In the annual ritual, the key factor indicating the health of the economy is the GDP growth. And like everything else in Pakistan, the answer to this question is not straightforward. Recently, The Economist, London, gave an estimate of 0.6 per cent growth for Pakistan for 2009. The official figures recently released indicated a growth rate of around 2.4 per cent for fiscal period 2008-09. In the context of the past performance of the economy these figures seemed to be exaggerated. This result could not have been obtained without fudging the data.

There are many reasons why the officials would try to embellish the picture. In this case, it was done perhaps under the shadow of the International Monetary Fund facility. With conditionality, the target for the period should be expected to be close to 2.50 percent. Obviously the performance of the economy has not come up to the level as envisaged under the measures designed for macroeconomic stability of the country. This controversy once again confirms the need to have an independent bureau of statistics not affiliated with the ministry of finance.

(The Economic Survey has now given the final GDP growth rate figure. It is two per cent. Last year, it was 4.1 per cent. The agriculture sector’s unusually good performance has partly offset the damage. It grew at a rate of 4.7 per cent as against the target of 3.5 per cent. The GDP growth target was originally set at 5.8 percent. During the year, it was revised downwards several times. The target the IMF gave was 2.5 per cent. Only Planning Commission Deputy Chairman Sardar Assef Ahmad Ali had predicted the correct figure. He said that the GDP growth rate for this fiscal year would be 2.0 per cent.)

When the prospects for IMF loan/facility were being debated in the country last year, many commentators suggested that to deal with the economic situation facing the country a home-grown solution should be adopted, to tighten the belts, so to speak, shared by all segments of the society, and with due consideration for the most vulnerable members of the society. As in the past, however, the government negotiated a facility with the IMF in order to correct the balance of payments situation. The constraints which accompanied the agreement called for ‘market’ solutions to control pressure on consumption and imports. Obviously the burden of these measures would fall mainly on the low-income groups, with the elite of the society left untouched with their perks and privileges.

It may be argued that since the early nineties, Pakistan has rushed to the IFIs, because their methodology fits nicely with the expectations of the ruling classes; the poor be damned. With ‘structural adjustment’ of the World Bank, for example, came an opiate popularly known as ‘poverty reduction and growth’ and in reality it happened to promote neither. It has already gone through three stages, with no noticeable effects on the economy. But the game must be played.

Why has Pakistan followed this path for a rescue package from the IMF each time to salvage its international credibility? The answer lies in the political configuration of the country, the concentration of power, oligarchic or military rule, where decisions have been made in the name of the people but not for the welfare of the people. This concentration of power has been reinforced by ‘security’ consideration inherited from the partition of British India and all this promotes a rent-seeking mentality. It has served as a drag on the body-politic of the country. The half-baked solutions are sought because no real sacrifices have to be

made, to stand up and to be counted, along with the rest of the population.

For a meaningful solution to the economic challenges facing the country, seeking rescue for external sector through conditionalities cannot be justified by any sensible criteria of resource utilisation.

Recently, a group of ADB economists have examined the paradox of the above phenomenon within the framework of economic analysis, challenging the prevailing orthodoxy which has been dominant since the days of Washington Consensus. Their report titled ‘A Reinterpretation of Pakistan’s Economic Crisis and Options for Policymakers’ suggests that the IMF loan of $7.6 billion is not the right recipe for Pakistan economic ills. The report deserves a detailed discussion which is not possible in the space available to me, but its central point is worth mentioning here.

The report suggests that the austerity plan recommended by the IMF would promote stabilisation at the cost of economic growth (Of course many IMF-WB wallahs have often suggested that stability should come first). This choice would not be rational, as the authors of the report suggest, because the austerity regime would not touch the core of the problem, the unutilised resources within the developing economy.

It is a point that has been forcefully made by Joseph Stiglitz, former VP of the World Bank, in his writings. Leaving unutilised resources would be self-defeating, because it would not improve incomes and reduce supply bottlenecks which contribute to inflationary pressures. This underlines the fact that the focus in current orthodoxy on ‘natural rate’ even when not all resources have been used would be a misleading indicator of the economic situation.

The spotlight on what the report calls `redundant` resources opens an interesting window for Pakistan; to devise a pro-poor public policy for utilisation of these resources, as the employer of the last resort.

The private sector even if fully developed in the country would recruit only the most `desirable` employees. Avoiding the technical jargon, job guarantees through public policy can be established to what the authors call ‘buy off the bottom’ — buying those who do not have ‘current demand price’. In the plan for employment creation, for example, special consideration could be given to the poor in the rural areas.

An imaginative and an effective pro-poor policy in Pakistan, therefore, calls for a fundamental change in the current thinking on the subject. There are people who for one reason or another cannot be part of the labour force and it is the duty of the state to provide them with necessary assistance. That is how the social welfare programmes have evolved in the developed countries which can be used as guidelines by the developing countries.

In the developed countries, cash transfers are paid for children (family allowances), and for old age security. The former are tied to the age and education and the latter provide (conditional) income supplement above a defined threshold. Then there is Medicaid (US), public health plans, and unemployment insurance, carrying various criteria for eligibility.

In Pakistan, People’s Party’s political statement about roti-kapra-makaan for the poor has never quite explained how in practical terms they would implement their promise. But starting with the 2008-09 budget, a programme for direct cash transfers was implemented in memory of Benazir Bhutto. The data are sparse about how the ‘deserving’ poor are defined for the assistance. The situation is more complex, however, in the developing economy of Pakistan. Cash payments for the poor are sparse, except for those as mentioned above. There is also a segment which would qualify for zakat. And improvements are needed in these areas. Then there are the poor who are unemployed, or partly employed in seasonal jobs or in segmented responsibilities (popularly known as disguised unemployed). In the context of the ADB report, these workers would qualify for job guarantees, being ‘unutilised resources’, as they would carry almost no demand price (i.e. higher wage pressure). These workers would be the focus of the pro-poor programme of reconstruction, to improve incomes and to reduce supply bottlenecks.

It is not within the scope of the ADB report to examine the social aspects of their recommendations, that their solution would be a first step towards creating an egalitarian society. With prevailing economic orthodoxy, of putting aside the concept of full employment in favour of ‘natural’ level, of pushing with privatisation for ‘optimum’ utilisation of resources, the rich get richer in this scenario.

It is in the framework of political economy that it is possible to identity the factors which propel the elite of the society, the rent seekers, to pursue ‘macroeconomic’ stability for ‘poverty reduction and growth’ neither of which would perhaps materialise, posing no threats to their perks and privileges, until it is time for the elite or their successors to move on to the next cycle of ‘macroeconomic’ stability.

With the increasing social instability in the country, the poor can become a ‘reserve army’ to push for a change and break this cycle with consequences, unless the elite leadership wakes up to this reality.

The writer taught economics before his retirement.