The country today is facing multiple challenges and prospects of a turnaround do not appear promising. The government of the Pakistan Tehreek-i-Insaaf (PTI) claims to be committed to bring about fundamental changes in governance and in economic policies to ensure long-term sustainability and improvement in people’s welfare. At the same time there are cautionary signals that the process of change is likely to be painful and the expected timeframe could be two years or more. While the objective is laudable, unless there is serious out-of-the-box-thinking by the decision-makers as well as by key institutions, a meaningful and sustained turnaround seems elusive.
The recent unprecedented meeting of the business community with the Chief of Army Staff signifies the pressing of a panic button. Has the pressing of the panic button been prompted by the reality that we now have a broken economy, broken governance, broken education system, broken health system, broken municipal services, increasing utility prices, increasing unemployment, increasing inflation and increasing poverty ? The short answer is no. The panic button was pressed because for the first time even the privileged classes – the rent seekers – also feel the heat as the current state of the economy threatens the sustainability of the luxurious lifestyles that the privileged class has enjoyed at the expense of the deprivation of the masses.
Many in Pakistan believe that it is only with a committed and honest leadership at the top that a turnaround is possible. Thus the election of Imran Khan as Prime Minister was greeted by all those who thought that we finally have a messiah who could deliver, considering all the promises and pledges that he had made in the run-up to the 2018 general elections. Tragically, it has not taken long to belie that expectation and erode the hopes and dreams of millions. Many leaders in the past have also given a ray of hope by proclaiming that the recipe for a turnaround is to follow the ‘model’ of successful countries like Singapore, Malaysia, Korea or China, but again there is nothing to suggest any serious effort to translate rhetoric into action. If we had any capacity to introspect, a clearer message would have emerged: the fault is in us and not in our stars, to quote Shakespeare. Our past highlights the bitter truth that some of our ‘strategic’ decisions have brought the country to this sorry pass.
I hark back to over two decades ago when I was attending a post-budget seminar in Lahore. A distinguished industrialist while analysing the budgetary proposals made a very disturbing observation: if Pakistan were to be viewed as a corporate entity, the revenue/expenditure equation suggested that the entity was on the verge of bankruptcy. This point has remained in my thoughts over the years while witnessing successive governments struggling with this dilemma with only sporadic success. The situation has deteriorated to the extent that now our national debt is rising to soon exceed our Gross Domestic Product (GDP) and annual revenue cannot even meet our non-development expenditure. It has, therefore, become imperative to actually use the corporate entity analogy to determine what needs to be done and how. In the corporate world, a company burdened with a debt/equity ratio of over 100 percent and with operating expenses in excess of operating profit is likely to opt for voluntary bankruptcy. But national states do not have that option. One can only draw lessons from recent examples where countries facing similar crises have managed to avert or overcome a potential bankruptcy situation. Brazil and Greece are two recent cases.
Let us assume that a corporate entity faces a situation similar to what the state of Pakistan is facing today. Now let us analyse the logical steps that the management is likely to take for pulling the entity back from the edge of the precipice. Obviously, the starting point would be an analysis of Pakistan’s balance sheet and income statement. The balance sheet analysis would evaluate the productive assets and also identify the non-productive assets that need to be disposed of. In our case, non-productive assets are not limited to the loss making state enterprises. They also include surplus land of Pakistan Railways as well as the urban real estate currently used for the sprawling colonial residences of state employees around the country. At the same time, efforts would be made to ensure optimum utilisation of productive assets. The management would then proceed to evaluate the contingent liabilities of the entity to determine the likelihood of such liabilities crystallising in future. Such liabilities include employees’ pensions and provident fund as both are unfunded. In essence, these are not even contingent liabilities. They actually start accruing as soon as an employee is inducted into service. The pension liability has grown exponentially over the years. Last year alone, it increased by almost 25 percent, aggregating to Rs 421 billion with 75 percent allocated for military pensions. Another unfunded liability is the perpetual circular debt. These factors are never considered for projecting fiscal deficits in future years. Yet another element that has contributed to the country’s financial travails is what could be referred to as intangible liabilities. These refer to factors that could generate potential losses that are difficult to quantify. In the context of Pakistan, these would represent individuals and their organisations globally identified as facilitators of terrorism. In the process of patronising – even coddling – such elements, we have acquired an unenviable image in the world. This prompted the Financial Action Task Force (FATF) to put Pakistan on its ‘grey list’ in 2012 and we remain in that category since then, even after multiple reviews of actions purported to have been taken by the government to rein in terrorist organisations and put effective curbs on ‘terror financing’. In the last review in October 2019, the progress made so far was considered “unsatisfactory” by FATF and we were urged to take further necessary steps for total compliance before the next review scheduled for February 2020. Thus, the risk of being put in the ‘black list’ remains a serious threat.
The country also has a huge reserve of what could be termed as intangible assets: the people of Pakistan. While the high growth rate of population casts a deep shadow on our future prospects, the huge ‘youth bulge’ also presents an opportunity for transforming this currently non-productive asset into a productive one. South Korea is a glaring example where such a transformation was the main driving force of their economic ‘miracle’ spread over the last several decades. However, the transformation would not be possible without a fundamental change in policies and priorities in allocating much higher resources for education, skill development and health facilities.
Finally, the external environment would be analysed to decide how to gear up the entity for meeting competitive challenges by possible changes in the product mix and improvement in operating efficiency through a review of human resources policies as well as technological upgradation.
Now let us focus on the income statement of Pakistan to identify the measures required for enhancing income and reducing expenditure. The government has initiated serious efforts to increase revenue by expanding the taxpayers’ base. While one could question the regressive nature of some of the taxes, the effort itself is well directed and some positive impact is already visible. However, on the issue of expenditure reduction, the government has faltered. Despite all the claims of introducing austerity, non-development expenditure continues to escalate. It is in this area that serious out-of-the-box thinking is required. It is now time to realise that, given our resource position, we can no longer afford to have the luxury of having such a bloated bureaucracy and such a large standing army. Civil service reforms have been on the agenda of most governments in our history but various Commissions appointed for recommending reform measures have failed to yield any worthwhile suggestions. The focus has been more on softening the traditional inter-service rivalry rather than on improving efficiency in decision-making or improving service delivery. In Benazir’s last government it was decided to reduce the long chain of hierarchy in the Federal Secretariat by abolishing the position of Additional Secretary. This step was reversed by stages, first by creating a new post designated as Senior Joint Secretary and then by restoring the post of Additional Secretary. More recently, after the 18th Amendment to the Constitution, some of the Federal Ministries became redundant, including Health, Education, Labour and Social Welfare. Initially, they were abolished but then resurrected merely through changes in nomenclature. Likewise, after the passing of the 25th Amendment integrating the erstwhile Federally Administered Tribal Areas (FATA) with Khyber Pakhtunkhwa (KP), there is no justification for continuing with the Ministry of States and Frontier Regions (SAFRON). With a razor-thin majority in parliament, the present coalition government perhaps feels compelled to carry a huge team of ministers and special assistants to retain its position in power.
According to some analysts, if the size of the bureaucracy were to be slashed drastically, this could be a quick solution to both improving government functioning and implementing austerity. Over the years the government has continued to expand. We currently have a total of over 150 missions abroad, including some honorary consulates. There are over 50 military attaches and 40 trade offices. It is time to review the need for such an extensive presence in terms of the cost/benefit trade-off for the state. Having worked in a trade office myself (consul general and commercial counsellor in South Korea), I can vouch for the limited role that a trade office can play in enhancing exports. Theoretically, the principal role of the trade office is to act as a facilitator for disseminating strategic information about what could be exported from Pakistan to the country of accreditation. In the internet world of today, such information is merely a click away, thus obviating the need for such a large-scale physical presence abroad.
Our defence expenditure is another massive charge on our scarce resources. Pakistan has been consistently among the top 10 countries in the world in terms of percentage of GDP spent on defence. While the official estimate is four percent, the more accurate figure would be closer to five percent because, unlike other countries, military pensions are a part of the civilian budget. The corresponding proportion for India is 2.4 percent. It could be argued that given our security situation, it is not possible to reduce this expenditure. It is interesting to note that another country, Iran, which is confronted with an even more dire security situation, spends only 2.7 percent on defence. This is possible because unlike Pakistan, Iran has mandatory conscription that requires all male citizens to undergo military training for two years. It is therefore important to consider whether we too can adopt a similar policy. Such a policy has significant intangible benefits. The country retains a large reservoir of trained manpower that can be called upon in any emergency. Additionally, the discipline that military training inculcates enhances the opportunity of gainful employment in other fields. It will be prudent to consider this option instead of continuing with the legacy of training and patronising selected non-state actors considered ‘strategic assets’.
Let us now focus on measures required for enhancing income. Most governments have pledged to bring about a dramatic increase in exports but with little to show in terms of performance. It is time to recognise our basic constraint: the country’s export base remains very limited. The bulk of exports are represented by low value added textile products in addition to other traditional items like leather products, surgical instruments, sports goods and rice. Frequent bouts of devaluation were expected to enhance our export competitiveness but failed to create any visible impact. There has been much discussion on Pakistan’s strategic location and the potential to emerge as a vibrant regional trading hub. Yet, the flawed security policy has prevented us from realising this potential. In fact, our bilateral trade with Afghanistan has continued to decline with increasing level of imports into Afghanistan being routed through the Chabahar port in Iran. Likewise, trade with India has remained much below its potential till the recent complete ban. With considerable improvement in our road infrastructure in recent years, planned to be augmented further under the China-Pakistan Economic Corridor (CPEC) framework, our potential capacity to handle transit trade has enhanced but we are willing to continue with the misplaced paranoia that allowing a transit trade facility to India would be detrimental to our security. It seems we are unaware of how other countries in our neighbourhood are handling regional trade. Both Armenia and Azerbaijan have substantial trade with Iran (close to a billion dollars) even though both the trading partners of Iran remain embroiled in a serious territorial dispute. In the case of Turkey, while having no diplomatic relations with Armenia, the bilateral trade is growing considerably through Georgia. According to some reports, Turkey does not even object to Turkish trucks transporting goods to Armenia through Georgia. Likewise, despite serious ideological differences and territorial disputes between them, the bilateral trade between China and Taiwan is almost a hundred billion dollars. Taiwan is currently the seventh largest trading partner of China. Thus, when the world around us is changing fast, we have chosen to continue nursing our security nightmares. Is it not an irony that a nuclear state with the sixth largest armed forces in the world remains far more concerned at the perceived threats to its sovereignty rather than using all available opportunities for improving its economic prospects?
With the improvement in road infrastructure, the prospects of yet another income generating activity – tourism – have also emerged. While domestic tourism has started to increase at a high rate (estimated at five million in the current year), foreign tourist inflow is still a trickle at less than a million. Recently, the government has wisely relaxed visa restrictions on foreign tourists but travel advisories against visiting Pakistan remain in force in several countries. Pakistan’s global image of a promoter of extremism, although improving, is still a lingering concern. Even more importantly, the continuing restrictions on liquid ‘intoxicants’ remain a discouraging factor to dampen the lure of our beautiful and much publicised northern areas. However, there is one large segment of foreign tourists that might not be discouraged by these factors: tourists from India. Again, if Pakistan were to shed its security concerns and treat Indians at par with tourists from other countries, the annual inflow could soon increase dramatically to over four million. This is in recognition of the ease of travel across the land border and the strong cultural and linguistic bonds between the people of both countries. Most countries today realise the economic benefits of tourism as this encourages across-the-board economic activity and that too quickly. The recent process of recovery of the Greek economy is attributed largely to tourism with current annual inflow estimated at around 28 million. Of course Pakistan is required to undertake some essential steps to trigger and sustain a high tourist inflow. These would include aggressive marketing and upgradation of the entire service chain from tour guides to interpreters to affordable hotels and other subsidiary facilities. But the most important pre-emptive action should be to spread awareness for ensuring that the green environment is preserved by avoiding the dumping of litter and garbage as this is already becoming a menace in many of the pristine areas in the north.
The possibility of a sustainable turnaround remains elusive in the absence of ensuring peace with our key neighbouring countries, Afghanistan and India. In the current environment of serious differences with the Afghan government and mounting anti-Pakistan sentiment in India, achieving regional peace seems to be an insurmountable challenge. In the case of Afghanistan, our misconceived adventure of participation in the Afghan Jihad remains an albatross around our necks. No government since the time of that misadventure has publicly acknowledged the human and material cost of that policy. Even today, we continue to nurse the hope that peace and stability of Afghanistan cannot be at the expense of weakening our strategic interest in that sovereign country. We feel flattered that the US considers us to be a key facilitator for an honourable withdrawal of their troops. We are committed to play that role and feel that an arrangement that could provide the participation of the Taliban in government in the post-US withdrawal scenario would be in our interest and make the western border secure. This myopic policy ignores the serious dangers that could expose Pakistan to a situation similar to the post-Soviet withdrawal. Our primary interest should be to ensure a stable government in Afghanistan and that would be possible if we abandon our continuing support for elements like the Haqqani network, the Quetta Shura and all other shades of the Afghan Taliban. What prevents us from following this prudent course is the apprehension that in such a situation, India’s influence in Afghanistan could increase at our expense.
The India-centric policy remains the cornerstone of our security concerns. In recent times, however, there has been an apparent shift in this policy as reflected in multiple peace overtures made to India by the current PTI government, which never tires of proudly proclaiming that it is ‘on the same page’ as the military leadership. But all these gestures have been spurned by India in a dismissive manner. This is a strange twist in our bilateral relations. The history of our relations is replete with many instances of serious efforts for having a formal peace or no war agreement. The first such effort was made as early as 1949 when Prime Minister Nehru reportedly handed over to Pakistan’s high commissioner to India the draft of a joint declaration renouncing “resort to war for the settlement of any existing or future disputes between them”. Prime Minister Liaqat Ali Khan accepted the draft but suggested the addition of a provision for “arbitration on all points of difference” in their disputes. The agreement could not be concluded as India considered the Kashmir issue to be a political dispute and therefore not susceptible to arbitration or adjudication.
Many years after the Simla Accord, in 1981, Pakistan proposed a no-war pact. India’s initial response was that the Simla Agreement should be considered “the basis” for relations between them. Negotiations continued first between Agha Shahi and Natwar Singh and later between India’s external affairs Secretary Rasgotra and his Pakistani counterpart Niaz Naik. By June 1984, the terms of India’s draft of a treaty of peace, friendship and cooperation were almost finalised but the agreement could not be signed. Mr Rasgotra provides an interesting insight into what transpired in the negotiations in his book A Life in Diplomacy. According to him, he called on Ziaul Haq during the process of negotiations and had been authorised by Prime Minister Indira Gandhi to also discuss the Kashmir issue. Zia is reported to have made an interesting observation during that one-on-one meeting. He said, “Rasgotra sahib, what is there to talk about Kashmir? You have Kashmir and we cannot take it. I want you and Niaz Naik to work on a treaty of peace and good neighbourliness, including a no-war pact.” Rasgotra goes on to reveal that negotiations proceeded briskly with Niaz Naik and it was mutually agreed that Pakistan’s no-war proposal would be incorporated in the comprehensive draft of the treaty of peace, friendship and cooperation as proposed by India. Mr Naik expressed satisfaction and indicated that he hoped to visit India the following month to initial or sign the Agreement. Then there was a sudden silence and no further communication from Naik. Rasgotra claims that he later learnt through his sources that in the intervening period, Sahibzada Yakub visited Washington and during his meeting with some Senators of the Foreign Affairs Committee, he shared this information with them. Again, according to him, Yakub was advised against going ahead with this arrangement. Later, on a visit to Washington, Rasgotra contacted a long-term friend in the US Senate to know the reason for the US reservations about the proposed treaty. He was bewildered by the response: “Why is India coercing Pakistan to sign an anti-American agreement?!” The only plausible explanation for US reservations about the accord could be that, in their perception, such a development could have weakened Pakistan’s efforts of encouraging the local insurrection in Afghanistan against the occupation Soviet army.
Past history suggests the Simla Agreement has been followed by several dialogues, held in good faith even though inconclusive. One positive development that emerged was the Lahore Declaration signed at the time of Prime Minister Vajpayee’s visit to Lahore in 1999. This was an important milestone and established a foundation for sustaining peaceful relations through a continuing dialogue. This also reflected the large-heartedness of Mr Vajpayee in ignoring allegations against Pakistan of fomenting strife in Indian Held Kashmir through our non-state actors from 1990 onwards. Nor did he seem influenced by the fact that the person allegedly involved in the Mumbai bomb blasts, Dawood Ibrahim, was under protection in Pakistan. But then how did we reciprocate that gesture? Less than six months later we started our misadventure in Kargil. And then, only a year later, there was an attack on the Indian Parliament alleged to have been spearheaded by terrorist organisations supported by Pakistan. Obviously, both events not only estranged the bilateral relations but more importantly, the incidents weakened the Indo-Pak peace lobby in India. Despite these events, Mr Vajpayee did not abandon his peace agenda and signed the Islamabad Declaration in 2004, reiterating the mutual quest for peaceful relations and expressing the commitment to resolve all outstanding issues, including Kashmir, through the process of dialogue.
Any hope of progress after the Islamabad Declaration was totally extinguished four years later after the devastating attack in Mumbai in November 2008 by Pakistan-based terrorists associated with Lashkar-e-Tayyaba (LeT). This has been a tipping point in taking our bilateral relations to the highest degree of animosity. The people of India watched this gory drama for four days on real time basis on their television screens and that left an indelible mark in their minds about our national psyche. While there was no evidence of state sponsorship, our lacklustre approach in initiating serious investigations against the alleged corroborators further damaged our image, not only in India but also globally. Unlike the Kargil war or the attack on the Indian Parliament, the deep impact of this episode on the public at large in India has barely softened with time. The obvious reason is that those who witnessed the brutal massacre continue to relive that nightmare. The political impact has been even more telling. It weakened that segment of Indian society that had been advocating peaceful and friendly relations with Pakistan. At the same time, adherents of the Rashtriya Swayamsevak Sangh (RSS) ideology could proclaim that their instinct of total mistrust of Pakistan was proven right. This in turn helped Modi in his election as Prime Minister because he managed to capitalise on this growing anti-Pakistan sentiment and even more so in the last election. What has been our response during the intervening period? We first went into a denial mode implying that the whole episode was a ‘false flag’ operation by India as if India could go to the extent of allowing the killing of innocent citizens merely for pinning the blame on Pakistan! Even after Ajmal Kasab’s identity had been confirmed, the state did not demonstrate any serious intent to punish the perpetrators. The argument bandied about was that since we have a totally independent judiciary, we cannot ensure conviction if the evidence – including audio recordings – presented by the prosecution was not considered sufficient. ‘Defence analysts’ on ‘selected’ TV channels reinforced that narrative as did ‘intellectuals’ like Zaid Hamid and Maqbool Oriya Jan. Neither India, nor the world believed in this charade. Meanwhile, Hafiz Saeed, head of LeT, and Masood Azhar of the Jaish-e-Mohammad and other merry warriors were free to roam around the country and spew hatred against India. In this environment, it was surprising that Modi invited our former prime minister Nawaz Sharif to attend his oath taking ceremony. He then visited Lahore soon thereafter to attend a private function as the guest of Nawaz Sharif. For many of us, both were welcome developments. But for the ‘patriots’ screaming on our ‘selected’ TV channels, they amounted to a ‘sell out’ by Pakistan. Even an enlightened, progressive individual like Bilawal Bhutto joined in the PTI-initiated slogan: “Modi ka jo yaar hai ghaddar hai, ghaddar hai!” (Whoever is a friend of Modi is a traitor).
Our past misconceived sense of patriotism has now come to haunt us and put our defenceless Kashmiri brothers in such a quandary that they are facing the harshest form of state repression at the hands of the ‘yaar’ (friend) of our former prime minister. This has suddenly prompted our rulers (both de jure and de facto) to start pleading for peace. We have now been placed in a position that all that we can do to alleviate our Kashmiri brothers’ plight is to make speeches and admonish the world for not reacting forcefully to India’s current genocidal tendencies. In this bloody strife, the only hope that India will relent is that sufficient public pressure could be mobilised within India against this repression. Can we play a role in this? The legacy of our past policies severely limits our options. But even from this weak position, we must initiate a considered and well thought out effort. In the past, even the tensest situations in bilateral relations have been defused by relying on people-to-people dialogue. This is perhaps the only option to be pursued at this stage. Yes, the media in India, largely owned by corporates, has never been as compromised as today and feels compelled to unquestioningly support the government narrative. Yet, influenced by the global media outrage, saner voices are expressing concern at the continuing brutality in Kashmir. The paralysis of conscience of the media is also showing signs of change. Even more encouraging is the increasingly strident tone of the secular lobby including distinguished individuals like Professor Amartya Sen and Arundhati Roy and a host of academicians. Persons like Mani Shankar Iyer, Shashi Tharoor, Karan Thapar and several others continue to stress the dangers of converting a pluralistic, multi-ethnic, multi-religious society into a purely Hindutva nationalist state. Pakistan must try to reach out to such individuals and seek their help in ushering in a new era in bilateral relations – an era free of the baggage of the past. We need to take multiple steps in this regard directed at creating an environment of genuine peace and friendship. The recent decision by Pakistan of the visa-free corridor in Kartarpur is a good initiative. This could act as a catalyst for establishing meaningful and extensive people-to-people contacts. We should, for example, consider arranging conference facilities at this venue where persons from India are allowed to assemble without any visa to interact with Pakistanis. Organisations who have played an important role in the past for promoting people-to-people interaction should be encouraged to activate that role given the new policy direction of the government. To some, such efforts directed at eliminating our mutual mistrust of over seven decades might seem to be wishful thinking.
But do we have any other option?
 A G Noorani, Dawn, Oct. 22, 2016
 As reported in Daily Times, May 2, 2016
Javed Masud is a former CEO of Pakistan Credit Rating Agency. He holds a Master’s degree in Economics from Boston University. He was a career civil servant and also served as Pakistan’s consul general in South Korea. He was awarded the Sitara-e-Imtiaz in 2008