What the IMF teaches us

It appears that there is no grand strategy operating here as successive governments seem incapable of putting plans to fruitful action, writes Shahid Pracha

What the IMF teaches us
Our worst fears have come to pass. To the direst predictions for the country’s economic well-being are now added the burden of regional geopolitical apprehensions and their knock-on effects on national security and the country’s broader economic interests. As if that were not enough, there is to be none of the much-hyped and hoped for miraculous oil bonanza.

Nevertheless, there is no satisfaction in being right; one can only contemplate the future with trepidation and dread. The only glimmer of hope that I foresee is that at long last the country appears to be on a more resolute path of practical macroeconomic reform than was the case in the last few months. The Pakistan Tehreel-e-Insaf (PTI), more intent on securing itself politically than decisively managing the difficult economic situation it inherited, has been hoist by its own petard and now faces an opposition that is playing up its mishandling of the challenges to the economy.

In economic matters, timing is of essence as confidence has taken a complete battering whilst the government dithered on approaching the International Monetary Fund (IMF). Now, chastened by its difficult experience of governing, the PTI will need to build bridges to manage the inevitable fallout of the harsh IMF directives. Political rhetoric on both sides will need to be canned in order to maintain social cohesion and stability or else we will all be losers.
Can we afford to perpetuate such a dismal record? We have yet to devise a clear-cut strategy to get out of this rut

Make no mistake: the IMF (and FATF) intends to keep the country on a short leash through its monitoring process which will be all stick and no carrot. If ever there was a time for the country to come together and tough it out, this is it. Since there is no shortage of better qualified writers to weigh in on the implications of the IMF conditions, I, for one, have been reflecting on the broader underlying aspect of why we keep falling into this trap with sickening regularity.

Is it something in our DNA or does the world conspire against us to keep us in our place? As the inevitability of seeking an IMF bailout became clear, the PTI government rowed back from its original position by publicly pronouncing that they would ensure that this was the very last time the country would approach the IMF. I have previously commented that this government is never short of audacious ideas, but truly speaking, this is an extremely worthwhile goal. And if we accept this to be so, are there specific actions afoot to ensure such an outcome?

Most commentators put the boom and bust cycles down to our inability to escape the inertia of the ‘twin deficits’ in our fiscal balance and that in our external account. Accepted; but why is that so? The solution is nominally put down to another catch-all buzz word: “structural reforms” which broadly refers to the need for adhering to rational policies through robust governance and implementation structures which bring about real efficiencies in the economy. In contrast, our present state reflects expediency and mismanagement in just everything from how we collect and spend our taxes, dispense justice, manage our public enterprises, regulate our markets, strive for competitiveness, or even more mundanely, educate our children, dispose of our garbage and protect the vulnerable. Regardless of which party is in power, all governments deal with the public at large through the bureaucratic interface. For better or worse, day-to-day administration as well as prime policy initiatives are impacted by bureaucracy’s motivation and capability to deliver on governmental plans. Here, even good intent is compromised by attitudes, management ability, learning and development, and organizational effectiveness.

Let’s face it: whilst bureaucracies exist the world over and none are perfect, ours has let us down on most counts. This provokes further questions: why do we always get it so wrong? Who is responsible and worst of all, why have we failed even to learn lessons each time we have faltered on the development path?

There are, of course, no simple answers. The government in power inevitably ends up carrying the can and should logically be held accountable because it is their governance failure. But political governments have perforce a short-term focus which hinges on getting stuff done in order to get re-elected. Whilst we may assail them for any self-serving policy agendas and rank corruption, the fact of the matter is that there is complete misalignment in their motivation and the country’s need for fundamental reform of long festering problems decades in the making. Even the present government which notably used governance as an electioneering slogan and latterly appointed Dr Ishrat Hussain to head the reform process has so far done precious little to arrest the institutional decay.

In keeping with the current fashionable use of medical analogies, while the patient is being treated in the ICU by the IMF’s prescription, the malady is actually a deep rooted cancerous growth that remains untreated and continues to suck out the vitality of the state. Not surprisingly the country keeps relapsing after short periods of remission.

Meanwhile the costs of this pervasive incompetence keep mounting. Consider the long list of liabilities that has compounded our indebtedness including a Rs 1,600 billion circular debt, accumulated state enterprise losses of Rs1,200 billion, and yearly tax shortfalls (Rs 485 billion this year). Add contingent liabilities of anything up to USD 10-12 billion in international arbitration penalties (Reko Diq and Karkay cases) that the country may have to cough up and we have a recipe for impending disaster. This, mind you, is merely the price we pay for our past sins. Can we afford to perpetuate such a dismal record? We have yet to devise a clear-cut strategy to get out of this rut.

This brings me to my next point. Strategies are important as they are concerned with long term success. At the beginning, any enterprise starts with a vision and a realistic strategy to achieve it. This is based on the wisdom of many and includes the aspiration of its stakeholders. Aiming for continuity and coherence, strategies need to be holistic in their approach and respond to changes in the operating environment in order to remain relevant and deliver success. Fundamentally, the very same concept is generically applicable to the way countries are led and governed, down to the lowest departmental rung of government and should include systems and practices to induct, motivate and develop an enabling organization. At the core, this is our biggest failure. The Pakistan Army would not succeed in its military strategy if it did not have requisite organization and training. It has actually done an admirable job of maintaining a merit based ethos and operates as a monolith in achieving its goals. The sad fact is that it is frequently cited as the only competent and working institution remaining in the country.

However, the point of this article is not to indict the bureaucracy for all the country’s failings but rather to direct attention towards a systemic failure which is fundamental to our national development and stability. There is no doubting the fact that any reform process will be extremely difficult as powerful and entrenched interests will resist attempts to change the status quo. Recognising that, what is sorely needed is to mainstream a strategy for the reform process itself. This will require the government to eschew its currently confrontational political approach and begin working with all parties to achieve consensus for practical reforms. It will also need to put some serious resource behind the effort.

As the world changes in pace and complexity, Pakistan is being left far behind as attested by virtually any developmental metric. It appears that there is no grand strategy operating here as successive governments seem incapable of putting plans to fruitful action. Reactivity and fire-fighting seem to be the hallmark of all of their endeavours bringing indifferent results at best. There are limits to the people’s absorptive capacity of the shocks induced by misrule and maladministration and the country is surely close to reaching that breaking point.

Time for all to consider the national interest.

The author is a former CEO of Dawood Hercules Corporation Ltd, and can be reached at shahid@prachas.net