Sadly, there is not much difference in the quality of economic survey for 2018/19, from that of the past. Indeed, an opportunity was missed by the PTI government to make an in-depth survey of the economy to learn the issues facing it in a much-needed greater depth and breadth. This was important to plan for improving the economy and taking it towards the ‘new Pakistan’.
Extensive teams of economic researchers– national and international experts, with a mix of orthodox and heterodox subject specialists– should have been formulated for surveying the economic realities and giving appropriate recommendations. This they should have done for all the four main sub-divisions of the economy, real, fiscal, monetary/financial and external, and at the same time the scope should have covered underlying institutions (or ministries), organisations (government departments, semi-autonomous entities, and private sector firms), and markets. Inventive structures, both positive incentives in the shape of subsidies and tax relaxations, and negative in the shape of taxes, along with the governance structures, should have been surveyed for these four economic sectors; gaps to be highlighted and policy input should have shown the way.
The last component here, the markets, should have meant making an exhaustive effort to understand first-hand issues facing the markets of all four sub-divisions of the economy indicated above. To make clearer the extent of this effort: teams should have read the institutional mechanisms governing the workings of, for example, major flower markets in Pattoki and then made a survey of the pricing practices as against the rules enshrined in the institutional mechanisms. Similar effort should have been made in other real sector markets, along with markets overall in the economy.
The survey team needed to internalise that understanding the microeconomic foundations are paramount for successful macroeconomic policy. Also, the lens for making analysis that has been shifting in mainstream economics since the Global Financial Crisis of 2007/08– whereby the economy is not just seen the neoliberal Washington Consensus way but from heterodox points of view– should also have been adopted by it.
Heterodox institutional and political economic contexts are being increasingly employed to gauge the soundness of economic institutions, and the ability of economic growth to deliver on equity and poverty concerns. The political economic context at the same time means that influences other than purely economic– like sociological, cultural or informal institutional determinants– all have a significant bearing on economic policy. The survey should have prepared this ground-work for policy in general, and this budget taken it into consideration.
An absence of this approach was reflected in how the survey’s policy recommendations were formulated, whereby the tradition of social democratic evolution of policy under the Nordic model– and that has worked for inclusive and sustainable growth objectives– has been quite missing as a much-needed additional base for these recommendations. What is the use of the PM’s praise of the Scandinavian Welfare Model, when his economic team, heavily influenced apparently by the Neoliberal tradition, ignores its importance in the economic survey?
For example, unlike what many of our economic gurus would suggest as a main pillar for resolving our fiscal imbalance, the Swedish government did not go for outright privatisation of state-owned enterprises, but rather improved its own effort and ran them successfully. Similarly, in Finland the government took it upon itself to provide education to its citizens, not over-emphasising the need for the private sector to lead this effort as if it were the only possible way, and so successfully it did that many call it the world’s best educational system.
The 2019-20 Budget, on the other hand, highlights no understanding that it is not the quantity of expenditure allocations themselves, but the strength of underlying economic institutions, which will make a difference in terms of results reached. Similarly, a heightened revenue collection target of Rs5.5 trillion, although important in terms of broadening of tax base and documentation of the economy, is not going to result in greater prosperity unless underlying economic institutions have the capacity to use enhanced revenue more effectively in improving the lives of people. Sadly, not much policy input has gone into improving institutions over the government’s ten-month tenure. Moreover, that improvement did not require a lot of revenue.
For instance, the budget increases the allocation on agriculture. Yet that increased allocation will not push the involved institutions to help farmers– like making available soil and water testing, seed quality control, and in enabling the commodity markets provide a fair price to farmers. Similarly the dairy sector has no proper institutional support, like where an average dairy farmer has no reliable laboratories to get his milk tested.
Also, poor educational standards means the veterinary doctors available at local levels are not qualified enough to properly help. Also, there are no effective checks to ensure the doctors are true to their duty. The budget is quite silent in allocating resources to improve institutional incentive and governance structures in improving this situation.
Around 22 per cent of Pakistan’s GDP comes from agriculture, more than India and Bangladesh, though both have stronger support systems for their farmers. It is the mainstay of the leading export sector, textiles. This is how the budget addresses the challenges, by enhancing allocations for standalone projects. Where is the allocation for improving institutional support? Moreover, the PM wants to make Pakistan a knowledge economy, but the budget gives not much attention to how the status of research and innovation at the sectoral level would be improved. At the same time, there is a lack of money for initiatives improving inter- and intra-ministerial coordination on economic objectives.
There is sadly a trend in economists, for many years now, to talk about the economy in broad economic aggregates, like it could be said that the growth rate target of 2.4 per cent is very low for job creation and reducing income inequality and poverty levels. Although true in principle, the institutional setup is so weak, and the neoliberal mindset is so predominant in approaching economic issues and their solutions, that even past five-per cent growth rates have not allowed the fruits of growth to reach the masses– average wages did not increase much even during those years, and income inequality and poverty levels increased, while wealth perpetuated in a small elite class, and there too mostly in off-shore accounts apparently. The budgetary allocations have little to offer to shift away from the extractive institutional setup and institutional design, to an inclusive one, without which a more sustainable and equitable growth cannot be reached.
Unfortunately, the country’s economic gurus have not been able to see much away from these macroeconomic accounts, which may reflect in turn, needed change of approach in the budget from previous ones. Rather, the above discussion clearly lays out the immense inefficacy of both the budget and economic survey in the highlighting and addressing the real underlying economic issues, mainly the institutional challenge. Overall, budgetary allocations are important but more important is policy and its implementation, which require strong institutions. There is not much focus on that and money alone will not deliver a lot on needed results- especially of growth with equity, even when there is more money available.
