Striking bargains

Recent trends in Pakistan's macroeconomy expose its underlying weakness once again. A ballooning trade deficit, consistently high inflation, and perennial fiscal constraints remain a familiar sight over the past decade and a half. There's little to suggest that these problems are going away anytime soon.

Standard prescriptions circulate frequently in policymaking and analysis circles. Undertake 'structural' reforms related to skills, energy provision, and access to capital markets, that can help improve productivity and increase exports. Fix state-led interventions (read: distortions), especially in energy markets and agriculture, to ease up inflationary pressure. Expand the documentation net to bring in retail-wholesale and agriculture under its ambit and increase direct income and sales tax collection.

One can find these suggestions in policy plans and donor documents going all the way back to at least the mid 1980s. The problem has never been the absence of sound advice. The problem has always been its uptake. The problem lies not in elections in the broadest sense possible, but with the type of politics being practised by decision-makers.

Uptake, fair to suggest, is tied to politics. You need political strength to undertake difficult decisions and engage in stark trade-offs. Cutting away rents and distorted subsidies are painful procedures, with the potential for backlash. You need autonomy from those being cut off to sail through.

This government had an interesting set of advantages coming in, unavailable in their entirety to the previous three (PML-N, PPP, Musharraf). It had a modicum of electoral legitimacy, to the extent that there are strong regions of support for the ruling party across the country and there was no serious challenge to election results. It had access to a larger pool of technocratic talent from the private sector and among expatriates, given its core basis of support. And it had insulation from opposition pressures due to its confluence of interest with the establishment.

On paper, this sounds like a reasonable recipe for autonomy and reform. In practice, external misfortunes (Covid, but more relevantly, rising commodity prices and the US withdrawal from Afghanistan) and its susceptibility to both internal wrangling and the need for 'appearing' to be doing something took out the potency from originally favourable conditions. The net result is that we have an economy at a three-year mark that looks, qualitatively at least, an awfully lot like the economy at the three-year mark for previous governments.

Now we're in the last two years of a government that knows its electoral geography remains precarious. Where consolidation in KP and Karachi has not been met by corresponding expansion in Punjab or the rest of Sindh. Where a fractured opposition still holds enough sway in large enough parts of the country to make election results a lot more tiring for the incumbent. And where implosion is no more than a few disgruntled allies or factions walking away.

In a recently issued public statement, the former SAPM on energy wrote that Pakistan's electoral system disincentivises structural reforms. That the recipe of development listed earlier is far too painful and with far too many consequences for it to be implemented by any government that seeks re-election (which, by default, is every government). Hence you have egregious acts like the artificial debt-based pumping of the rupee against the dollar to keep imports cheap; or opening up the floodgates to consumer finance; or giving amnesty schemes for a sector known for tax evasion and for acting as a drain on productive capital.

But if electoral cycles were truly an impediment to any reasonable intervention, no country where elections are the method of choosing decision-makers would ever be able to implement reform. We have strong cases for both counterfactuals - cases with no electoral cycle constraints being unable to produce sustainable developmental trajectories (Pakistan in the early 2000s), and cases with episodic instability and elections being able to push through difficult reform (India in the 1990s).

The problem, as always, lies not in elections in the broadest sense possible, but with the type of politics being practised by decision-makers. In other words, seeing through reform requires political bargains, playing one set of actors against another, being embedded enough with those capable of countering reform to keep them at bay. Expecting a powerful third-party to bail you out politically if things go pear-shaped is not it.