comparison with non-democratic
eras is legitimate when comparing the virtues of democracy with non-
democratic alternatives.

More importantly, there is no evidence of extraordinary incompetence which

justifies extra-constitutionalism. To give a flavour of what extraordinary
incompetence looks like, a quick global tour is helpful.

Governments in Liberia, Rwanda and Somalia completely collapsed faced with

rebellions during the 1990s. Zimbabwe recently experienced inflation of
trillion per cent (compared with Pakistan’s recent highest of 20pc plus under
Musharraf). Argentinian and Indonesian GDPs contracted by 25-50pc over
two years. Pakistan’s growth remained positive throughout 2008-13.

Ironically, most of these countries moved from autocracy towards democracy

subsequently. To suggest the opposite for Pakistan despite its far better
performance is nonsensical.

Turning to abstract issues, devolution, curtailment of presidential powers and

institution of an independent election commission and judiciary represent
major democratic advancement. While the debt comparison above is
meaningless, it can be legitimately claimed that this era probably produced
more democratic advancement than all previous eras combined.

Ironically, these previous eras include the 30 years of three dictators who
promised “genuine” democracy. The credit for this advancement goes to all
major parties in proportion to their parliamentary strength.

Many dismiss this advancement outright since immediate issues remained

unaddressed.

Coming from those who suffered grievously during 2008-2013, e.g., the
bottom 25pc or the Hazaras, such dismissal makes sense. Coming from the
majority which escaped acute suffering, especially those who boast endlessly
of having longer-term perspectives than illiterates, it reflects shocking short-
sightedness.

Such advancement only will eventually produce the good governance that can
resolve immediate issues effectively.

However, immediate performances and hyperbole ultimately determine

electoral fates. Given the PPP’s poor immediate performance and failure to
debunk hyperbole, it would be neither surprising nor unjust if voters seek
change in May. But this will not represent democracy’s death-knell, rather its
rejuvenation.

The PPP’s terrible economic performance

In my last column, I briefly mentioned the dismal economic performance

of the present PPP government. After the article was published, many of
my PPP friends called and challenged the basis of describing the
economic performance dismal. Under what rationale they questioned
the bad performance is not clear to me. The PPP’s performance has not
just been bad but dismally bad and I would call it the worst economic
performance by any government since our independence. The following
macro-economic indicators will demonstrate my point.
GDP growth: Average GDP growth during 2008-12 has been 2.9 per
cent. Never in our history has the growth for any four-year period been
so low. Let us compare Pakistan’s GDP growth with other countries in the
region during the same period, which were as follows: India 7.8 per
cent, Bangladesh 6.8 per cent, Sri Lanka 6.1 per cent and Pakistan 2.9
per cent. Most economists would agree that in order to progress and for
people to survive above the poverty line in Pakistan, nothing less than a
six per cent sustainable growth rate is required.
Inflation: Except for the last two to three months, inflation has
remained in double digits during the entire period of this government.
Looking at this from a historical perspective, this has been the second
worst period since 1947, as far as inflation numbers go. Only once in
our history we had a higher inflation over a four-year period and that
was during the first PPP government in 1972-77. Compared with us,
India had single-digit inflation throughout much of the same period.
Pakistan’s economic managers cannot complain of high oil and other
commodity prices for its high inflation numbers.

Tax-to-GDP ratio: When the PPP came in power in 2008, the tax-to-
GDP ratio was 10 per cent and the plan was to increase it by one per
cent each year so that by 2013 it would be a healthy 15 per cent. At
present, the ratio is less than nine per cent, which would rank Pakistan
among the worst in the world. This helps explain why the present
government has been unable to deliver in terms of investment in social
sectors and infrastructure projects. There is no rocket science here —
you either increase the revenue side or reduce the non-development
expenditure or ideally a combination of both.

Budget deficit: Last fiscal year, the budget deficit was at an all-time high
of approximately seven per cent but even more alarming is the forecast
for the present fiscal year, which is expected to see a budget deficit in
the range of eight to nine per cent. What does that mean for the
economy? In terms of actual rupees, it means a deficit of more than two
trillion, which will largely be filled in through borrowing from the
central and commercial banks. It has adverse effects too. This will
crowd out the private sector simply because the commercial banks
would not have much to offer to the private sector and in any case, it is
much easier to lend to the government without taking any risk.

Investment-to-GDP ratio: In 2008, this was 23 per cent, which has now
come down to 12.5 per cent — the worst for more than 30 years. A 10
per cent drop in this ratio simply means approximately 20 billion
dollars in terms of lost investment.
The numbers speak for themselves. All other indicators are also negative.
Public debt has more than doubled in the last four years. State
institutions such as Pepco, PIA, the Railways and the Pakistan Steel are
all making huge losses (around Rs400 billion every year). Pakistan is
facing the worst energy crisis in its history and no improvement is
evident. The privatisation process is almost at a standstill.
The economic situation is grim, to say the least and there is a general
perception that the situation is unlikely to improve, since no structural
reforms are planned and in any case, it is too late to initiate any such
reforms.

With such a miserable economic performance, any chance of the PPP being
returned to power in the next election looks almost impossible.