Since the inception of Pakistan, successive regimes have felt no hesitation in seeking loans in order to repay previous borrowing. Their priority was never to focus on enhancing exports, remittances, curtailing expenditures by taking austerity measures and pursuing a policy of self-reliance. In the post-9/11 era, to get American aid for combating terrorism, Pakistan faced $80 billion of economic losses in the form of large-scale violence and suicide attacks. When the preference of elites is to safeguard their own privileges, perks and comfort zones, they end up seeking minimum benefits for the polity, while getting comfortable with exacting egregious losses, reflecting a mindset that is perhaps best summed up by the English idiom “penny-wise pound-foolish.”
According to the Cambridge Dictionary, penny-wise pound-foolish means, “to be extremely careful about small amounts of money, and not careful enough about larger amounts of money.” If a country’s leadership is imbued with prudence and perseverance, it will never go down the imprudent path by seeking small amounts of money, and in the process losing a huge sum of resources.
India, Pakistan’s next door neighbor, followed a policy of self-reliance instead of banking on foreign aid and loans, and as a result of its wise policy, is now the world’s 5th largest economy, whereas Pakistan’s economy ranks 44th. The same is the case with the People’s Republic of China, which adopted a policy of self-reliance and export-led growth, and is now world’s second largest economy. The leadership of both India and China, instead of import led consumption, focused on domestic industrialization, modernization of infrastructure, providing better education, conserving resources and pursuing a policy of austerity. Instead of depending on foreign aid and loans, China and India relied on their on human resource, science and technology, research and education to pull their people from the clutches of poverty and underdevelopment.
Instead of investing in human and social development, state actors have preferred to lavishly spend money on sustaining their perks and privileges. The VVIP culture which protects the interests of power elites is a reality and no regime in the recent past, including the one led by Imran Khan, was able to eradicate a culture of boundless privilege, which perpetuates itself at the expense of taxpayers.
China and India were penny-wise pound-foolish, but in the interest of their people and for accomplishing long term objectives to transform their countries into globally renowned economies instead of seeking short term benefits. To a large extent, the United States has also been a victim of penny-wise pound-foolish approach since the end of the Second World War. Its military engagements in Korea, Vietnam, Middle East and Latin America cost Washington trillions of dollars, but they failed to accomplish what Washington and its allies had planned. After the end of the Cold War, the United States spent more than 2 trillion dollars in Iraq and Afghanistan and elsewhere, but had to withdraw from the two countries without achieving its objectives.
America’s penny-wise pound-foolish approach is a classic example of not focusing on issues which cause extremism and terrorism or the surge of authoritarian culture, but investing in militarization and dictatorial regimes to the extent that its annual defense budget is now $800 billion and its debt is $33 trillion. From any standpoint, the United States is the most debt-ridden country in the world and periodically faces the threat of default and the shutdown of the federal government. On the contrary, countries like Germany, Canada, Australia, Japan, China and India focus not on excessively using their resources for overseas military engagements, but concentrate on bettering the lives of their people.
Pakistan’s predicament as a national security state is three-fold, which has deepened its penny-wise pound-foolish approach. First, the role of successive regimes and elites, which has not been people oriented, but rather focused on self-interest. Instead of investing in human and social development, state actors have preferred to lavishly spend money on sustaining their perks and privileges. The VVIP culture which protects the interests of power elites is a reality and no regime in the recent past, including the one led by Imran Khan, was able to eradicate a culture of boundless privilege, which perpetuates itself at the expense of taxpayers.
The national security state, instead of spending on providing clean and safe drinking water, affordable and respectable public transport, housing, health and educational facilities to those who belong to the lower strata of society, spends more than one third of its federal budget on defense expenditures. How can one expect Pakistan to feel secure and protect the present and future of 240 million people.
Ninety percent of the federal budget is utilized for debt servicing and to meet defense expenditures. As a result, hardly any money is left to run the federal and provincial governments and carry out developmental programs. For that purpose, the government has to borrow from domestic and foreign sources. Around one trillion rupees a year is lost in corruption in the form of bribes and other financial malpractices. Whereas, instead of mitigating huge expenditures on debt servicing, defense, corruption and VVIP culture, the government penalizes common people by imposing huge taxes, which leads to severe price hikes and escalation in the cost of living. It is penny-wise and pound-foolish on the part of government to enhance the prices of electricity, gas and petroleum products instead of reducing their prices so that there is economic vibrancy and genuine development.
By trying to cut Imran Khan down to size and crushing PTI, the coalition governments and their handler’s attempts to seek short term benefits by ruining the economy and destabilizing the country are only driving the country towards ruin.
Easy money that the government makes by imposing indirect taxes puts a burden on people, whereas the government should have enhanced its income through direct taxes including tax on agriculture, while broadening the tax base.
Second, when the culture of maintaining infrastructure, machinery and other items is not to be seen anywhere, the result is the government has to spend enormous amount of money for their replacement and repair. For instance, if there is no maintenance of equipment, vehicles, roads, bridges, dams and canals, the outcome is huge losses in the form of their repair and replacement. The lack of ownership of resources is a major cause of financial wastage of resources. In developed and civilized societies, the culture of maintenance of infrastructure and equipment prevents wastage of tax payer’s money along with a sound work ethic.
By investing on quality education and better health services, trillions of rupees can be earned by multiplying exports, enhancing agricultural and industrial production, because a healthy and educated nation is in a better position to contribute. That is only possible when the state focuses on its people rather than perks and privileges for the elite, and non-development expenditures.
Finally, constant reliance on foreign aid and loans as a shortcut to pay for debt led to the mortgaging of Pakistan’s infrastructure and crops. There is no such thing as a free lunch and lenders ask for guarantees before approving loans. If the state continues with its current trajectory, the day is not far when Pakistan will actually default and its strategic assets will be under the control of lenders. During the financial year of 2023-24, Pakistan will have to pay $25 billion in debt servicing, which will ruin whatever is left of the country’s fragile economy.
For the elites of Pakistan living in their comfort zones and having assets abroad, sacrificing the wellbeing and futures of the common people is no big deal. When the people of Pakistan lack the strength, courage and capability to rise against injustices and exploitation, those wielding power are confident that they can get away with creating an economic mess which they consciously create either because of their incompetence or dishonesty. A shortsighted approach is the essence of penny-wise pound-foolish policies, which is the hallmark of today’s Pakistan. By trying to cut Imran Khan down to size and crushing PTI, the coalition governments and their handlers' attempts to seek short term benefits by ruining the economy and destabilizing the country are only driving Pakistan towards ruin.
There is no shortcut to mitigating the penny-wise pound-foolish approach, because the feudal mindset that persists in Pakistan cannot be positively transformed without meaningful, true accountability – not the political sort. As a result, Pakistan’s economy will further deteriorate, leading to the mass migration of professionals and unskilled workers. In the last 15 months, one million Pakistanis have left the country because of frustration, disappointment and after having lost hope for a better future in their own country. One can expect further erosion of the economy, governance, the rule of law and accountability if those wielding power continue with their short sighted approach.