Pakistan’s Economy Post – Flood

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Ishrat Husain*

Pakistan had been suffering from three serious external shocks before the recent devastation to human lives, property, infrastructure and social services caused by the floods that struck the country in August-September 2010.   Pakistan was engaged in fighting militants and terrorists since 2001.   Forty three billion dollars of losses have been incurred so far in the fight against terror and the country has been virtually shut out as a destination for investment, capital flows, tourism and trade.   Thirty thousand civilians and six thousand Army, Para- military and Police officials have lost their lives.  The Second shock occurred in 2007 when the world food and fuel price went through large, sudden  and  abrupt hikes.   As  Pakistan did  not  adjust these prices domestically and the government had to absorb the impact of this hike through the budget, fiscal deficits became quite large.  The deficits were financed by borrowing from the State Bank of Pakistan and the consequential monetary expansion led to 25 percent inflation, depreciation of exchange rate and lower growth.   The decline in the purchasing power of the Pakistanis due to stagnating income, double- digit inflation and growing unemployment for the past three years has resulted in a major demand shock. Third, the synchronized recession in the global economy as a result of the financial crisis of a magnitude not witnessed since the 1930s hasn’t helped either in stimulating domestic economy.    It is in this context that it must be realized that no country with the resources and capacity such as possessed by Pakistan can single handedly meet the onslaught caused by these floods.  The pace, extent and magnitude of the stimulus provided jointly by the domestic and economy is stabilized.

The floods have displaced 20 million people, damaged or destroyed more than one million houses, infrastructure, and washed away standing crops from 10 percent of the cultivable area.  The losses of livestock, poultry, etc. which provide cash incomes to the poor are quite substantial. According to UN observers, the 2010 Floods in Pakistan have caused more devastation than the combined effects of the Asian Tsunami, the 2005 earthquake in Kashmir and the recent Haiti earthquake. The loss of life has indeed been contained but the loss to property and incomes have been considerably higher. Internal displacement of people has been on a massive scale. World Bank and ADB have made preliminary estimates of damage assessment which are estimated at approximately $10 billion or about 6 percent of GDP.  Researchers at Ball State University and Tennessee State University have put the damage to infra-structure, buildings, contents and agricultural assets between $5.1 – 7.1 billion.

The recent report by the IMF projects that the loss of output mainly in the agriculture sector would reduce GDP by over 2 percent.  Public finances are likely to be affected with lower revenue collections, higher outlays for needed humanitarian assistance and defense services.  The floods have also disrupted trade with the supplies of exports and imports held up and fuel can not be delivered to power plants.   The current economic scenario for 2010/11 looks bleak as GDP growth would be only 2.8 percent, inflation 13.5 percent, current account deficit 3.1 percent and nobody knows for sure where the fiscal deficit will end up.

A timely and appropriate response of the domestic and international community to this calamity can not only contain and mitigate the risks to the economy but also turn it into an opportunity for economic revival. The Government has, however, urged multilateral banks not to reallocate their existing loans for flood rehabilitation purposes. As the World Bank and ADB had together committed about $3 to 4 billion from their on- going programs for this purpose the gap between the requirements and the expected foreign donor inflows has widened. This goal is achievable if the post-relief rehabilitation and reconstruction activities are carried out in a framework of burden sharing, additional resources and not business-as-usual.

Crisis situations do evoke exceptional responses. The present crisis provides an excellent occasion not only to formulate and execute the post flood relief rehabilitation plan but also to implement the structural reforms that are overdue but have been on the back burner for a long time and also set the long term economic direction in the light of changed circumstances.

Post-Relief Measures

There are at least seven post-relief activities that deserve urgent attention for implementation in the immediate term:

(a)    As the flood waters recede, restoration of livelihoods of those displaced  from  their  lands  and  abodes  should  immediately begin.  The immediate task would be to facilitate the return of approximately four million families to their respective habitat and to enable them make the transition to earning incomes and preparing lands for cultivating Rabi crops – wheat, oilseeds, etc.. Cash grants, microfinance loans, supply of seeds, fertilizers, bullocks, implements and housing materials can be financed from the allocations from the Benazir Income Support Program, the funds at the disposal of MNAs and MPAs, the Peoples’ Works Program, the Poverty Alleviation Fund, Baitul Mal and Zakat, and the Provincial development budgets.  These public sector funds should be supplemented by involving the corporate sector, the NGOs, Microfinance Banks and Institutions (MFBs and MFIs), the Civil Society Organizations, wealthy individuals and  philanthropists,  non-resident  Pakistanis.    These  groups may operate in specific areas or assigned specific components to undertake on their own without being asked to donate cash contributions.  MFBs and MFIs can be provided lines of credit from both domestic and international donors for channeling micro loans for agriculture, housing and micro businesses.  Similarly, the international donor community should be invited to undertake local partner organizations.   The only requirement would be that the activities, projects, and components undertaken by each participating agency should be part of the District Rehabilitation and  Reconstruction  Program.    The  merits  of  this  approach are several fold.   First, there will be an integrated planning framework under which public sector, non-government sector, private sector and international donors will participate in a coordinated manner  but with full control of their financial and administrative resources.  Second, the plan will be drawn with the intimate knowledge of the local conditions – the communities displaced, the lands damaged, the livestock destroyed, the stocks of grains and seeds washed away, the extent of the repairs of houses, dwellings, sheds and shops and rapid rehabilitation of essential infrastructure and connectivity. Third, the disjointed or fragmented activities resulting in overlapping and duplication or too many  resources going to one place would be avoided.  The traditional way whereby the Federal or Provincial Government agencies formulate, approve and implement the plans from the capitals is bound to result in failure, slippages, or inordinate delays. The districts affected by the calamity should be provided the manpower and financial resources to prepare the plan with the help of all the government agencies, NGOs, private sector and donors. A District Rehabilitation and Reconstruction Board headed by the District Coordination Officer and consisting of the representatives of major participating agencies should be formed. The work of this Board should be overseen by an independent monitoring committee consisting of the MPA, MNAs belonging to the district, representatives of Armed Forces, and few eminent persons of repute belonging to the district. The Provincial and Federal Governments including the NDMA should place some of their technical experts, skilled and experienced manpower at the disposal of the Boards on deputation.

(b)   The Federal and Provincial Governments should prepare a comprehensive Post-Flood Rehabilitation Plan based on the district wise damage assessment.   The financing of the plan should indicate the sources – domestic and foreign, the sectoral allocations and the timelines for deliverables.  This plan should be presented before an International Donors conference.   It would be credible if the Government informs the donors that it would contribute x percent from its own resources for financing this plan and expect the donors to make up for the remaining gap. In absence of such an explicit arrangement it would be quite hard to persuade the international community to come up with the entire financing from their own sources. Large infrastructure rehabilitation projects can be assigned to multilateral development banks because they have the expertise and the financial muscle to undertake these projects.  Bilateral donors and international NGOs can be asked to focus on their areas of interest in certain provinces or districts.  Other donors can either directly work at local level or pool their resources for certain projects if they do not have the capacity or local presence. The proposed Oversight Committee at the District level can have representatives from such donors.

(c)    The Federal and Provincial Governments should jointly draw out a revised budget for 2010/11, an indicative budget for the next three years outlining the reallocations from the recurrent and development budgets, allocations from Zakat, Bait ul Mal and the additional measures for revenue generation including Flood Tax or Surcharge. The incidence of this tax or surcharge should fall mainly upon the elites in Pakistan. It must be mentioned that under the new NFC award the share of the Provincial Governments in the divisible tax pool would be relatively high compared to the Federal Government while their capacity to absorb such large volumes of additional resources productively would take some time to build.  At the same time the expenditures of the Federal Government are highly inflexible in the short term – Debt Servicing, Defense, Subsidies and transfers – with little room for maneuver.  The old mindset where the provinces always put inflated claims and demands on the Federal Government would have to give way to a more responsible and collective view of national resources.  Of course the provinces should be allocated external donor resources for flood rehabilitation in proportion to the assessed damage needs for the projects they are assigned for implementation. The provinces, in turn, should subdivide these resources and all others saved from their budgets to the Districts affected by the floods so that local rehabilitation projects can be completed expeditiously without lengthy and cumbersome approval processes.

(d)  At the Provincial level, this crisis can be utilized for a complete physical rehabilitation and strengthening of our entire irrigation system that has been neglected for over sixty years. The barrages, the embankments, flood protection bunds, spurs, river training, removing obstructions from flood plains, de-silting of canals, lining of water courses.  The physical rehabilitation should be accompanied by an institutional overhaul of the Irrigation and Power Departments.  The technical expertise and competencies of  the  irrigation engineers have  eroded  over  time  and  they have become bureaucrats pushing papers, awarding contracts, dispensing favors and collecting rents for themselves.   The willful neglect of maintenance and operations work due to the leakage and diversion of budgetary funds coupled with inefficient and inequitable distribution and mispricing of water were the main factors behind the weakening of the irrigation system. A revamped organizational structure, a modern management system, re-engineered business processes and automation along with performance based human resource policies are badly needed for the Irrigation Department. The outdated system of water allocation that is misallocated by generous access to the large and well to do farmers at the expense of the poor has to be replaced by a more efficient equitable community based system. Water pricing mechanism has to be readjusted from time to time to meet at least the Operations and Maintenance (O&M) expenses of the system.

(e) At the Provincial level, this crisis can be utilized for a complete physical rehabilitation and strengthening of our entire irrigation system that has been neglected for over sixty years. The barrages, the embankments, flood protection bunds, spurs, river training, removing obstructions from flood plains, de-silting of canals, lining of water courses.  The physical rehabilitation should be accompanied by an institutional overhaul of the Irrigation and Power Departments.  The technical expertise and competencies of  the  irrigation engineers have  eroded  over  time  and  they have become bureaucrats pushing papers, awarding contracts, dispensing favors and collecting rents for themselves.   The willful neglect of maintenance and operations work due to the leakage and diversion of budgetary funds coupled with inefficient and inequitable distribution and mispricing of water were the main factors behind the weakening of the irrigation system. A revamped organizational structure, a modern management system, re-engineered business processes and automation along with performance based human resource policies are badly needed for the Irrigation Department. The outdated system of water allocation that is misallocated by generous access to the large and well to do farmers at the expense of the poor has to be replaced by a more efficient equitable community based system. Water pricing mechanism has to be readjusted from time to time to meet at least the Operations and Maintenance (O&M) expenses of the system.

Physical infrastructure – power grids, gas transmission lines, bridges, the Highway System should be repaired, rehabilitated and rebuilt on a sustainable basis. The allocations for these activities should be made out of the reprioritized budgets of the Government, NHA, Gas Companies, PEPCO, etc. The recommendations of the Prime Minister’s Task Force on climate change ought to be scrutinized and implemented if they are found feasible. The efforts aimed at deforestation have to be penalized and re-forestation and water-shed management encouraged and given priority in public sector allocations.

(f) The Federal government should also redouble its efforts to obtain access for our textile exports to the European Union (EU) and U.S.   Domestically, textile and other export industries should be given all the support they need in form of raw material, uninterrupted supply of power and gas, credit and logistics. Easy and automatic refunds should be made to the exporters under the new reformed GST so that their cash flow is not un-necessarily stuck.  The increased export earnings will obviate the need for more external loans, improve the capacity to import essentials and thus subdue the inflationary pressures.

The post-relief phase can have positive impact on the economy both in the short as well as long term.  The infusion of large capital and redeployment of four million persons in productive activities would stimulate aggregate demand, promote employment and thus help in kick starting the economy.   The higher moisture retention in the arid lands of the country can boost agriculture production and ease inflationary pressure in the economy arising from shortages of food and other commodities. In the medium to long term the efficiency of the Irrigation System would pay positive dividends in form of better utilization of scarce water resources and higher yields.

The risks to the proposal outlined above are also many.  First, by perpetuating the negative perceptions about the government the much needed financial and human resources required from within and outside the country may never materialize.   This risk has been mitigated in this proposal by bringing in each player to play their part but allowing them the autonomy and independence to operate with monitoring and accountability mechanisms. Second, the tendency of over-centralization and the allergy to devolve powers, authority and resources to the people having the best knowledge about their problems and the solutions may persist.  The plan to set up the District Board is likely to be fiercely opposed by the Federal and Provincial Ministers as they will lose control. Third, we have perfected the art of going through the rituals and motions without caring for the substance. It is possible that these Boards may, in fact, be formed on paper but may be made toothless or ineffective and meet the same fate as the Police and Public Safety Commissions in the previous regime.

Medium Term Structural Reforms

First, there is a need for reprioritization of our on-going medium term public sector spending at all levels – the Federal, Provincial and State owned corporation – and elimination of low priority, low impact development projects, waste and inefficiencies.  A clear link between public expenditure and the desired economic outcomes – incomes, output, prices and employment – should guide screening of the projects, programs and policies for inclusion in the priority list.  Only targeted subsidies and conditional cash transfers that can reach the poor segments of the society should be provided for and the current across-the-board subsidies available to everyone should be discontinued.

Second, the domestic savings rate is dismal and has made us heavily dependent on foreign assistance.  The saving rate has to be stepped by providing incentives for households, corporate, small businesses and overseas workers through National Saving Schemes, Mutual Funds, Bank Liability Products, Insurance, etc.  Public sector as a whole has been a source of large dis-savings mainly because of losses of public corporations, low resource mobilization arising from exemptions, evasion, waivers, weak compliance, and indifferent enforcement.  Empirical studies have shown that at the current tax rates, the tax collection can be raised by 4-5 percentage of GDP while the plugging of the leakages, waste and corruption in public corporations and development projects can provide an additional fiscal space of 2-3 percentage of GDP.  An action plan should be implemented by the Finance Managers to capture these missing public savings.

Third, the privatization program has been stalled for quite some time now and the loss making public corporations are bleeding the exchequer. Privatization will not only improve the health of public finances but will also contribute to efficient allocation of resources, improvement in productivity, expansion of output and employment. Vested interests have so far prevailed upon decision makers by perpetuating myths and falsehoods about privatization.  It is time to ignore them and proceed with the privatization in an open and transparent manner both by off- loading limited shares of profit making companies and disposing loss making corporations. To avoid cronyism and fronting pre-qualification of bidders, a specified criteria and careful screening process must be incorporated in the law. As soon as a decision is taken to privatize the entity its control should be taken out of the hands of the Administrative Ministry and transferred to either the Ministry of Finance or Privatization Commission. The consistent efforts to subvert the privatization process by the administrative ministries will thus be contained.

Fourth, the government by becoming too intrusive is now an impediment in the way of new enterprises, start-up companies and small businesses in the private sector.   Entrepreneurship is discouraged by excessive rules and regulations.  Too many agencies and departments are involved – often at cross purposes – in cumbersome and long drawn processes  of  clearances, no-objection certificates, building  permits, land acquisition, provision of utilities and infrastructure.  A single building project requires more than two dozen government agencies and departments with connections and corruption as the main determinants. Land acquisition, taking possession, transfer of title deed and registration of urban property have proved a nightmare to the prospective investors. City Governments and District Governments should develop simplified IT-enabled procedures and post the land titles with ownership details on the website. Public utilities should be provided in bulk at dedicated Industrial estates in each urban centre. Computerization of land records urban and rural – has been lingering on for almost a decade because of the resistance offered by the present functionaries. An independent authority should be given legal powers to carry out this task. Successful examples such as Sunder Industrial Estates should be replicated nationwide.

Fifth,  decision  making  at  the  government  level  is  convoluted and complex because of overlapping, duplication and multiplicity of organizations, an elongated hierarchal chain within the organization and a growing tendency for turf protection and inter-agency rivalry.  Rules and procedures along with structural changes in the ministries / attached departments have to be drastically modified and powers delegated and accountability established to make room for fast track decision making. The financial rules have outlived their utility.  These must be reviewed and the redundant rules purged out and the latest rules that are in force placed together in form of a manual that is freely accessible on the website. The enormous discretionary power enjoyed by poorly paid, ill trained low level functionaries such as Patwari and SHO have alienated an ordinary citizen from the Government and should be transferred in the hands of higher caliber Civil Servants. Only qualified and younger officers should be entrusted with these functions.

Sixth, the gap between the capacity of the government to deliver public goods and services and the growing expectations of the public at large is getting wider.  This can be filled in by an empowered and well functioning local government system.  The Local Government System 2001 had rightly devolved powers, authority and resources for basic public service delivery to the Union Councils and District Governments. This system, with some required changes, should be reinstated as soon as possible with the Provincial Governments responsible for policies, standards, assuring quality and monitoring results.  Police Order 2002 with built in checks and balances of Executive Magistracy should form the Citizen-Police relations. The logical follow up of the 18th amendment and the National Finance Commission Award should be through building up strong representative Local Government System.  For the last two years the entire LG System has been put in abeyance as the old system was abolished and no alternative system was put in its place. The void and vacuum at the district level due to the absence of a well functioning Local Government system created a large number of avoidable problems. We should learn lessons from this regrettable experience. The previous system of devolving powers, authority and resources for 12 Provincial Departments should be restored with some changes and modifications. Law and order, Disaster Management and Revenue Record Maintenance should be transferred from the elected Nazim to a neutral and impartial government official.  Executive Magistracy needs to be re-established for supervising the Police and keeping it accountable. The police order of 2002 should be stripped of all the subsequent amendments and the Police commissions revived and strengthened.

Seventh, investment decisions in Energy, the rehabilitation of the irrigation system, education and health should be made on a medium term basis.  Pakistan’s reservoirs and dams have only 30 days storage capacity.  Hydro power is the cheapest and cleanest source of energy. But dams – large or small – could not be built because of political differences among the provinces. It is imperative that all the provinces reach a consensus and subsequently allow construction.  As changes in the government bring about abrupt reversals, private investors desiring to invest in long gestation projects suffer from a high degree of uncertainty. They are also hesitant to invest or participate in any public- private partnership because they are not sure as to what will happen to their project when a new government comes to power. To minimize this uncertainty the Parliament should discuss and approve the projects and approve allocations for the entire five year plan period which should remain unchanged at the time of annual budget except for fine tuning. This will assure that some essential activities that produce results in the medium to long term are not sacrificed at the altar of short term expediency and arbitrary cuts in development projects.

Eighth, the assertion of an independent judiciary in Pakistan in the last few years is a most welcome step.  But the priority of the judiciary should be to make dispensation of justice easily available to an ordinary citizen without incurring huge unaffordable costs or committing years of productive life in inordinate delays, adjournments, stay-orders and multiple appeals.   Expeditious disposal of cases pending at all tiers of courts and the integrity of the lower judiciary can unlock a large amount of dead or illiquid capital for investment. The Federal Board of Revenue cannot recover as much as Rs.100 billion of taxes owed as the cases are pending in the courts for years altogether due to cumbersome procedures, delaying tactics adopted by lawyers and no penalty for filing frivolous litigation. The commercial banks have billions of loans stuck up as the borrowers have either obtained stay orders from the courts and thereafter the cases are adjourned for one reason or the other or the decrees granted by the courts have not been executed.  Others get encouraged by such tactics and they also pursue the same path.  Most of the litigation in Pakistani court system arises from the disputes on land, residential or commercial property. A large number of projects are either delayed or abandoned as the potential investors find themselves entrapped by those illegally occupying their land or property and filing suits against the legitimate owners.   Weak and unclear title deeds, loopholes in registration procedures and unreliable transfer mechanisms have fortified propensity for unnecessary litigation.   In large urban areas, organized land mafias have taken illegal possession of large tracts of state and private land parcels.  Building Control Authorities such as CDA, LDA and KBCA have become hubs of corruption where lower functionaries create hurdles at every stage of construction and don’t issue Building Completion Certificates unless they are paid huge sums as illegal gratification.  Multi-billion dollar investments are stuck and have become illiquid because of these factors.

Finally, most of the problems in the operation of the Public Sector enterprises arise due to widespread favoritism and nepotism in the appointments of the Chief Executives and the Boards.  The process of their appointment is highly opaque and depends upon the whims of the Prime Minister or the Chief Minister who enjoy enormous discretionary powers.  These powers have been mis-utilized to favor the cronies of the rulers. To avoid this tendency and introduce transparency the Chief Executives (CEOs) and the Board of Directors for 100 key economic institutions, organizations and corporations should be appointed for a fixed tenure in a clearly defined process.  Once appointed they cannot be arbitrarily removed without cogent reasons.  These appointments should be placed and endorsed by Parliamentary Committees and their removal could be challenged in the higher courts of law if done with malafide intent.  These CEOs should be given specific targets and held accountable for results.  The Annual Reports of their performance and financial statements should be submitted to the Parliament and made public.  Those who consistently fail to meet agreed performance goals without any justifiable reasons should be taken to task.

The political will to carry out the suggestions mentioned above has been lacking. It is time that the government musters the courage to rise above narrow partisan interests and get the country out of its present crisis and a general state of despondency.

Long-Term Direction

The impact of the structural reforms proposed for the short and medium terms would significantly affect the current parameters of Pakistan’s economy. But the situation gets further complicated because in the next twenty five years the shape and form of the world economy itself in which Pakistan has to position itself, is going to change quite dramatically.  The locus of economic power is likely to shift from the western block; the US, Europe and Japan to emerging economies, particularly Brazil, Russia, India, China, etc.   China would most probably surpass the U.S. to become the largest economy in the world by 2025.  Pakistan’s strategic location – neighboring both China and India – offers attractive prospects if it consciously reworks its foreign economic relations.  China has been an all weather friend of Pakistan irrespective of the kind of political regimes that have ruled China or Pakistan.  Nurtured under Mao Ze Tung – Chou En Lai period the friendship between the two countries has remained rock solid in spite of the tumultuous domestic political changes in Pakistan. In the recent years the economic ties have strengthened and a Free Trade Agreement has been signed by the two countries. However, the volume of bilateral trade at about $5 billion annually with Pakistani exports amounting to only $1.2 billion remains much below the potential. Pakistan should aim to achieve at least 1 percent of the share of Chinese imports which in current terms would translate into additional earnings of approximately $11 billion – a significant boost to the aggregate export revenues of the country. Foreign direct investment flows, joint ventures in manufacturing industries, partnership with Chinese companies in large infrastructure projects, opening of bank branches, transfer of technology, exchange of scientists, teachers and students would further enhance Pakistan’s economic capabilities. The special historical ties can be translated into mutually beneficial economic gains.

Peace with India should form an integral part of Pakistan’s economic agenda.  Both Pakistan and Northern India contain a large number of people living below the poverty line.  The proximity and contiguity between Indian Punjab and Pakistani Punjab and Rajasthan and Sindh provinces can be profitably utilized to create clusters where agglomeration economies could kick in.  Water sharing arrangements, including reservoirs and dams, alternate sources of renewal energy, grids and transmission lines, oil pipelines, railway and highway connections can help both countries in overcoming their infrastructural deficiencies, improving connectivity across the region and expanding markets for goods and services. Tourism – ethnic and heritage, cultural exchanges, music, drama, films and sports contests can help cement the people- to-people contacts and  promote a  better understanding.   Diversion of trade from informal means to official channels would reduce the transaction costs and lower the prices to end-users.  Dissemination of Best Agricultural Practices in similar agro-ecological zones can boost productivity and farmers’ income.   The large reservoir of English speaking educated youth available in Pakistan can augment the skill base of Indian Business Process outsourcing and I.T. export industries maintaining India’s labor arbitrage in the global market intact. Scientific and technological cooperation between the two countries can help resolve a number of problems that are common in nature – economically viable renewable energy for example.

Pakistan’s demographic profile can also become a source of growth and improvement in living standards.  As most western countries and Japan are going to face an ageing population the youth of Pakistan – if properly trained and equipped – can become part of the global labor force. More than half of Pakistan’s population is below the age of 19 and the ratio of non-working age to working age population is on a gradual decline. The present educational status whereby the net enrolment ratios at the primary level are only 53 percent and completion rate still lower do not augur well. The average years of schooling of the labor force is quite low – 3.9 while the labor force participation rate is 38 percent. Technical and vocational enrolment rate is 1 percent.  With such weak indicators Pakistan is not prepared.  But there is no reason that accelerated and focused efforts on educating the youth not only in literacy and numeracy but in technical and vocational skills, middle level para-professionals and high level professional education can transform this resource into employable manpower.  Teachers, nurses, paramedics, lab technicians, accountants, leisure industry workers, IT & Software experts would be in high demand in the future and Pakistan should establish centers of learning and practices which can produce a continuous supply of this type of skills.   Of course, changes and adaptations have to be made in light of the changing demand-supply equation.  Building a strong foundation at the primary school level, introducing new curriculum, trained teachers, pedagogical tools that can retain the interests of the children, are the instruments through which this transformational change can take place. All hands-on-the-deck approach in which public, private, communities, non-governmental organizations all participate in education and training expansion efforts should be encouraged and incentivized.  Human capital formation would require no more than 4 percent of GDP which is financially affordable but is highly intensive in organization, management and delivery.

The other major driver of competitiveness in the global economy is going to be Innovation, Entrepreneurship and Technology. According to the current set of indicators, Pakistan is fast losing its already low place in the ladder. The constant preoccupation with crisis management both political and economic has rendered the country’s ability to invest in science, technology, higher education, knowledge creation, acquisition, assimilation and dissemination quite ineffective.  A modest beginning was made in the early 2000s with the setting up of Higher Education Commission and some reform of Science & Technology organizations. Faculty development, training overseas for Ph.d degrees, e-learning and digital libraries, liberal research grants were beginning to make some modest difference. But the incoming government has reversed the trend and cut back both recurring and development expenditures.  There is a strong apprehension that the country may suffer a brain drain as a result of this policy and the investments made so far in infrastructure may go to waste.  If this happens, the set back to Pakistan’s efforts to enter the race for global knowledge economy may prove abortive.  A long term strategy with five year rolling action plans debated and approved by the Parliament with a broad political consensus should drive the knowledge economy agenda of Pakistan. While planning, guidelines, funding and monitoring should be entrusted to the Higher Education Commission and a similar Science and Technology Commission the institutions should be given resources, operational autonomy and empowered to implement the plan.  Knowledge creation and application cannot take place under tight control and rigid bureaucratic rules.  A new organizational model on the lines of China and Korea, with suitable adaptations, would be more appropriate.

Engulfing the above positive scenarios is the uncertainty that has been created by climate change. Pakistan’s life line depends upon the River Indus which is sustained by the glaciers of the Himalayan mountains. Global warming is likely to accelerate the melting of the glaciers. The recent unprecedented floods in Pakistan are being attributed by certain observers as a result of this phenomenon. However, once the glaciers have all melted the main source of Indus will dry up causing enormous economic damage to Pakistani agriculture. As a proud possessor of one of the largest irrigation system in the world Pakistan’s entire agriculture system is dependent upon the Indus. Pakistan is also attempting to build hydro electric generation stations  to exploit its comparative advantage in energy .

As the population of Pakistan reaches 250 million its requirements for food and  fibres would also rise proportionately. So far it has been the productivity gains from water usage ,storage, lining of canals , fertilizer consumption that has allowed the domestic production to keep pace with population growth. However, in case the predictions of glacial melting are borne true the whole valley will turn into an arid zone and Pakistan may be confronted with food scarcity unless the international community either finds mitigants for this catastrophe or helps Pakistan in adapting to the new realities through expanded research for higher yielding varieties  using drought resistant seeds, genetic modification, changes in cropping patterns, improved  crop management techniques and better soil conservation technologies.  Pakistan’s farmers, already vulnerable and bereft of any social safety nets, will find it difficult to adapt to new   varieties, planting and conservation techniques and cropping patterns. Their financial capacity and risk aversion will limit investment in adaptation. National and international experts will have to work together to comprehend the implications of the climate change on Pakistan’s economy in the future.

Rural agriculture economy will lose its luster in any case because of the  inevitable structural changes that will take place. In 2010, four out of every ten Pakistanis live in an urban area.  By 2025, the majority of Pakistanis would live in a town, city or metropolitan area. The uprooting of farmers because of climate change may in fact accelerate the process and add to the numbers in the urban areas.  This growing urbanization would impose, in its spate, a number of social, political and institutional changes of significant nature.  The traditional biradri, tribal, kith and kin affiliations that characterize rural societies would break down and new relationships would be forged with altered behaviors and norms. Politically, the patron-client based system would be replaced by a more result-based, service-oriented dispensation. Those who want to get re- elected would have to demonstrate that they deserve the votes on the basis of their track record and performance during their tenures.  The demonstration effect from across the border will also have a salutary effect on the internal politics of Pakistan. A populist party led by Laloo Parsad Yadav which ruled for over 15 years on the basis of patron-client relationship was trounced for the second time in succession by Nitish Kumar leading a party that took pride in promoting good governance and   development for the collective good of the poor. The return of Sheila Dixit at the electoral polls several times over as the Chief Minister of Delhi can be attributed to the tremendous progress she had brought about in this metropolitan city during her tenures of office. Metro Delhi is considered , by far, one of the most efficient public transport systems. In the coming decades these winds of change will also start sweeping the political corridors of power in Pakistan. The growing expectations of an urban class buttressed by an independent and vigilant judiciary, powerful media and vibrant civil society organizations will certainly pose a serious threat to the entrenched political classes of Pakistan. The resulting reconfiguration of political classes and emergence of new political actors on the scene are likely to have a perceptible impact on the evolution of a new economic order in the country distinct from historical or current scenarios.

Economically, the share of services and manufacturing industries would rise and the absorption of migrants and surplus rural labor would pose a major challenge.  The contest between those already settled in urban areas and the migrating population for scarce resources – land, water, transport, services – would result in clashes and conflicts.  If these two groups have separate ethnic and political affiliations, violence can erupt as has been happening in Karachi in recent months.  These conflicts can be avoided only if there is proper planning to meet additional demands for land, housing, transport, energy, food, water, sewerage and sanitation, and other urban services.  This will be predicated upon the strengthening of the capacity of the urban management institutions. A resource base at the local level through taxation and user charges can be augmented if appropriate legal, administrative and financial powers and authority are devolved to urban managers.  Multiple and overlapping jurisdictions in the same metropolitan area have so far impeded integrated planning and delivery of services in an efficient and effective manner. Innovative solutions have to be found to organize urban management systems.  Haphazard and unplanned land utilization that has made our cities pits of squalor and squatters has to give way to a more systematic mix of residential – commercial – industrial zones that conform to the emerging standards of environmental safeguards.

The cumulative effect of a strong civilian administration and judicial system, regional economic integration with China and India, demographic dividends, innovations and knowledge creation, rising incomes  and rapid urbanization would be the emergence of a vibrant middle class that will challenge the monopoly of the entrenched elites who have dominated the Pakistani scene for the last sixty years.

Jason Burke, a Guardian Reporter has argued that this middle class in Pakistan will consist of the ‘Mehran man’ who will be educated and skilled but religiously conservative, opposed to the western style of living and highly nationalistic in temperament. His main thesis has been captured by Dawn columnist Irfan Husain who elaborates this concept

“In Pakistan, the hierarchy on the roads reflects that of society. If you are poor, you use the overcrowded buses or a bicycle. Small shopkeepers, rural teachers and better-off farmers are likely to have a $1,500 Chinese or Japanese motorbike…. Then come the Mehran drivers. A rank above them, in air-conditioned Toyota Corolla saloons, are the small businessmen, smaller landlords, more senior army officers and bureaucrats. Finally, there are the luxury four-wheel drives of ‘feudal’ landlords, big businessmen, expats, drug dealers, generals, ministers and elite bureaucrats. The latter may be superior in status, power and wealth, but it is the Mehrans which, by dint of numbers, dominate the roads.”

This growing affluence has already caused a major power shift, with the urban population now having a bigger say after years of being ruled by feudal landowners. As urbanisation gathers pace, Pakistan’s traditional power elite will increasingly come from the cities, and not from the rural hinterland. This will have a profound impact not just on politics, but on society as a whole. As Burke observes in his article:

“Politically, the Bhutto dynasty’s Pakistan People’s Party, mostly based in rural constituencies and led by feudal landowners, will lose out to the Pakistan Muslim League of Nawaz Sharif with its industrial, commercial, urban constituency. Culturally, the traditional, folksy, tolerant practices in rural areas will decline in favour of more modernised, politicised Islamic strands and identities. And as power and influence shifts away from rural elites once co-opted by colonialism, the few elements of British influence to have survived will fade faster.”

Often, perceptive foreigners spot social trends that escape us because we are too close to them to see the changes going on around us. For instance, Burke identifies a shift away from English, and sees ‘Mehran man’ as urban, middle class and educated outside the elite English- medium system.

Burke continues his dissection of the rising Pakistani middle class: “Mehran man is deeply proud of his country. A new identification with the ummah, or the global community of Muslims, paradoxically reinforces rather than degrades his nationalism. For him, Pakistan was founded as an Islamic state, not a state for South Asian Muslims. Mehran man is an ‘Islamo-nationalist’. His country possesses a nuclear bomb….”

Mehran man’s views about the region and the world reflect contradictions and confusion. While India is home to Bollywood and IPL cricket, it is also viewed as the historic enemy. And while increasingly Islamic jihadis who kill Pakistanis are seen as terrorists, those who kill westerners or Indians are called freedom fighters. Small surprise, then, that public opinion in Pakistan no longer favours a pro-western agenda.

In his encounters with army officers, Burke sees a growing alienation from western goals and aims. According to him, the army is now full of Mehran men, and this has dramatically changed the institution’s orientation. He concludes on this sobering note:

“All this poses problems for the West. Our policy towards Pakistan has long been based on finding the interlocutor who resembles us the most — Pervez Musharraf, Benazir Bhutto, now her widower — and then trying to persuade them to fit in with our agenda. But the people we are talking to find themselves more and more cut off, culturally and politically, from those they lead, and less and less capable of implementing the policies we want. Pakistanis are increasingly defining their own interests, independently of the views of their own pro-western leaders. And Mehran man will soon be in the driving seat.”

As  Pakistan’s  social  and  psychological  transformation  from  a South Asian to a Middle Eastern state continues on the track that was unwittingly set in 1947, there are huge implications for us and for the whole region. Unfortunately, not many policymakers are studying this trend. As usual, we will be caught by surprise when the metamorphosis is complete.”

Should the prognosis of the ‘Mehran Man’ rising as the predominant force come true then the traits of a Pakistani will be in direct those contradiction to those of a global citizen. The major worry is about the downside risk to this scenario of a moderate and conservative Muslim. In case demographic transition, the bulging youth population and planned urbanization are not handled effectively then religious fundamentalism and extremism may take a strong hold over society and polity. The underlying reasons for this tendency should not be underestimated. The frustration caused by rising unemployment   among the youth, lack of access to essential public services , a highly unjust and unequal economic order  arising from maldistribution of national income  and the growing stock of Madrassah educated young men and women can prove to be socially explosive. In such a scenario, Pakistan’s isolation, its Pariah state status, reputation as a source of terrorism and widespread anti-West and ant-India sentiments would distance the country further from a course of  integration with the economy which most developing countries are aggressively pursuing.  This scenario can only be averted if a farsighted, committed government in Pakistan is able to make the state functional, growth equitable and basic services accessible to the poor.

A global  citizen  will  have  very  little  emotional attachment to the country of birth, will have little affinity to religion, and will feel comfortable in different living environments. This clash of culture and beliefs between a religiously conservative Pakistani citizen looking inward and an outward looking liberal global citizen could possibly marginalize Pakistan in the shaping of future power dynamics in the world.  On the other hand, if a different sort of Pakistani middle class which we may call the Chery man (for the Chinese car Chery) emerges who may feel ease both within the country as well as outside and is not antagonistic and hostile to those who do not share his world view, then the prospects of Pakistan playing a more vital role in the comity of nations cannot be ruled out.

The crux of the problem therefore lies in the arena of public policies, education systems, curricula (leaning toward vocational and technical skills or towards religious orthodoxy)   and governance mechanisms in Pakistan over the next two decades or so.  They can either catapult Pakistan as a responsible global player making the lives of its citizens comfortable or plunge Pakistan into an ever continuing struggle for its citizens to survive and sustain themselves.


Burke, Jason; Letter from Karachi, Prospect April 2010

Ban Ki-Moon, Pakistan Needs our help Now, International Herald Tribune, August 18, 2010

Government of Pakistan, The 2010 Floods: Damage and Needs Assessment (DNA) and  Reconstruction, Pakistan Development Forum held  at  Islamabad on  Nov 14,2010

Husain, Irfan: The rise of Mehran Man, DAWN, Karachi ,April 17,2010

Husain, Ishrat ; Floods: the next phase, DAWN  Karachi Sept 8, 2010

International  Monetary  Fund,  Pakistan  :Use  of  Fund  Resources—request  for

Emergency Assistance—Staff report Sept 15, 2010

Pakistan: Fourth Review under the Stand-by arrangements—Staff report June 1, 2010

Jinnah Institute, Proceedings of the Conference on Pakistan Floods held at Islamabad on Sept 23,2010

World Bank and Asian Development bank;  Pakistan Floods  2010: Preliminary Damage and Needs assessment , November 2010