Pakistan Political Economy- Where are the Actions for Leap frogging?

The Pakistan politico-economic strategy, like many developing countries is based on the logic of leap frogging certain stages of development. Channeling new information and hardware technologies, flow of international capital and goods, liberalizing trade, massive infrastructure and private sector investment along with parallel human resource development are essential components of this strategy. It is based on the idea that developing countries can learn, improvise and refashion best practices looking at the experiences of developed countries thus avoiding the mistakes and time constraints that some developed countries faced during their process of development. The strategy also aims at integrating social goals within its ambit as part of the overall development process. The civilian government inside Pakistan has been projecting this to their constituencies as shown by greater focus on infrastructure and education in provincial budgets of Sindh and Punjab this year. This political plank is designed to outflank certain structural problems of the Pakistani state and civil-military relation from the perspective of the civilian government. However, there is daylight between policy and practice.

Firstly, the problem is that in Pakistan a lot of it is dependent on the new planned economic corridor and the promised investment. Which brings us to the central question- Will Pakistani military and civilian government finally be able to put their differences on security policies, foreign policies and modes of functioning aside and work together to reform the economy so they can extract maximum benefit of this foreign capital and more critically and will they allow it to trickle it down to the grassroots level in an economy which like many economies of south Asia are riddled with problems of governance, poverty, land-use and myriad interest groups? History suggests otherwise and so does certain presentactions of the Pakistani state.

For a start, US has already infused an aid of $25 billion dollars between the period 2002-2014, majority of which has not been accounted for the activities that it was given in the first place. In fact a substantial amount was diverted to strengthening the resources of the security institutions.

Alternatively, the defense budget[1] was increased from the 700 billion rupees [approximately $6.87 billion] for 2014-15 to 780 billion rupees for 2015-16, which is an increase of about 11 percent. The planned military expenditure is growing both in terms of share of the overall national budget and the GDP. It would make 19 pc of the total size of the budget as compared to 18 pc in the outgoing year. The proposed spending would account for 2.54 pc of the GDP, while its share earlier was 2.3 pc[2].

The Asian Development Bank in its latest outlook projects moderate gains in growth noting that continued public sector enterprise losses, insufficient energy and power evacuation capacity, and security concerns will continue to test the country’s economy[3]. The ADB Outlook further said that the key challenges impeding stronger economic growth include inadequate infrastructure and transport connectivity, and limited access to finance[4]. It added that improved prospects for the economy, therefore, depend on faster implementation of ongoing reforms to alleviate power shortages, expanding fiscal space, fostering a competitive business environment, and liberalizing trade[5]. The ADO notes that large scale manufacturing grew by 3.9% in the first half of FY2016 from a rise of 2.7% in the same period the year earlier, boosted by low raw material prices, expanded construction, and low interest rates.Pakistan’s vital agriculture sector is expected to experience slower growth in FY2016[6].

In addition to that, towards the end of October 2016, in a written reply to a question asked by Senator Farhatullah Babar of the Pakistan People’s Party, Defence Minister Khwaja Asif informed the house[7] that there were nearly 50 “projects, units and housing colonies” functioning in the country under the administrative control of Fauji Foundation, Shaheen Foun­dation, Bahria Foundation, Army Welfare Trust (AWT) and Defence Housing Authorities (DHAs). Five giant conglomerates, known as "welfare foundations", run thousands of businesses, ranging from street corner petrol pumps to sprawling industrial plants. The main street[8] of any Pakistani town bears testament to their economic power, with military-owned bakeries, banks, insurance companies and universities, usually fronted by civilian employees. Ms. Ayesha Siddiqa[9] estimates that the military controls one-third of all heavy manufacturing and up to 7% of private assets. Former Indian high commissioner to Pakistan, Amb TCA Raghavan[10] remarked that the Pakistan military was coming to a realization that finance and corporate economy of Pakistan was too complex for direct intervention of the military. Therefore, they have started shifting focus to real estate in a big way.

These conditions suggest that infusion of foreign capital is not a panacea for Pakistan’s political economy and the planned strategy of leapfrogging. Pakistan needs political solutions before economic ones. The Chinese investment will be a boost but it is doubtful that it will be transformative as being touted. The military still holds the cards in terms of a veto in political matters which will not allow the already mammoth and diligent task of setting up all the projects envisaged in the corridor and then securing them for long term proper functioning. While China possesses the capability to help Pakistan in this process, the most important factor remains the Pakistan Army and their long term commitment to the project and stability for its logical fruition.

Finally the biggest problem of human resource development is for everyone to see. The layers of this problem contain some serious depths. Pakistan needs to first reverse the trend of past five years of deteriorating internal security situation, pacify the masses, initiate de-radicalization programs, rectify and restore democratic practices, strengthen civilian  involvement, some how convince the military to forget its institutional history of interference, bring about education reforms, resolve labor issues, increase social spending for poverty alleviation, control religious institutions, tackle home-grown terrorism, pacify inter-provincial issues related to the corridor and increase skill development and participation in all aspects of the macro-economy. Considering the strongest civilian party inside Pakistan the PML (N) stands marginalized in the shadow of the panama papers leak and outgoing Army chief enjoying rising level of popularity, the politico-economic strategy of leapfrogging will undergo rigorous tests. Chinese long term commitment to its all-weather friend will have to be ensured for the smooth success of the corridor besides dealing with all the kinks in the road ahead.