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Shahid Javed Burki: Pakistan's new political economy

Only more democracy can liberate Pakistan from the gridlock of contending economic interests

Shahid Javed Burki 

Does economics influence the course of politics or is it politics that determines the direction of economics? Economists and political scientists keep on asking the question but have yet to find a satisfactory answer. The explosion on the streets of West Asia and North Africa (WANA) is the latest event where such questions have been raised. When Mohammed Bouazizi, a 26-year-old Tunisian fruit vendor, set himself on fire after having been slapped by a policewoman, he must have known that he was making a political statement. However, nobody thought that this one act would lead to the demise of the long-enduring regime of President Ben Ali and would spread to other WANA countries that had been weighed down by ossified regimes for decades. The Tunisian president lasted for ten days; his Egyptian counterpart resisted longer but had to leave after 18 days of protests on the streets of Cairo.

In both cases, however, the main reason for the success of the street was economics. Both Tunisia and Egypt were doing well in terms of growth but the fruit of growth were being picked by a very narrow segment of the population. Closed political systems and constrained media provided no outlets to the anguished masses, who saw little improvement in their own circumstances while the rich were living extremely well and were accumulating large amounts of assets both inside and outside the countries. But the fruit-seller’s self-immolation gave them courage and brought down two regimes. And more will most certainly depart.

Similar frustration is building up in Pakistan. The economy is under stress; inflation is eroding the real incomes of all but the rich; there are stories of rampant corruption at all levels of the government; there is growing anger at the way the country’s sovereignty is being disregarded by the United States through the use of drones to attack the tribal areas. This leads to many questions concerning the interplay between economics and politics. Why is the economy performing so poorly while other South Asian nations continue to move ahead at respectable speeds? Could this be because of political uncertainty that discourages investments by both internal and external economic actors? Is the political system under stress because of the poor performance of the economy? Will the street explode as in WANA and in Pakistan in the past?

In Pakistan’s case, it is easier to answer some of these questions. The political system has not yet been able to find a way to reconcile the different economic interests of the various parties that are competing for the same political space. Unless that can be done, the country will not be able to find a solution to its most pressing economic problems. The state does not have the resources to provide some of the basic services that only it can deliver to the poor and the not so well-to-do. The tax-to-GDP ratio has declined to well below 10 per cent, one of the lowest in the developing world. At that level, once the government has paid for defence and serviced the increasing amounts of national debt, not much is left for social services. The quality of both public education and public health has deteriorated to such an extent that the poor are opting out of the public system and are looking to the private sector for relief. But the small amount they can spend on these services means that even private suppliers don’t provide adequate services. The well-to-do have far better access to quality education, health care and security services. They have managed to create islands of prosperity and good life in the midst of growing misery and despair.

There is no other way out of this quandary than for the government to increase its resource base. But the tax system is proving hard to reform. The various constituencies that support different political parties are not prepared to see an erosion of the incomes of their base that would inevitably result in the short term with higher taxes. The ruling Pakistan Peoples Party has a strong base of support in rural Sindh and does not want agricultural incomes to be taxed. The Karachi-based Muttahida Quami Movement does not want urban services to be taxed. The Pakistan Muslim League (Nawaz), which governs Punjab and is the largest opposition party, does not want the documentation of the merchant class, which has successfully resisted it. Without documentation, it cannot be brought into the tax net. Politics, in other words, is pulling down the economy. And it is only politics that will bring about an improvement in the economy.

There have been similar periods of frustration among the masses in the past. Each time, it led to explosions on the streets that eventually resulted in regime change. Pakistan has had its WANA moments in its turbulent history. This time around, the political system is open enough and the media free enough to allow people to voice their The promise of another election in less than two years means that people can go to the ballot box to bring about a regime change. The military will not be called to throw out non-performing regimes as it did four times in the past. An open political system supported by free media instills patience even when the level of frustration is very high. It appears that the country will have to struggle for a while to find a political solution to the many economic problems it currently confronts.

The writer is former finance minister of Pakistan

First Published: Fri, April 22 2011. 00:06 IST