Faced with five crises
On the economic side, we face the possibility of a prolonged slowdown in activity that will probably yield a GDP growth rate of no more than two per cent a year.
By Shahid Javed Burki
Tuesday, March 24, 2009
THE fact that Pakistan is currently faced with a crisis that in terms of its scope, reach and likely consequences has no precedence even in our exceptionally turbulent history cannot be disputed.
There are many dimensions to the problem. On the economic side, we face the possibility of a prolonged slowdown in activity that will probably yield a GDP growth rate of no more than two per cent a year. This will mean practically no increase in income per head of the population. That, in turn, will mean a decline in the real incomes of the bottom 60 to 75 per cent of the population. The only segment of the population that may still see some improvement in their economic situation are the rich and the relatively well-to-do.
This will further exacerbate the poor distribution of income. By the end of the year the country may add 10 million new poor to the 50 million who already live in abject poverty. A sizable proportion of these will be in the urban areas, in particular the large cities. This will increase the social restiveness in cities adding to the problem posed by the rise of extremism. This the country cannot afford.
A growing number of people in the country believe that the present structure of society is not serving their interests and presents to them a future they are not prepared to accept. They are willing to resort to almost any means, even to limitless violence and extreme cruelty to disturb the existing social order and usher in a new one. This is the meaning of the rise of extremism which is the second of Pakistan’s many problems. The failure of the economy to provide adequately to the people at the bottom end of the income distribution scale or living in the more backward regions of the country accelerates the rise of extremism.
The rise of extremism in a country of Pakistan’s size and in which the citizens subscribe to a faith which, according to many in the world’s more advanced countries, is seen as a threat poses another challenge, the third in my list. The people of Pakistan may consider possible foreign involvement to be interference in their domestic affairs, but the world, concerned about the impact on them if the Pakistani state fails, will not allow the country to go down. The political and economic order they could impose on the country may not be to the liking of most of the people.
The fourth crisis Pakistan faces is the result of several developments in its external environment over which it has no control. In most of 2008, the country’s economy was under considerable stress because of an unprecedented increase in commodity prices, not only of oil. A number of other commodities that figure prominently in Pakistan’s imports saw substantial increases in their prices. This strained Pakistan’s external payments situation.
In the fourth quarter of 2008, oil and commodity prices fell as sharply as they had risen, thus providing some relief to policymakers in Islamabad. But other strains appeared. There was a spectacular downturn in global economic activity, resulting in the contraction of export markets for emerging countries, including Pakistan. At the same time, severe stresses in international finance resulted in the flight of capital from Pakistan and other developing countries.
The fifth challenge is posed by the inability of the political culture to develop a system allowing a voice to the people, making it possible for them to resolve their differences without resorting to street politics, and creating a structure that could sustain the inevitable shocks in a politically backward society. Pakistan’s plunge into political chaos and possible disaster was narrowly averted on March 16 by an eleventh-hour agreement between two contending forces. One of these used the streets to put pressure on the government, the other used the state’s coercive power to force its will on those who oppose it. Both failed to use the institutions available for democracies to reach accommodative positions.
There is, in other words, a perfect storm which has hit Pakistan. Five different crises have arrived more or less simultaneously. Will the country and its political leadership be able to deal with them? Or will the country succumb and thus create a situation which would lead the people to question the very idea of Pakistan.
That idea, articulated with considerable clarity and passion by Mohammad Ali Jinnah, was based on the assumption that the Muslims of British India constituted a separate nation from the majority Hindu population. Jinnah successfully argued that the people of his faith needed a political space of their own in order to live according to their own traditions, culture and social norms. The space was provided but the people have failed to define a political system in which they could live peacefully, working to better their lives. Of and on, Pakistan has been successful economically. But time and again it has failed politically. It is also failing to be a responsible member of the community of nations.
We know how to deal with each of these five storms separately. The economy’s revival requires a combination of stabilisation policies and the revival of pro-poor growth. Stabilisation on both fiscal and external accounts should be undertaken without disturbing the medium-term growth prospects.
In order to deal with extremism, Pakistan will need a combination of targeted development of the areas that have become vulnerable to it. It will also require ensuring that people, no matter how disaffected they are, do not question the authority of a legally constituted state. It is only with the adoption of a comprehensive approach that the country can deal with this problem.
It will involve economic and social development on the one side and clear demonstration that the state’s authority must be respected on the other. Only then will the country be able to convince the world that it is serious about dealing with the problem of extremism. The stresses on the economy because of the global economic meltdown will require making the country more reliant on domestic resources for development. It will also need the accumulation of foreign reserves to absorb shocks delivered from abroad. Finally, the propensity to use the street and the coercive power of state to settle disputes can only be dealt with by strengthening institutions of governance. These include parliament, the provincial assemblies and the legal and judicial systems.
It is when these crises started to interact one another that we begin to face the possibility of chaos. This was averted on March 16 but much remains to be done. ¦