In an interview with India’s The Tribune, Sartaj Aziz, who has twice served as Pakistan’s finance minister during Nawaz Sharif’s first and second terms as prime minister, speaks on how the Pakistan Muslim League-Nawaz plans to rescue the country’s economy.
(Q) You have handled Pakistan’s economy earlier. In what shape is it today?
It is a very difficult situation. For the first time in history, our growth rate is down to 3 per cent, from an average of 5-5.5 per cent for the first 55 years. With population growth rate of over 2 per cent, there is hardly any increase in per capita income. The poverty and unemployment are worsening. This leaves us less revenue, so our fiscal situation becomes bad. With low export, the current account deficit increases.
The second problem is the last government has been extremely irresponsible in fiscal management. The borrowings have been unbelievable — the total debt was Rs 6 trillion when the government came, today it has crossed Rs 13 trillion in five years. Debt servicing will consume more than 50 per cent of our tax revenues. The balance of payment has been somewhat more manageable because of remittances — $13-14 billion a year. But then we have to pay back $5 million to the IMF in the next year and a half.
(Q) Is the Pakistan economy going the Europe way?
Not as bad because we still have 3 per cent growth, Europe is in the negative. Our first priority, therefore, is economic revival. If we do not push the growth rate to 6 per cent, no problem can be solved, and to do that we have to revive investment. Investment had touched 20 per cent of the GDP in the early ’90s; now it is 12 per cent, which yields a growth rate of only 3 per cent. So how do you revive the economy? We have said in our manifesto that since there is no single driver of growth, we have to use several mutually reinforcing engines of growth. The first important sector is energy. On one hand you have shortages, and on the other there is potential, and Rs 10 billion investment can come in five years if you change the policy.
Second, foreign investment in livestock and energy sector, though foreign investment will take time because of the law and order situation. Third, oil and mineral sector — we have copper mines and other areas where foreign investment can come.
Fourth, we have a huge infrastructure gap to fill, including housing. We can also convert some of the remittances from abroad into investment, as India is doing, by offering them opportunities like share percentage, new floatations and special products. Last but not the least, revival of hope and confidence of the business community, at which Nawaz Sharif is very good!
(Q) How do you go about doing that?
Sharif will call a meeting of the business community soon, and tell them, “Look, I want to help you; now things have changed and I have promised good governance, opportunities and a level-playing field.” He has done this in 1991 and 1997.
The next task will be correcting the fiscal imbalance by stopping the haemorrhages. First comes the losses of the corporations and the second is unessential non-development expenditure — subsidies, bureaucracy, etc — which our manifesto has said will be cut by 30 per cent.
(Q) Are you advocating privatising various corporations?
Once we put them in shape. Right now they cannot be privatised. A solution is to select people from the business community to manage the corporations, as was done with banks to turn them around. The last government did not appoint chief executives on merit. They were political appointees who interfered in the business. In the first few days, we have to do this.
For fiscal deficit, we have to raise revenue, which is a longer-term task. The solution is a massive database of all incomes and access for the revenue authorities to that. Every house or car that is bought should be available on record. Even if we don’t transform immediately, we can start with a cut in the expenditure and raise revenue to some extent.
(Q) What about going to the IMF?
If you go to the IMF in a non-dynamic situation like the present, they say cut subsidies, expenses, but nothing happens. If you revive the economy, then the need for adjustment becomes less. So we first have to revive the economy and make it more manageable. We do not want the traditional IMF package, which is only stabilisation. We want stabilisation with growth. We have done that in 1997. All we need from the IMF is a little more time to pay back the $5 billion that we owe them.
(Q) What would you do for power? Addressing shortages is one of the promises on the PML-N manifesto.
Power is a complex issue. Our manifesto has a short, medium and long-term programme. The root cause of the problem is the 1994 policy of the PPP government, in which they offered 6.5 cents per unit of energy to anyone setting up a power station based on imported oil. This was tragic because in 1991 we had signed the Water Accord to promote hydro-projects because you have to depend on local resources. They added 6,500 MW to the 10,000 MW total capacity at that time, offering an exorbitant price of 6.5 cent base plus cost of oil. At that time oil was $10-15 dollars a barrel, now it is $100. The cost of producing one unit of electricity from oil is now Rs14-15, while it is sold at Rs 9 per unit. India has 70 per cent coal-based generation. In the long run, Pakistan has to improve the energy mix with local resources, coal and hydro. It has to produce electricity at a price lower than the sale price of Rs 9.
There is also theft, transmission losses and non-payment of bills, adding 10 per cent to the circular debt. This can be solved through good governance.
The other need is major restructuring of the way you buy and sell electricity. India has a wholesale market for energy in which one board buys or sells energy to another even for half an hour. In Pakistan, provincial governments cannot do anything. The system is over-centralised.
The security issue is important in Pakistan, as it discourages investment. Given the uncertainty in Afghanistan, what do you think the current government needs to do to address the terror problem?
Terrorism has its roots in the Russian invasion of Afghanistan. That is when the Americans set up these madarsas to train Mujahideen. It funded and armed them. They did a remarkable job of defeating a superpower. But what happened, the US abandoned Afghanistan in 1991; and all the seven commanders who were fighting with the Russians started fighting each other for territory.
Three years later, soldiers who had fought for them and wanted peace, revolted against the commanders and became Taliban. They then managed to bring peace to Afghanistan, eliminated drugs, disarmed and set up a government. By 1998, they had captured 90 per cent of the territory and actually brought peace. When 9/11 happened, the US invaded Afghanistan. Have they achieved a single objective of invading Afghanistan? There is no peace, no suppression of terrorism, no democracy and no development. And they pushed all the Mujahideen into our territory, telling us to take care of them. It is very tragic.
(Q) What is to be done now….?
First of all, the departure of the US from Afghanistan will create an enabling environment. But then you need a strong government here, which I hope now Nawaz Sharif will provide, with the army and other stakeholders coming on board on developing a common strategy. The strategy obviously has to be a multi-pronged approach.
First of all, you have to prescribe the ground rules. We won’t talk to anybody who does not accept our Constitution, judiciary and Parliament. So the writ of the State has to be accepted. Those who do not accept the State will be dealt with militarily; and those who accept it can come to the negotiation table. Hopefully we have a good chance to do this.
When you were the Finance Minister, you promoted trade between India and Pakistan. But it has since been stagnating. How does business move forward between the two countries?
Pakistan had made significant movement in 2004. For the first time, a decision had been made to move away from its earlier stand that unless Kashmir is resolved, there would be no economic cooperation. CBMs, negotiations and trade started, and the peace process got moving. Unfortunately, extremist activity disrupted the peace process.
Secondly, Pakistan did much more in terms of trying to promote its own infrastructure, although the trade balance was in India’s favour. Also our concerns on non-tariff barriers have not been fully addressed. There are a lot of studies that have been done on this subject. The two countries have set for themselves a target of taking trade from $2.5 billion now to $10 billion — India $9 billion and Pakistan $1billion, yet we are ready for it. Pakistan’s business community is anxious to improve economic relations with India. Currently our business houses face problems when they go to India to open outlets. There is a lot of unwritten bias against them at the customs and local official levels. Some kind of mistrust has travelled.
(Q) What will you do to revive the process?
That is related to non-tariff barriers. But Nawaz Sharif has already said he wants better relations with India, which has thus far not reciprocated on many initiatives. This requires a high-level political contact, which could be started in the coming weeks, where we can decide who has to do what.
(Q) Do you think trade will now be divorced again from Kashmir?
Everything has to be discussed. A lot of concessions were made by Pakistan, but without any reciprocation.
(Q) What is the big change in Pakistan you see since your last government?
The democratic process and structure is much stronger. That is a big change. Previously, every time the transition from military rule was in uncertain terms. You were looking over your shoulder for the generals and the judiciary. But now we have a more stable situation. The entire country wants democracy, everybody is interested in elections. We have institutions in place.
Earlier, the President could appoint anybody as leader of the Opposition, and anybody could be appointed caretaker Prime Minister, or to the judiciary or election commissioner. Now there is a system, plus free media. That is why the elections were far fairer this time.
Elections were also reasonable in 2008 as well as this time because the army was not there. Previously, most elections were managed by the military. This is the first time that democracy has become stronger.
The government can now start governing according to democratic principles. It knows its responsibility to the people, and has to deliver. For example, manifestos of parties have been discussed this time, and people have been explained how we plan to implement those. In the PML-N manifesto, we have 32 concrete targets in different sectors of the economy, which everybody is going to remind us of every three or six months. Accountability to the electorate is a healthy thing.
(Q) You thus see a turning point for a new Pakistan?
If the international geopolitical situation allows us, it can become a real turning point, particularly on terrorism and other related problems. If the global interactive circumstances become unfavourable, then of course it will take longer.
Yes, it can be a new Pakistan in the sense that we have to do much better now. We are the slowest growing economy, so the first thing to do is to revive the economy. Then the label of Pakistan being a breeding ground for terrorism is not a good thing for us. We have to have a more reasonable situation, for which we need to gain our rightful place in the international arena, but that again requires better geopolitical conditions.