comment: Politics of poverty Shahzad Chaudhry
Dependence on donors pledges is so pervasive that most television channels now need to run a line asking the nation to pray for the success of the prayer on which the Budget is premised!
In the days leading up to the next fiscal years budget, what has been keeping the mandarins of the finance ministry engaged has been another matter how poor are Pakistanis?
By all accounts, and some verified numerical processes of none other than the World Bank, the poverty rate for 2007-8 had been determined at 17 percent. This would have been a six percent reduction in poverty over the 2006-7 performance of the economy when the poverty figure came down from thirties to around 23 percent.
Implicit in the fidelity of these figures of poverty was the acknowledgement that the Pakistani economy had indeed done extremely well during the Aziz years. One is forced to differentiate between the Musharraf and the Aziz years, simply because the wheels began to turn better and smoother from 2004 onwards till grinding to a halt in 2008-9, after the advent of real democracy. Give the devil his due. They the Musharraf-Aziz duo at least did better on the economy 2005-6 produced the best ever GDP growth in budgetary terms it was a stellar performance.
Immediately after the February 2008 elections, and particularly in the last two months of that financial year, the global pricing regime in commodities went through a tsunami, which actually gathered pace in the second half of 2008, assuming astronomical proportions and robbing central banks of their hard-earned dollars; all this happened under the watch of the democratic government of the PPP. The countrys foreign exchange reserves shrank from the healthiest ever number of around $17 billion just before the 2008 elections to as low as $3 billion just within a year. That is when Pakistan had to return to IMF care.
At the current $11 billion reserve mark, certain stability in macro-economic indicators can be claimed, but the loss of rupee value will perhaps remain irrecoverable. Rupee depreciation coupled with quadrupled commodity prices spurred inflation at its worst, it stood at 30 percent; it now hovers around 20 percent.
This is the background to the poverty issue. What really lies behind this arithmetic of poverty actually has an eye to the future. In a years time, when the 2010-11 budget is to be presented, they will be reviewing the 2009-10 performance and finalising numbers for the year gone by. It is then that todays handiwork will become crucial. With the global economy still not out of the woods, trade sufficiently depressed, capital restricted, Pakistans economy on teeters with an on-going insurgency draining resources, the prognosis doesnt seem good.
Per capita GDP in real terms, which has slid back already, is likely to go further back; and the IMF terms of engagement will keep the economy on a drip-feed while it tries to wrestle with macro-economic sustainability. Such an environment will only add more numbers to real poverty, adding to the poverty rate in a years time.
This is where the differential between the 2008-09 and 2009-10 poverty figures will begin to give expression to the performance perception; and this reality haunts the current political leadership. As an interim, the ministry of finance has asked for a review of poverty figures in the last quarter of the previous fiscal year to look for higher final figures in poverty for the year under review, so that the differential with the likely numbers for 2009-10 does not look too dismal.
Same has been the case with the review of annualised GDP numbers for 2007-8, which are now revised from the earlier reported 5.5 percent to 4.1 percent. That doesnt make 2 percent look as bad in comparison. This to me is probably the first time ever that a government is trying to make the countrys economic performance look poorer.
Is there a way out? The 2009-10 Budget does not reflect that. Budgets in Pakistan have, for some reason, always been characterised as Houdinis acts; this one is a lot more as they say in aviation terms on a wing and a prayer. Dependence on donors pledges is so pervasive that most television channels now need to run a line asking the nation to pray for the success of the prayer on which the Budget is premised!
We need to take a leaf from Shaukat Azizs book: the man knew how to make a quick buck (no pun intended). It took the Sri Lankans thirty years to reach a figure of $1 billion in the export of tea their prime and most valued produce. Compare that to the contemporary financial system and you might just raise the figure in a couple of days.
In modern economic parlance, this is termed the miracle of globalised service economies. If not for that, Singapore would not be the richest country in Asia in per capita GDP terms; Hong Kong would not be the financial hub that it is when China reacquired Hong Kong from Britain, Hong Kongs reserves were higher than those of mainland China in dollar terms; and the City of London, a separate entity within the London metropolis, would not be the hub of Europes financial system.
Shaukat Aziz, a banker, knew the value of rotating capital; money in rotation generates wealth, and in turn makes all those coming into contact richer. This opens avenues of investment enabling the shares to reach the wider population. Shaukat Aziz understood this well, and that is why Pakistans services produced this overpowering wave of economic activity; this was what attracted capital from abroad as well as from within.
By depressing the services sector over the last year-and-a-half, and by a strange quirk of logic assuming it to be an exclusive process by instead focusing on production alone, the economy has been robbed of support to the services sector, which is 52 percent of the economy in GDP terms. Production is key to the sustainability of the economic core, and must therefore be given its due importance, but do not forget to generate wealth that is what people wait for and are hoping to realise soon.
Whether Keynesian postulates support so, I do not know; but what I do know is that well being is not only having the right amount of wheat and rice in your home, it also, and more so, is reflected in what you drive and what you wear and possess. The 21st century definitions of well being have undergone a sea change, and our economic policies need to reflect that. Sadly, it is not so.
Look at India. For years, a 3 percent growth economy, sticking to Nehrus puritan socio-economic values. The only thing missing was that they did not call each other comrade. It was only when the world went flat, to borrow Thomas Friedman, and services ended up being routed to India, mostly back-office work outsourcing they called it and Bangalore became the worlds intellectual back-shop, and money grew, and well-being began to be sensed, that the Mittals returned, the Ambanis became relevant, and the Tatas found rejuvenation.
Sentiment is what drives economies. For a long time, they have been calling it the feel-good factor. And what will take you there is capital and its rotation not hoarding money. Produce and production are good sustaining economic values, but it is services that will get you there quicker. We need to re-learn our economics better. That is how the rest of the world made it; with better sense we could too. It has been done before, remember.
The writer is a security and defence analyst. He can be contacted at
shahzad.a.chaudhry@gmail.com