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Military vs civilian economic performance

Discussion in 'Pakistan Economy' started by TheBlackCoat, Oct 29, 2017.

  1. TheBlackCoat

    TheBlackCoat FULL MEMBER

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    https://tribune.com.pk/story/1543101/6-military-vs-civilian-economic-performance/

    https://tribune.com.pk/story/1543970/6-military-vs-civilian-economic-performance-ii/

    Military vs civilian economic performance

    By Azam Mohammed
    Published: October 28, 2017
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    The writer was additional secretary at the ministry of commerce

    Yet another interesting debate on the jurisdiction and competency of Pindi vs Isloo boys has been initiated. This time the spat began with Interior Minister Ahsan Iqbal questioning the military’s jurisdiction and competency in commenting on the economic state of Pakistan. A comment by the director general of the Inter-Services Public Relations (ISPR) and the minister’s outburst was being analysed against the backdrop of unfounded rumours of impending martial law and/or formation of a technocrat government — which were flatly denied by the DG ISPR. The government did not appreciate the military’s comments though the minister was careful not to mention either the chief of army staff or the army or military; he chose to focus his ire on the DG ISPR personally.

    The government may have taken it as criticism which inter alia diminishes the credibility of Ishaq Dar’s self-claimed divine-gifted economic prowess. Since then, both sides have luckily lowered their ante and expressed the need for a unified national agenda. However, the question raised regarding the military’s jurisdiction and competency to comment on economic issues was not addressed nor agreed upon by either side — though Prime Minister Shahid Khaqan Abbasi wisely acknowledged the military’s right to comment on the economy.

    It is perhaps for this reason that the jury is out in the social media ranging from one group claiming that there are economic problems in many countries but their military never commented on the state of economy to the group which claimed Dar borrowed tons of foreign loans without even informing his ministerial colleagues, let alone the people or parliament of Pakistan. It is of course implied by them that most of these amounts have been usurped and corruptly siphoned off. Thus, there are advocates of not only the military’s right to comment but to intervene and those who see the military’s interference in civilian matters as the mother of all evils. Regardless of what the right answer may be in the generic global sense, this question assumes special dynamics in the context of Pakistan where military takeovers are hardly unusual.




    The civilian leadership may fear the military using the excuse of weak economic performance to replace them with a government of their liking particularly when their leader, Nawaz Sharif, has been ousted and he and his family are facing indictment and arrest over corruption cases. Thus, in Pakistan, the Pindi-Islamabad relations have been quite unique and is a major determinant on who forms and runs the government.

    A foreign journalist once asked about Islamabad quipped that it is around 25 kilometres from Pakistan. Others had similarly calculated the distance between Islamabad and Pindi in terms of a time gap. This debate seems to measure the distance in terms of a wisdom gap as well.

    The military’s competency to comment on the economy can be justified at least in the Pakistani context as (i) the economy is an important, if not crucial, instrument of statecraft and one of the main determinants of national power which the army handled in Pakistan for 32 years.
    (ii) there is a link between economic development and security aptly described by a whizz-kid who had the unique experience of being both the US defence secretary and World Bank president, Robert McNamara, who noted: “Security is not military hardware, though it may include it, security is not military force, though it may involve it, security is not traditional military activity, though it may encompass it. Security is development and without development there can be no security.” (iii) the military’s budget depends on the state of the economy. This right is often justified on the ground that the track record of military rulers’ economic performance is better than their civilian brothers. Is this really a fact? And if it is, does it automatically grant the right to the military to comment on the economy even if the competency is established? This article attempts to analyse whether the economy performed better under the khakis to justify their competency to comment on it.

    Economic performance of course depends on many exogenous and endogenous factors and pressures and there are many different ways of measuring performance. However, for this article only four indicators will be used for comparing the performance of each military and civilian regime. These are GDP growth, rupee-dollar rate, public debt and fiscal discipline though there are many more important indicators like structural reforms, infrastructure development, water, power and energy, CPEC, investments, FDI, trade, etc. These four indicators have been selected as these are generally debated by Pakistanis when it comes to evaluating civil-military performance in economic terms. An obvious exclusion of an important indicator, ie, taxation/revenue can be easily explained by the fact that this has been a disappointing action by both military and civilian regimes as taxation to GDP has always been lower than 12-13% of GDP and at most times being at single digit only.

    Similarly a possible looming crisis due to current account deficit is not considered here as it has a cumulative result of both civilian and military rulers’ policies, for example, the large current account deficit is a result of the large trade deficit as a consequence of PM Shaukat Aziz under military rule’s policy of import liberalisation at the cost of manufacturing and his anti-export bias and the current PML-N policies of anti-manufacturing bias.

    It may however be noted at the outset that regardless of who performed relatively better, unfortunately Pakistan’s economic performance overall has been a disappointment compared to its potential. It started off pretty good despite all the odds and by early ’60s, it was considered a showcase model for developing countries, it being the second largest trading partner of Japan (with Jetro’s second office being in Karachi after New York), Habib Bank Plaza being the tallest building in Asia except for Tokyo and Osaka and PIA being the second-best inflight entertaining flight after PanAm.

    Pakistan’s GDP growth rate in the 60s was much higher than India and China and its economy was larger than South Korea and Malaysia. Pakistan’s steam started slowing down from the ’70s while the other countries performed better. While China took the lead from Pakistan in 1970, it would take India at least another 15 years before surpassing Pakistan’s growth rates. But by the ’90s India was blessed by Manmohan Singh’s economic miracle while Pakistan experienced a corrupt, bitter and confused civilian leadership bent on reversing the previous government’s policies and/or follies after a decade of disastrous military dictatorship with long-term adverse security and social consequences. At one time the expertise of Pakistani bankers, engineers, planners, managers and doctors was acknowledged globally.

    Pakistan’s nominal GDP was larger than South Korea and Malaysia in the ’60s and ’70s but by the ’80s it was left behind by both countries. Since then, however, South Korea has jumped into another league.

    Since 1947, Pakistan has been ruled for 32 years by the military and 38 years by civilians or for 45% and 55% of the time, respectively. During these two periods the average GDP growth was 6.3% during military rule and 4.2% during civilian rule. GDP growth under the military regime has always been higher than under civilian rule.

    Growth

    Pakistan’s economic performance under civilian and military rule needs to be analysed both in quantitative and qualitative terms for comparative analysis. Noticeably, GDP growth performance was better during military rule than under the civilian setup, but unfortunately, the country’s performance continued to slide over time with the result that the performance of President Pervez Musharraf was poorer than President Ziaul Haq which was worse than President Ayub Khan. The Pakistan Muslim League-Nawaz (PML-N) performed badly as compared to Musharraf’s regime but the Pakistan Peoples Party fared even worse. But these should be seen in their context.




    During Ayub Khan’s period, economic growth was achieved through both rapid industrialisation and the green revolution. Good relations with the United States helped Pakistan acquire technical know-how. However, Ayub Khan ignored distributive justice. This and the war of 1965 was used by Z A Bhutto against him who took over with the breakaway of the country’s eastern wing. Prime Minister Bhutto’s Islamic socialism was neither — leading to the introduction of wrong policies like nationalisation. Private investment declined from 90% to 36%, forcing Bhutto to make large PSDP investment in large scale and basic manufacturing with a long gestation period which later, through no fault of Bhutto, became white elephants. One stabilising factor achieved by Bhutto came via the deployment of Pakistani manpower in the Gulf states.

    During Zia’s rule Pakistan enjoyed a period of economic development. While the growth rate was healthy thanks partly to the injection of US aid, it came at a great social cost introducing drugs, arms, violence, jihad and hypocrisy in the society. In economic terms, President Zia did not negotiate well with the US and settled for “peanuts” resulting in the curse of unmanageable foreign loans, large adverse trade balance and IMF dependency.

    Inept policies and alleged corruption were the hallmarks of subsequent civilian rule. While the economy improved under General Musharraf, Pakistan is still suffering from the follies of Shaukat Aziz’s total import liberalisation without first ensuring a robust import-cum-export and export policy. As a result, Pakistan today has a very large adverse trade of balance, the consequent fallout partly averted due to the inflow of workers’ remittances.

    Despite these manmade disasters and natural disasters as well as exogenous pressures in his short history including couple of wars with India, earthquakes, floods, American war on terror and now its own war on terror, Pakistan manages to trudge along but at the core of its heart lies the central question of whether the country would be better off under military or civilian rule.

    Rupee-dollar rates

    While the rupee value is linked to the market, many held the government responsible for it even as Pakistan graduated from draconian and State Bank-controlled forex regimes to manage floating and finally to a free forex environment. While no proof has yet been established in court, it is safe to assume that only the PML-N through its whizz-kid manipulated in forex for self-gain and PPP may have upped their learning curve in this area in Rahman Malik, their former interior minister.

    The sharpest depreciation happened during the civilian rule of the ’90s followed by Bhutto’s period, Zia’s regime and the third PPP government. The rupee depreciation is a story of disaster in every regime since Ayub era with notable exception of President Musharraf and the latest round of the PML-N government at least till October 2017. On this account both civilians and khakis lose.

    Public debt

    Nothing attracts the public imagination more than its curiosity to find out where do the debts, grants and loans actually go to? Not many, not even senior bureaucrats or, for that matter, ministers can answer this question. How the dollars coming in from abroad and rupee loans taken from local banks just seem to vanish into thin air without leaving concrete results on the ground remains a mystery. Misuse of foreign loans have been used in Pakistan to dislodge governments on charges of corruption or leading the country to potential bankruptcies by being forced to “default” on payments. While statistics or proof of siphoning off debt directly into somebody’s pockets is hard to come by as the process is opaque and cannot be unearthed other than through a forensic audit by experts, one thing is certain. Most of the public perceive that the debt is “eaten away” by the corrupt. The public perception, however, tends to blame civilians more.

    Another thing that is also certain is that public debt, particularly domestic debt obtained by the PML-N in its current stint and the PPP in its last term, was staggering. Technically, these regimes managed to show compliance with the Fiscal Responsibility & Debt Limitation Act 2005’s target of keeping Public Debt within 60% of GDP (only 1 to 2% have been breached in net debt which is smartly calculated to push the gross percentage of around 65% to around 60%) but the ratio of domestic to foreign loan which generally was around 50%, was increased by both regimes and now hovers around 70%-30%. This is alarming as the interest rate on domestic loans is much higher than external loans.

    Public debt during the end of the Ayub, Bhutto and Zia periods was Rs30b, Rs97b and Rs 523b, respectively. During the 10-year stint of the PML-N and the PPP in the ’90s, public debt had swollen by more than six times to what Zia had left them. Musharraf doubled it. By the time Musharraf handed over the reins of power to the PPP, Pakistan’s total public debt was Rs6.3 trillion accumulated over 60 years. Musharraf managed to get the Paris Club loan rescheduled on very favourable terms which virtually cancelled a good portion of the debt as a result of becoming a post-9/11 American ally in 2001. But the dream of lowering debt and its burden proved to be just a mirage. In just five years, the PPP added Rs8 trillion to raise the public debt to Rs14.3 trillion. Not wishing to be left behind, the PML-N added Rs6.66 trillion in less than four years to burden the nation with over Rs20 trillion in public debt ! In nine years they managed to take 3.5 times more than what the nation had earlier taken in the previous 60 years. This sharp increase cannot be explained away by the rupee-dollar rate as 70% of the loan is a rupee-based domestic loan. This is indeed staggering and the public has a right to ask where all the money has gone.