interview
“In Pakistan, the IMF
programme may have started to create perverse incentives”  
Dr Ijaz Nabi — country director for International Growth Center
Interview by Farah Zia

Dr Ijaz Nabi is Country Director for International Growth Center, a policy research consortium of London School of Economics and Oxford University from Pakistan, and a visiting Professor of Economics at LUMS. He returned to Pakistan in 2008 after 22 years at the World Bank in Washington. He has published extensively on economic growth, investment and finance, industrialisation, international trade and labour markets in developing countries.

He was a member of the Prime Minister’s Economic Advisory Council (in the last government), Chief Minister Punjab’s Advisory Council and the Monetary Policy Committee of the State Bank of Pakistan. He is also Member of the Board of Benazir Income Support Programme. His advisory role, he specifies, “is in particular areas only”. He was nominated member of the recently formed commission to appoint the heads of about 40 government organisations as per the directions of the Supreme Court. Most of these are independent positions and all of his advisory work is in a pro bono capacity.

Here in an interview with TNS, he discusses Pakistan’s economic problems and how he would like to see them addressed.

By Farah Zia

The News on Sunday (TNS): Now that one civilian government has assumed charge from another and we don’t have the ‘high growth’ advantage, a hallmark of military regimes, there seems a sense of déjà vu of the 1990s, with IMF pressures and all?

Dr Ijaz Nabi (IN): I would say that the military governments when they go, and I once looked at the data, leave the economy in a worse shape than when they came in. Otherwise, they don’t leave. Economy was collapsing in the last year of the Musharraf rule. In fact, I was then on the other side — at the World Bank. We used to warn the government, starting from 2006, that there are weaknesses in the system and these could lead to serious problems. The prime minister at the time would pooh pooh us. So what happened in 2007 was building up since 2005 and the advice was ignored. By the time Musharraf left and the previous government came into power, it inherited a complete disaster.

TNS: So there wasn’t much the previous government could do?

IN: Tough decisions are difficult under democracies. The only advantage the military government has is that it can take tough decisions but only in the initial phase. Once it decides to prolong its tenure, it becomes an even weaker government; because then it has to appeal to all kinds of stakeholders to stay in power. Thus when it leaves, the economy is in a real shambles.

Democratic governments find it hard to take tough decisions because democracy requires you to take stakeholders along. Military governments are useful in some larger sense because they can take tough decisions if they come for short terms — but that never happens in practice.

TNS: Ideally speaking, if one democratic government were to follow another in Pakistan, would that be good for the economy?

IN: Yes. This election made it very clear that economic performance is going to be critical for re-electability. If we look at the performance of the Pakistan People’s Party government dispassionately, it actually did well in a number of areas. But it did not solve the main economic issue which was the energy crisis. It was punished for that. And quite rightly so.

The electorate has given this government a huge mandate to solve those problems. If it does not, it too will be punished. I would like to think that the discussion in PML-N circles currently is that how long can this government continue to enjoy this mandate without solving the key issue — the energy crisis.

TNS: The government has decided to take what it calls ‘difficult decisions’ by withdrawing subsidies, etc. Do you agree with these measures and will the people, especially the lower and lower middle classes, be able to withstand the consequences?

IN: It depends on how you put it to the public. For example, people say they don’t want to pay taxes because they don’t know how the government will use the money. Eight to nine per cent of revenue (which is what the people pay in taxes) is fine, provided your expenditures are cut back also. And that actually refers to slashing subsidies and not just stopping the government from using ‘luxury cars’, which involves small expenditures. The big expenditures are the subsidies.

Low revenues must match with low expenditures. You can’t have one without the other. When we try to have it, the general public pays. The worst form of taxation is inflation. If you want subsidies but don’t want to pay taxes, the only way the government can do this is by printing money. When that happens, the consequences are inflation. And inflation is a horrible tax. The poor pay it much more than the rich. And that is because the debate is not conducted in the public sphere.

TNS: But that is exactly the perception of the PML-N government that it does not want to burden its own constituency — traders — with taxes.

IN: This is the discussion I have in the meetings when they invite me — that you can’t have it both ways. In Lahore, some of the services like roads, public parks, and metro bus, etc. have improved considerably. But Lahore’s property owners are paying very little of it. It’s coming from the larger kitty. Lahore has a much larger property base which can be used to pay for such utilities.

TNS: Going back to the IMF, is there a solution to Pakistan’s economic problems outside of IMF? What is wrong with the IMF programme and what is right?

IN: In Pakistan, the IMF has started to create perverse incentives. The idea of IMF is great — which is if, for a variety of reasons, countries get into a severe balance of payments crises, the IMF comes to their rescue. We can also look at the crisis in southern Europe where bad investments were made which resulted in a large fiscal deficit and a balance of payments crisis. So the IMF stepped in. IMF is structured to play that role; otherwise the pain becomes prolonged and costly.

So, there is no fault of the IMF; and today if we were to get rid of the IMF, we would have to recreate something that looks like an IMF in a few years.

The issue is that we have a recurrent problem — of balance of payment crisis. And there are two reasons for that. One is the very large fiscal deficit — we spend much more than we earn, and fiscal crisis very quickly translates into a balance of payment deficit. Secondly, our exports are stagnant.

If it were that the government was earning deficits while the private sector was going in surplus, like in India which also has a huge fiscal deficit but gets a lot of export earnings, especially from the IT sector and remittances, and they both compensate for the deficit that the government creates, we would be okay. But our problem is recurrent. Every four or five years, we go through this.

TNS: So what needs to be done?

IN: One, we have to increase our exports. Two, increase our revenues and lower our expenditures and subsidies. We are not ready to do these things. And the reason why I say this is perverse is that now we count on the IMF to come to our rescue instead of taking the decisions that need to be taken.

If we were a normal country with this pattern, the IMF would not be here. We are not a normal country. Earlier, we were important strategically; due to our being members of pacts like SEATO and CENTO in the context of the Cold War between the US and the USSR. Today, we are important because the risk to the world of us falling apart is huge. And the cost of coming and fixing us, if we were to fall apart, is much larger than the US prodding the IMF to come for our help.

And that has created a perverse incentive. Our leaders, when they come to power, readily fall back on the IMF.

TNS: Would you also count in the defense budget as something that’s impacting the economy?

IN: As I said earlier, if people were not willing to give more than eight and a half per cent of GDP as taxes, and the government was to set its priorities to fit into that, there would be no issues. But we have three large claims on the budget: defence expenditure, subsidies and debt servicing. If we are not ready to cut those to meet the eight and a half per cent the people are willing to pay, then all of those are misplaced priorities. I’m not taking one as being better than the other. But all these three major claims on Pakistan’s budget do not match the resources that we have.

TNS: The government is going to undertake massive privatisation of public sector enterprises. How do you look at this whole exercise?

IN: A modern government has huge roles to play as a regulator because, as economies develop, they become more complex. Therefore, the need for regulation and the need to provide services the market does not provide, become extremely important.

For that you need a well-paid and modern government which, in my view, does not run airlines. Airline is something that the private sector can do quite well. Efficient modern governments do not produce things. For instance, there is no need for the government to produce steel. The governments should only do what the private sector does not do and is essential for the economy — infrastructure or at least a large part of it (within infrastructure, private sector can come). Take Railways, for instance, which includes systems like traffic flow and railway lines — one is regulation work and the other is natural monopolies. World over, these two remain — and should — with the government. As for the railway stock, like engines and carriages, anybody can do it.

The governments can sometimes construct highways — private sector would not have ventured to build the motorway because the returns start coming very late — but they don’t need to also run buses. Ditto for railways. Similarly, there are many activities where the government is currently sitting, but it has no business being there, like the Steel Mill which is run by some bureaucrat and the PIA which is headed by some air marshal.

TNS: There is a view that the government should also act as an employment-giver? Isn’t that a function of the government?

IN: We just talked about the fiscal deficit and we said people are not ready to pay more than eight and a half per cent of the GDP as taxes. So, people are not saying the government is a good employer of people.

TNS: But should we take that as given that people will not pay beyond this as taxes?

IN: There is a correspondence between the willingness to pay taxes and the ability to collect them. The people in the street tell you they don’t want to pay taxes because they don’t trust the government. The biggest examples of government failure they would give you are the Pakistan Railways and the PIA.

TNS: But there are also examples of private sector’s failures in the world and the governments coming to its aid?

IN: Those are examples of systemic crises, such as in East Asia. In systemic crises, if you allow the private sector to fail, it will take much longer for the economy to recover. The same is the case in the US which faced a systemic crisis because of very bad investment decisions in the property sector. If they allow all of it to fail, the recovery will be much harder.

We don’t face a systemic crisis of that sort. Our crisis is essentially about the failure of the government to deliver. And then we say this very government should do a lot more.

I would like the government to focus on things that fall quite rightly in its domain — such as regulation, providing good policing, efficient lean defense, key infrastructure, basic healthcare, basic education, higher education — where it has to set standards. I think we should have a much better-paid government than we have now. The focus here is on employment; we should not look to the government to generate employment. Employment is created by the private sector all over the world; the government can stay lean and efficient so that the private sector can do that.

  Yeh Woh
Qurbani ka bakra
By Masud Alam

A group of Pakistani journalists was gathered round Hakeem Saeed at a community function in Pakistan Centre, Dubai. They sought his opinion on political developments, addressing him as the governor of Sindh. He insisted the only subject he was prepared to talk about was hikmat. “So ask me something about the functions and ailments of human body, talk to me about health”, the visitor challenged them with a disarming smile.

There was absolute silence from journalists. The grand old hakeem then decided the subject for them. Are you a carnivore or herbivore? he asked, scanning his uncharacteristically quiet audience. Meat eaters, came the collective and cheerful response. Wrong answer, the wise man beamed another smile. Going by the structure of our teeth and the functioning of our guts, we have come a long way from our hunting ancestors and are now closer to grass eating domestic animals than blood seeking predators. Our bodily system can survive and even thrive without any meat input, but can be severely damaged by a diet too reliant on meats, he said.

Whether or not this assertion by a very competent professional made anyone a vegetarian is beside the point; what he did was give a lie to the most common reason given for wanton and raved blood letting of animals during Eid ul Azha: It’s for the poor. They don’t get to taste meat all year long. This is a once in a year treat for them.

Using Hakeem Saeed’s argument, the poor are not missing anything in life. Milk, lentils and eggs have everything that’s good about meat. Except for the taste. You go for meat for the taste, and for cultural compulsions, knowing that medical risks attached to meat eating far outweigh any protein or vitamin content benefit. Besides, there are lots of other things the poor never get to taste: pomegranate for instance, or basmati rice, or oysters … Why make such a big deal of meat only?

Urdu language has these wonderful nuances to distinguish a sacrificing type person from a sacrificial type. Qurbani ka bakra is a phrase for the latter; it’s used for someone who is punished for no sin of his, by someone who has nothing against him but expect to earn God’s favours through this sacrifice. Just like old times when the uncouth Makkans used to sacrifice animals to encourage their gods to listen to their supplications and grant them their wishes. We do that today in the name of sadqa, khairat, aqeeqa and what not, all through the year. On top of that we dedicate two days in a year, for wholesale massacres of goats, rams, cows, camels … until our open sewers are clogged with discarded parts of carcasses and overflow with blood.

Both excuses are just that: excuses. Most likely you have never felt the need to question the practice. After all it’s the second biggest festival of Muslims and comes with its own paraphernalia of religious traditions, social customs and family practices. You saw your parents butchering a bakra and therefore you must do it when you are an independent adult.

Don’t get me wrong; there are aspects of Eid ul Azha I enjoy and cherish and wouldn’t want changed, of which I’ll mention just one. Every year we produce stage and TV dramas to be shown during eid holidays. It has become a genre and a very popular one at that. ‘Bakra Qiston Per’ has been a phenomenal hit not only in Pakistan but in neighbouring India as well, and has had umpteen number of sequels made.

Can’t we just watch these sitcoms on TV and have a laugh this eid, rather than making our little children cry at seeing lethal violence, blood, and dismembered body parts, right inside their homes? Isn’t it naïve to expect rewards for yourself when it’s the bakra that gets its throat slit?

Can you really not think of a better way to follow Ibrahim’s example? Or to be helpful to the poor and needy?

You have three days to make up your mind. Have a happy Eid ul Azha and an enjoyable and restful holiday.

masud.dar@gmail.com

issue
Election rigmarole
Even if one-fourth of the total votes pointed out by Nadra in NA-256 are bogus,
the figure is good enough to discredit the whole election exercise in the country
By Adnan Adil

What had been an open secret for the residents of Karachi has now got the Nadra’s stamp — that bogus voting was carried out in the city on May 11, 2013.

Even if one-fourth of the total votes pointed out by National Database and Registration Authority (Nadra) in NA-256 are bogus, the figure is good enough to discredit the whole election exercise in Karachi. This sample of two constituencies — NA-256 and NA-258 — casts doubts on the election results of all 272 national assembly seats.

Although the situation in Karachi is peculiar, serious complaints about election results abound in Punjab, Khyber-Pakhtunkhwa and Balochistan as well.

The Nadra report on 69 polling stations of NA-252 says that thumb impressions of more than 70,000 voters could not be recognised. The MQM MP Faisal Sabzwari accuses the election commission for providing non-magnetic ink for thumb impressions — because of which the imprints could not match with the data collected by Nadra.

Federal Information Minister Pervaiz Rasheed argues that an election cannot be declared bogus merely on the basis of thumb impressions.

This point may have some merit as not all votes with unrecognisable thumb impressions can be termed bogus — as the ink used in other constituencies too was not of standard quality. But there is much more to Nadra’s report than this observation.

Arif Alavi, PTI MNA from Karachi, says his party has produced video recordings of how rubber stamps of thumb impressions were used to cast bogus votes.

Almost 80 per cent of the ballot papers where thumb impressions could be recognised in NA-256 were found to be bogus on a variety of counts. The Nadra report, for instance, reveals that one man cast 35 votes and some others cast more than one vote on different polling stations. Some men cast women votes as well.

The report further reveals that more than 5,500 votes were bogus for sure — for thumb impressions were recognisable, thus indicating multiple voting by people. At 35 polling stations, the number of votes cast far exceeded the counterfoils available with the election commission.

Further, these findings only pertained to 69 out of 200 polling stations.

However, the Nadra findings in Karachi should not be seen in isolation. They should be combined with circumstantial evidence of voting and anecdotal narrative.

A government officer and a close relative of mine was deputed as an assistant presiding officer at a polling station in Karachi on May 11. He told me goons belonging to a certain party started stuffing bogus votes into ballot boxes. He tried to resist but the presiding officer, a school teacher, came to him and advised him to look the other way to protect his life.

He later wrote a detailed letter to the head of his department describing his harrowing experience on the polling day.

In 2008, my uncle living in Karachi’s Federal B Area had a similar experience. When he reached the polling booth, he was told his vote had already been cast. He also saw a group of activists belonging to a particular party stamping ballot papers and stuffing the ballot boxes. When he protested about his vote, the young boys told him to shut up and told him to cast as many votes as he liked.

The media in the city is terrorised and hence unable to openly report such incidents.

On the eve of the May 11 elections, in Karachi, a large number of people belonging to the educated middle-class, fed up with violence perpetrated by ethno-linguistic groups, were determined to vote for the Pakistan Tehreek-e-Insaf (PTI). The PTI’s candidates secured more than 600,000 votes in the city, which was unprecedented for a party other than the MQM since 1988.

Had there been fair polling, the PTI claims it could have won four to five extra seats in the city while on other seats its margin of defeat (or the MQM’s margin of victory) might have been narrower.

The PTI has published a 2500-page report, detailing the irregularities in the elections countrywide. According to the report, there were a total of 1,500 registered voters at a polling station in a constituency of Sargodha, but the results showed 8,000 votes were polled.

Imran Khan has made repeated requests to CJ Iftikhar Chaudhry to order an inquiry into the results of four National Assembly constituencies of Lahore. But the apex court so far has not accepted his plea. The matter has been left to the election tribunals which have failed to take a decision on rigging — even after the prescribed 120 days of the filing of the case.

At least 400 election petitions are pending before the tribunals. As the track record goes, it would be years before these are disposed of. By then, the purpose of the whole exercise would be lost.

The electronic media cannot absolve itself of what went wrong on May 11, 2013, while the Election Commission failed to make the media comply with the code of ethics. Some news channels started projecting the party positions as final on the basis of results from only 20 to 30 per cent of the total polling stations in the constituencies. Thus creating an impression that the PML-N had won majority votes even before the counting was over in all the polling stations.

This sent a clear signal to all government officers working as polling staff across Punjab to fall in line with the winning party or be ready to face victimisation at the hands of new rulers. Also, this opened the floodgates for tempering of the results at the offices of the returning officers.

Another intriguing aspect was the undue delay — more than 12 to 18 hours — in the announcement of results of a number of constituencies.

In 1990, the Islami Jamhoori Ittehad (IJI) swept the elections, routing out the PPP led by Benazir Bhutto. It was a ‘surprise verdict’ as we made the headlines of weekly Viewpoint. A few years later, a senior police officer in Punjab, DIG Tanveer Hamed (late), told me the 1990 election results were an outcome of “management of zeros”.

The management of zeros meant that while compiling the final results, the vote tally was doctored by adding zeros to the votes obtained by the IJI candidates — say turning 160 to 1600.

Perhaps, the same 1990 technique was carried out in the 2013 general elections.

The controversy about the election results have surfaced at a time when Prime Minister Nawaz Sharif is expected to make two crucial decisions — appointment of the army chief and an operation in North Waziristan. The questions over the legitimacy of the 2013 election results and consequently Nawaz Sharif’s election as Prime Minister could weaken his position vis-à-vis other power centres while making these vital decisions.

Further, people would lose their confidence in the electoral process.

If these complaints and concerns about the electoral exercise are not removed, we may see a low turnout in the next local bodies or general elections, if not a violent street agitation.