The rot of Pakistan's corrupted politics taints the economy

The Pakistan government, four years into its term, has not demonstrated even an intention to tackle some of the real issues that the country faces, mainly corruption.

With Prime Minister Yusuf Raza Gilani formally indicted for contempt of court, corruption is front and centre in Pakistani politics. Mr Gilani is unwilling to write a letter, ordered by the Supreme Court, to the Swiss authorities reopening a money laundering cases against President Asif Ali Zardari.

The government, four years into its term, is running out of time. It has not demonstrated even an intention to tackle the real issues facing people.

Across the spectrum, many politicians are involved in corruption of enormous proportions. The Transparency International report on Pakistan released earlier this month said the country had lost a staggering 8.5 trillion Pakistani rupees (Dh344 billion) to corruption during Mr Gilani's tenure.

With poverty levels rising and the common man mired in a survival struggle, Pakistan's opposition spearheaded by cricketer-turned-politician Imran Khan is now clamouring for early elections.

The unending economic mismanagement and consequent political turmoil in the country has brought government functions to a standstill. The paralysis is having serious effect on the economy, admits the latest quarterly report of the State Bank of Pakistan.

The worsening economic situation is reflected in a low growth rate, falling investment, rising inflation, severe energy shortages causing production losses, inability to broaden the tax base, moribund public-sector enterprises, rising unemployment and a widening gap between rich and poor.

This has had deep effect on the unity and social fabric of a state already reeling with the fallout of involvement on the side of the United States, first against the Soviets during 1980s and since 2001. No wonder Pakistan is increasingly moving towards radicalisation.

The IMF review released earlier this month finds the "economy highly vulnerable, with few buffers to absorb shocks". The country's fiscal deficit has widened to alarming 6.6 per cent of GDP in the financial year of 2010/11 and with current policies, the IMF fears, it is expected to touch 7 per cent. And yet according to the review there is "no political support for revenue mobilisation".

The GDP growth rate fell for a fourth year in a row, and is likely to be only 2.4 per cent. This is much less than the minimum 7 per cent growth needed to absorb the fast-growing workforce entering the job market. The growing number of jobless, whom the economy finds impossible to accommodate, also partially explains Pakistan's drift to extremism reflected in the growth of madrasas, or informal schools, some of which are controlled by religious sects that promote extremism.

The government's poor economic management and corruption has resulted in a further drop in the investment rate, which is the lowest in the last four decades. The State Bank of Pakistan's last semiannual report revealed that running public-sector enterprises, some of which were making profits four years back, now cost 600 billion rupees in subsidies - the worst performance ever.

This decline corresponds to the ruling party's appointment of new managers, including ex-convicts and others who haven't graduated high school, at some of the biggest state-owned organisations.

The government's answer has been reckless borrowing, including 776 billion rupees taken from the banking system from June to December last year. Declining budgetary support from abroad means more reliance on bank borrowing.

Foreign exchange reserves, never more than $18 billion (Dh66 billion), are fast depleting. Having lost $2 billion during the last six months, and with $2.4 billion owed to the IMF this year, "the real question is not whether or not reserves, built with repayable money, will continue to go down, but rather how long the reserves can last before the emergence of a foreign exchange crisis," said Dr Mohammad Yakub, a former governor of the central bank.

In this depressing environment, the central bank, notes the IMF, has become too accommodating of the government's policies and has seemingly surrendered its legally specified autonomy.

The government's economic-policy incoherence is obvious: in four years in office, it has seen four finance ministers, six changes of permanent secretaries in the finance ministry and four governors of the central bank.

Senate elections are scheduled for March. Mr Gilani's contempt case will probably also be decided in March, and a report is expected on "memo-gate", the case involving an alleged memo sent to the Pentagon asking Washington for assistance to counter the influence of the military.

With Pakistan entering elections mode, "this year will make the management of Pakistan's economy even more difficult", says Dr Ishrat Hussain, another former central bank governor.

While the politicians scramble for crumbs, Pakistan's economic welfare could be the casualty.


Sajjad Ashraf is a former Pakistani ambassador and now an adjunct professor at the Lee Kuan Yew School of Public Policy in Singapore

Published: February 17, 2012 04:00 AM


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