Daily Times

A new wave of optimism has swept the land. Millions appear convinced that in the next five years, corruption and poverty will be eliminated, harmony will replace long-standing hostility with Afghanistan and India, ties with China will deepen, and the one-sided relationship with the US will be reset and based on mutual respect.

They expect the new government to bring back the “looted billions,” eliminate water shortages by building mega-dams through crowd-sourcing, eliminate the balance of payments deficit without requiring a bailout from the IMF, and manage the budget deficit without raising taxes or cutting defence spending.

Those are tall promises for any prime minister to make, let alone for Imran Khan’s government that has the weakest majority in the National Assembly of any governing party in recent memory.

Imran Khan’s scenario is utterly Utopian. It succeeded in putting him into office. But it’s unlikely to be realized in full or in part during the next five years. In fact, it may be unrealizable over any time horizon. But some elements of his grand vision may be realizable over a longer time horizon. How could that happen?

Pakistan’s prospects depend in part on six external factors. First, the impact of India’s emergence as a regional power on Pakistan’s insecurities and its defence spending. Second, Afghanistan’s ability to stabilize itself and end terrorism in Pakistan. Third, China’s interest in investing in Pakistan’s economy and military. Fourth, the demand for Pakistani labour in the Middle East and its impact on remittances. Fifth, the rate of world economic growth and its impact on Pakistani exports. And, sixth, the US desire to cooperate with Pakistan.

In addition, success depends on six domestic factors.

First, institutionalization of democracy, ensuring an even distribution of power between the three branches of government, and eliminating the military’s role in governance.

Second, eliminating Punjab’s dominance of political and military decision making, possibly by increasing the number of provinces. Turkey, Iran and India have all done this to manage inter-provincial relations.

Third, reducing the rate of population growth, launching educational programs to improve the literacy rate, and boosting the nation’s competitiveness. Funding public health programs to improve the quality of life by bringing potable water and sanitation to a larger segment of the population, and preventing the spread of infectious diseases.

Fourth, new diplomatic initiatives to bring much-needed foreign investment to Pakistan, allowing the retirement of foreign debt, and resolving long-standing disputes with India and Afghanistan.

Fifth, improving the war-fighting effectiveness of the military, promoting officers on merit, carrying out operations characterized by true unity between the three services, and shunning inter-service rivalries that lead to fiscal excesses and turf wars. Achieving transparency in defence spending through civilian oversight which would improve the efficiency of military spending.

And, sixth, speedy retirement of the existing debt, accumulation of foreign exchange reserves, rapid but sustained economic growth, reduction in income inequalities, reduced poverty levels, and improving the nation’s physical and social infrastructure, not just that of one large province.

Over the next two decades, Pakistan may well become the fourth largest nation in the world and quite possibly the largest Muslim nation, ahead of Indonesia. What might life look like for its 250 million citizens? Five alternative futures stand out.

The Asian Tiger. Annual GNP growth in the 8-9 percent range, allowing per capita income to rise by 5-6 percent. Poverty levels decline to less than 15 percent of the population. This scenario is likely if Pakistan achieves a high investment rate in the range of 35-40 percent of GNP; fiscal surplus of 2 percent of GNP; low levels of foreign debt; a liberalized economic system with significant incentives for private enterprise and a modicum of red tape; a booming IT sector; inspired political leadership and governance; institutions of checks and balances between the three branches of government; democratic rule; domestic harmony; a foreign policy focused on cooperation and peace; defence spending at 2 percent of GDP; and conversion of SAARC into a free trade area.

The Newly Industrialized Country. GNP growth in the 6-7 percent range, allowing per capita income to grow by 3-4 percent a year. Poverty levels drop down to 25 percent. This scenario is likely if the investment rate is 25 percent of GNP; diminished income inequalities and regional disparities; foreign policy moving toward cooperation and peace, with occasional interludes of conflict with neighbouring powers; defence spending at 4 percent of GNP; civilian government control; well-developed physical and social infrastructure; and successful economic cooperation with Iran, Turkey, and the Central Asian republics through the Economic Cooperation Organization.

Middle of the Road. GNP growth at 4-5 percent, allowing per capita income to grow by 1-2 percent a year. Poverty levels of 45 percent to 55 percent. This scenario is likely to occur if investment rates are in the 20 percent range, stabilization of macroeconomic imbalances; national security continues to be equated with military muscle; a confrontational foreign policy with India continues involving a proxy war in Kashmir and terrorist attacks in India; the desire to seek strategic depth in Afghanistan continues; the military rules and defence spending at six percent of GNP.

Falling into the abyss. GNP growth will be in the 3-4 percent range, and per capita income will stagnate. Poverty levels will exceed 65 percent. This scenario is likely if investment rates are around 15 percent; macroeconomic imbalances multiply; governments don’t make tough decisions; oligarchs engage in rent-seeking; recidivist militarism prevails; there is adventurism in foreign policy; defence spending hits eight percent of GDP; there are heightened inequalities, civil discord, inter-provincial rivalries, and intolerant religiosity leading to a breakdown of law and order, an institutional meltdown, soaring foreign debt, leading to bankruptcy, and erosion of national sovereignty.

Success depends on many factors, including institutionalization of democracy, ensuring an even distribution of power between the three branches of government, and eliminating the military’s role in governance

Disaster strikes. GNP would stagnate and per capita income will fall by 3 percent. Poverty levels will rise to 80 percent. Public services will be come dysfunctional. The military will disintegrate into rival militias, each headed by a corps-commander turned warlord. There will be no semblance of law and order. Leaders of tribes, clans, and sects will demand absolute loyalty. There will be extreme inequalities of income. This scenario is likely if investment rates fall under 10 percent; macroeconomic imbalances exceed 10 percent of GNP; unchecked population growth; rising illiteracy; and no respect for minorities and women.

The Asian Tiger scenario is within the realm of possibilities. Just because it has never happened does not mean it couldn’t happen. But it will require the ability to make wise decisions, and the will to execute them, two qualities that have eluded Pakistan’s leaders for seven decades.

The opportunity is there for Imran Khan’s government to break the trend. Will it? Only time will tell.

The writer is a defence analyst and economist. He has authored ‘Rethinking the National Security of Pakistan’ (Ashgate Publishing, 2003). He can be reached at ahmadfaruqui@gmail.com

Published in Daily Times, October 16^th 2018.