Syed Sharfuddin waxes eloquent on an important matter of Celebrating Pakistan’s Independence Day
Every year on the 14th of August Pakistanis all over the world Celebrating Pakistan’s Independence Day their country’s independence with Hamd-e-Baari Taala and Riwayati Josh o Jazbah (thanksgiving and fanfare). This year on 14 August 2022, 225 million people will celebrate the Independence Day of Pakistan in many ways, recalling the events of the partition and reflecting on the lessons learnt and the progress made over the last 75 years since independence. They will also be joined by about 9m overseas Pakistanis who live and work abroad. In many ways, Pakistan’s creation is akin to the creation of Israel and modern Turkey. Like Israel, Pakistan is the only country in the world that claims its sovereign and independent territorial existence for its people’s pursuit of a separate religious identity and faith. Like Modern Turkey, Pakistan is the successor state to the old Taxila and Mohenjo-Daro civilization, and the Moghul Empire which was replaced by the British prior to the partition of India in 1947.
In our daily discourse mostly on social media and otherwise, we come across two distinct groups of Pakistanis. The first group of Pakistanis is so proud of their country and its achievements that it cannot bear any criticism of whatever area or shortcoming needs improvement and reform. They have the same attitude toward the political parties and institutions they support and cheer for. Then there is the other group which sees only rot in everything and is not prepared to appreciate the point of view of the other group and acknowledge the achievements this country has made over the last 75 years despite its share of forced geo-strategic compulsions and its struggle in promoting the fundamental values of democracy and enhancing federalism in a pluralistic society. In between these two extremes is the silent majority whose opinion is measured only during elections, or occasionally in civil society voices when a certain social issue acquires national importance such as a natural calamity or an extraordinary event. If you want to know what is happening in Pakistan today, it depends very much on who you speak to, what TV news channels you watch, which newspaper you read and whose point of you comes closer to you own version of current developments and prospects.
The strength of diversity lies in respecting the views of others and allowing a healthy debate to reach fruitful outcomes. Those who take Pakistan’s Independence Day seriously strive for this objective and I have no doubt that Pakistanis by and large share this goal. Some of you who have an interest in Pakistan or those who keep abreast with the daily news at home must be looking at the ongoing financial and political uncertainty in Pakistan and wondering what is there to celebrate this year when the country has nothing to show as an achievement or even a roadmap that carries the promise of overcoming the current political and financial crises.
To be honest it is a myopic view and one that can be easily parked within the broader context of developments that dot the map of progress made in the last seven decades. Pakistan started its journey as an independent country from a point where it had no funds to pay salaries to its employees and no home-grown food to feed the thousands of migrants coming to the new country after witnessing firsthand, the violence and death of the partition. The refugee problem was so big that by 1950, nearly all major cities of Pakistan had 50% population which comprised immigrants. Pakistan not only welcomed and housed the refugees from India in 1947, but it also accommodated in later years, thousands of Iranian refugees after the Iranian revolution and over 3m Afghan refugees in two waves for over 40 years.
At independence, Pakistan inherited a fragile state apparatus. The assets between the two countries were unfairly divided at a ratio of 17 for India to 5 for Pakistan. Financial and other disputes arising out of non-delivery of assets to Pakistan took 13 years to settle. Pakistan got the bulk of irrigated land and the canal system, but manufacturing and infrastructure were in India. Pakistan had only one port which was largely underdeveloped, and its so-called airports were mere fields for planes to land. The military division was 65 to 35 in favour of India. In civil service, India had 1,056 officers whereas Pakistan got only 157 which included 50 Britons. At independence, it looked like a country that would not survive even 6 months but it recovered and surprised the world by doing better than many countries in the early years.
Seventy five years is not a very long time in the history of nations. Many countries during the first 75 years of their independence went through difficult times. They also made use of opportunities and benefited from them. If we look at the first 75 years of today’s two great powers, the US and China, we can appreciate how their independence witnessed interesting times and demanded meeting national challenges with courage and wisdom. During the first 75 years of its independence, the US fought a revolutionary war with Britain; it went to war with Mexico; its constitution was amended 12 times and it fought a civil war over the question of slavery. In taking opportunities, the US purchased or annexed as many as 6 states and as many territories from their colonial administrators.
In the case of the People’s Republic of China, it inherited a nation of opium addicts with Mongolia and Taiwan having left it already and Tibet attempting to secede from its territory. Its experiment with the Great Proletarian Cultural Revolution and the Great Leap Forward resulted in the death of estimated 30 million people. China reversed its one child policy after the failure of yet another experiment to control demography. It earned global notoriety in the Tiananmen Square killings before bringing political and economic reforms. China faced natural and man-made disasters such as earthquakes that killed 380,000 people, and 30 million people lost jobs as a result of the Asian financial crisis of 1998. China faced violent protests in Tibet in 2008 and in Hong Kong in 2019. China’s advantage in cheap labour and focused economic development made it the powerhouse of the world.
Pakistan also faced its share of misfortunes and opportunities in the 75 years of its existence. The first was its inability to capture Kashmir when in 1948 the tribal fighters were only 13 miles away from Srinagar. Then in 1971 Bengal seceded from Pakistan to form Bangladesh. Pakistan lost 80,000 people in the war against terror, including $150 bn in economic costs and was left to resettle 3.5 mn IDPs. In 1999, Pakistan was at the brink of default on its external payments, but it survived and entered a programme of economic restructuring and macroeconomic stability. Pakistan also made use of opportunities that came its way. It purchased Gwadar from Oman in 1958 for $2 billion which was paid to the Sultan of Oman by the Aga Khan. It responded to India’s nuclear explosions in 1998 with its own explosions to give a comprehensive and permanent cover to the country’s security. Its collaboration with China to develop a trade and economic corridor from China to the Arabian Sea via Gwadar is a strategic decision whose significance for the development of the region will be fully realised in the coming decades.
It is not unusual for countries to experience difficult times and recover after a loss. We have the example of Britain which, in the years following World War II, granted independence to its colonies around the globe, ending its imperial status. It also lost Chagos Islands to Mauritius and returned Hong Kong to China after 150 years of British rule. Today’s Russia, which is the successor state of the former Soviet Union saw the Union collapse in 1991 resulting in the independence of many new states which were once part of the former Soviet Union.
Pakistan is naturally endowed with a resilient population, rich mineral resources and a variety of flora and fauna, thanks to its diverse geography and four seasons. It is the 5th largest populous country in the world; it has the 6th largest standing army, its Indus basin is the world’s largest contiguous surface water irrigation system in the world; and in terms of land mass it is one of the largest countries in Asia and the 35th largest in the world. Pakistan ranks 11th in the world in the use of mobile phones and is fast becoming an exporter of IT services. Yet, Pakistan is not an emerging market economy, nor is it a member of the G20 group of most industrialised countries. Although its poverty rate has decreased in recent years, it is still 39.3% today.
Despite a rank of 57.6 on the global human asset index, Pakistan scores poorly at 154 in the human development index. Since becoming a member of IMF in 1950, Pakistan has signed 35 financial arrangements with the Fund, the more recent being in the three past governments from 2008-2011, from 2013-2016 and from 2019-2022. Pakistan owes the Fund $1.01 bn under the RFI and RCF facility which it drew in April this year in addition to $4.1 mn it owes in extended arrangements. Pakistan is committed to future repayments of SDRs, including interest, to IMF amounting to $445m in 2022; $1,09bn in 2023; $1.35bn in 2024; $837mn in 2025 and $424mn in 2026. Its overall foreign debt servicing is in addition to these figures. It is not a bad thing for governments to borrow to reduce their budget deficits. All governments do that. The problem arises when foreign borrowings do not serve to create wealth and save foreign exchange to service their debt and give a reasonable return to the economy.
Right after independence, Pakistan embarked on rapid economic development. Its growth rate was over 5% per annum on average for 4 decades. Starting from a stage where it had to import all its food grains in 1947, Pakistan became self-sufficient in commodities and became a major exporter of cotton, in addition to wheat and rice. Similarly, with a zero start in manufacturing in 1947, Pakistan achieved an impressive manufacturing production capacity in steel, sugar, fertilizer, industrial chemicals, cement, electricity and gas generation, and construction and road networks.
However, there was little development in the human resources sector. Health, education and social development did not receive required attention. Its external debt increased steadily from $20.66bn in 1990 to $116.5bn in 2020, resulting in a sizable proportion of the GDP going toward debt servicing. In 2021, the ratio between Pakistan’s external debt and its GDP was 74%. Inequality of income distribution remained high at 49%. With a poverty rate of 39% in 2021, Pakistan was 57 out of 78 in the list of countries with people living in poverty. It was also 120 in the list of 150 countries with working age population unemployed at 50.2%.
There are many reasons why Pakistan did not continue with the impressive economic progress it made in the years following independence and why it did poorly compared to many developing lower middle-income countries which were at one point far behind it.
The roots of the problem go back decades. It is no use blaming one political party or another or the civilians or the military for not consistently pursuing the development route. There have always been external factors that impacted on domestic policy. But the main reason is there was always a toxic mix of populist politics (as exemplified by some of Pakistan’s popular civilian prime ministers) on the one hand, and the entrenchment of entitlement culture (as exemplified by the military and feudal and parliamentary privileges) on the other, which prevented good governance and pursuit of growth oriented economic policy.
There were also three other contributing factors: The first factor was let’s eat the egg and not wait for chicken. Instead of replicating the advances made in manufacturing and infrastructure in human development sector, Pakistan’s politicians and policy makers prematurely started celebrating their progress. In the words of Professor Joan Robinson which she used in the late 1950 to describe the economic boom of Sri Lanka, “we ate the fruit before we planted the tree”.
The second factor was consumer economy: When Pakistan graduated from the World Banks’s low-income country to lower middle-income country index in the 1990s, it was no longer qualified for any special treatment in foreign aid, concessional financial arrangements and special export quotas. Due to this change, Pakistan’s economy was exposed to global capital markets and credit rating agencies. Pakistani politicians and policy makers did not make the necessary adjustments in fiscal policy and did not legislate for state bank’s independence which led to continued budget deficits and balance of payment problems in later years. There was also total mismatch in spending and income generation through exports, taxes and domestic savings. Successive governments kept spending the money and the State Bank kept printing the Rupee to meet the demand. When this was exhausted, external borrowings were used to pay for imports and debt servicing. Pakistan does not qualify for any concession available to the Least Developed Countries (LDCs) and Highly Indebted Poor Countries (HIPCs).
The third factor was aid dependency: Pakistan’s politicians were not economically literate to realize that the country will end up with an unsustainable level of foreign debt if it did not avoid the debt trap. The Iran-Iraq wars, the two wars in Afghanistan and Pakistan’s geo strategic position in the region encouraged leaders to maximize receipt of foreign aid instead of relying on indigenous growth and exports. The efforts of the policy makers were focused less on economic reform and macro-economic stability and more on strengthening Pakistan’s bargaining position in the great power rivalry. Some of it was no doubt unavoidable, but it was never the least desirable option of the previous governments. Pakistan is now caught so deeply in this trap that the economic impact of Covid, the war in Ukraine and resultant global price increases in fuel, energy and commodities make it impossible for Pakistan to come out of it in the short term.
For the way forward, I suggest 3 solutions.
1) In the immediate future carry out comprehensive structural reforms in the economy and accelerate disinvestment of state-owned enterprises to get the needed foreign exchange for stabilising balance of payment situation. This will help forthcoming debt servicing and pay for essential imports to keep the industries working. The government and people must understand that the good times are over and a departure from the consumer economy to investment economy is unavoidable.
2) In the medium to long term, strengthen fiscal management responsibility and focus on attaining a GDP growth of 5% on average. This will be possible if macroeconomic stability is maintained for wealth creation and creating a suitable environment for foreign investment and domestic savings.
3) Pakistan’s institutions and political stakeholders must reach consensus on maintaining political stability for investor confidence, abandon populist policies and create public confidence to support government’s austerity measures. People must understand that replacing parties and leaders in government, even with regular elections, cannot itself put things right. If possible, a national truth and reconciliation mechanism should be put in place to create national harmony with a view to improving business climate and improving economic indicators. Pakistan can return to recording high level growth if its people are given the right leadership and policy to carry on with a Can Do, but not, Business as Usual attitude. TW