The press conferences of DG ISPR are no trivial affair and the last one was no exception. What caught my attention was his assertion that between 1960-70 Pakistan was doing well, both socially and economically and that GDP growth rate was above 11 percent.
Whoever fed him this information did him no disfavour because facts speak otherwise. This article is devoted to busting the myths surrounding the economic growth of the 1960s. Once these are laid to rest, I will turn to two important questions: why did the DG ISPR feel the need to venture into the economic domain and what was the rationale of pointing out the 1960s as a golden era of economic growth?
Let us first parse the claim of the 11 percent GDP growth rate. If the real GDP growth rate between 1960 and 1969 is averaged out, it comes in at seven percent. That is a respectable growth rate, but nowhere near 11 percent. Moreover, merely quoting a macro number without explaining the context is of little relevance in these kinds of debates.
The era of the 1960s, like most eras of military rule in Pakistan (barring Yahya’s) was a time when Pakistan’s cozying up to the west ensured a healthy inflow of financial aid. The 1960s was no exception. As a percentage of GNP, foreign aid was hardly a percent in 1950s. By 1964-65, the number had jumped to nine percent of GNP and then saw a drastic cut post-1965 war with India. Not surprisingly, the GDP growth rate went down too. In 64-65, it was touching seven percent, but dropped drastically to only four percent as financial aid tapered off. The growth rates were thus buffeted substantially by additional fiscal space created by financial aid. The GDP growth remained suppressed post-1965 till the onset of ‘Green Revolution’ (God bless Norman Borlaug and his HYV seeds provided to Pakistan as ‘aid’) that ushered in large surpluses in the agricultural sector.
The additional fiscal space and growth rates ended up creating serious problems. Take, for example, the persistent deficits in BOP throughout the 1960s, first time that trade deficits became a serious issue in Pakistan. In 1964-65, the deficit reached almost $2 billion. By 1966-67, it registered $2.3 billion. To finance these deficits, despite all the financial aid, the government had to resort to borrowing. In 1959-60, the total foreign debt was $0.2 billion. By end of the ‘successful’ era of 1960s, the number had surged to $3.6 billion.
In short, a full story of the failures or successes of this era would need a whole book. Suffice to say that the whole story of growth collapsed as mass uprisings against the regime ensued in 1968, forcing Ayub Khan to step down. This begs the question: if this growth era was so successful and social conditions were good, why did the people revolt over the price of sugar? The answer can be found in the failure of ‘trickle down’ economics that was considered a core component of economic planning of that era. The Harvard group of economists viewed income inequality as a natural outcome of growth policies that are self-correcting as fruits of growth trickle down later. But as Dr Mahboob-ul-Haq, one of the architects of those policies found out himself, this did not happen. By the time of uprisings, he lamented that only 22 families were owners of major part of Pakistan’s wealth and that common man had been left behind. These income inequalities later morphed into a rallying cry for independence of East Pakistan.
Now that the myths surrounding growth miracle of the 1960s can be safely set aside, let us turn to the questions that I posed earlier. Yes, it is not DG ISPRs domain to comment on these issues. But we have to understand Pakistan’s present dire economic straits to get a context of his institution’s unease. The army, without any doubt, is Pakistan’s most powerful and premier institution. Its very existence and functioning is tied inextricably to how well Pakistan, especially its economy, functions.
My own belief is that the army’s leadership, just as I’ve been pointing out, has also concluded that the economic conditions have reached a dangerous juncture from where it could easily snowball into a major crisis that could threaten Pakistan’s integrity. One marker of the crisis we face can be gauged by debt levels at the end of 2008 and 2018. By end fiscal 2008, Pakistan’s total debt and liabilities stood at Rs6.6 trillion. By end fiscal 2018, the number had ballooned to Rs29.8 trillion. By now, the number has crossed a Rs33 trillion. The dollar component of debt and liabilities that stood at approximately $37 billion by end fiscal 2007 galloped to $61.8 billion by end fiscal 2011. Under Ishaq Dar, Pakistan embarked on a gluttonous borrowing spree that brought the amount in question to $95 billion by end fiscal 2018. Now, official statistics show this number to be above $105 billion.
Amidst all this piling up of mountain loads of debt, the most worrying aspect is that Pakistan’s growth rates have barely touched five percent and its human development indicators have barely budged! Put another way, whatever Pakistan is spending and on whatever manner it has been spending, it is very unproductive! As government’s commitments increase (both at federal and provincial level), they are not matched by asset creation and income, which has left little space for independent fiscal choices. What we have learnt from history is that when a country loses its fiscal independence, its spending choices are dictated from outside. The cherry on the cake is that Pakistan has worryingly witnessed serious mismanagement since July 2018, its utter incompetency in economic management reflected in the fact that hardly 10 months down the line, it was compelled to outsource economic management to the International Monetary Fund (IMF).
In my personal opinion, the DG’s foray into the economic sphere was a sign of confusion and worry regarding the state of affairs. Out of this confusion and worry must have come the idea of 1960s-style economic management. Unfortunately, such ideas should be left where they are. Pakistan’s challenges and its economic landscape are much different than what they were in the 1960s. Merely attempting to change the administrative system, in short, won’t halt the rut.
Pakistan’s economic challenges call for more. It calls for a change in thinking, and a movement away from concentrating on a few macro-level indicators. In one of my previous columns, for example, I pointed out how absence of land entitlements and property rights holds up billions of rupees of capital without any use, making them ‘dead’. It follows then that instead of the useless ‘rural development’ strategies and PC-Is that our policymakers have become so enamoured to, concentration should instead be on creating a legal system that not only ensures property rights but also relieves the people of cases hanging in courts for years without any resolution.
Let us conclude by suggesting that the Pakistan Army’s worry is understandable, a worry that is shared by Pakistan as a whole. But in recalling a mythical era, it is betting on the wrong horse. The rescue and revitalization of the economy, if it is to come, will come through thinking innovatively and differently about conducting economic management and policymaking.
The writer is an economist.
Whoever fed him this information did him no disfavour because facts speak otherwise. This article is devoted to busting the myths surrounding the economic growth of the 1960s. Once these are laid to rest, I will turn to two important questions: why did the DG ISPR feel the need to venture into the economic domain and what was the rationale of pointing out the 1960s as a golden era of economic growth?
Let us first parse the claim of the 11 percent GDP growth rate. If the real GDP growth rate between 1960 and 1969 is averaged out, it comes in at seven percent. That is a respectable growth rate, but nowhere near 11 percent. Moreover, merely quoting a macro number without explaining the context is of little relevance in these kinds of debates.
The era of the 1960s, like most eras of military rule in Pakistan (barring Yahya’s) was a time when Pakistan’s cozying up to the west ensured a healthy inflow of financial aid. The 1960s was no exception. As a percentage of GNP, foreign aid was hardly a percent in 1950s. By 1964-65, the number had jumped to nine percent of GNP and then saw a drastic cut post-1965 war with India. Not surprisingly, the GDP growth rate went down too. In 64-65, it was touching seven percent, but dropped drastically to only four percent as financial aid tapered off. The growth rates were thus buffeted substantially by additional fiscal space created by financial aid. The GDP growth remained suppressed post-1965 till the onset of ‘Green Revolution’ (God bless Norman Borlaug and his HYV seeds provided to Pakistan as ‘aid’) that ushered in large surpluses in the agricultural sector.
The additional fiscal space and growth rates ended up creating serious problems. Take, for example, the persistent deficits in BOP throughout the 1960s, first time that trade deficits became a serious issue in Pakistan. In 1964-65, the deficit reached almost $2 billion. By 1966-67, it registered $2.3 billion. To finance these deficits, despite all the financial aid, the government had to resort to borrowing. In 1959-60, the total foreign debt was $0.2 billion. By end of the ‘successful’ era of 1960s, the number had surged to $3.6 billion.
In short, a full story of the failures or successes of this era would need a whole book. Suffice to say that the whole story of growth collapsed as mass uprisings against the regime ensued in 1968, forcing Ayub Khan to step down. This begs the question: if this growth era was so successful and social conditions were good, why did the people revolt over the price of sugar? The answer can be found in the failure of ‘trickle down’ economics that was considered a core component of economic planning of that era. The Harvard group of economists viewed income inequality as a natural outcome of growth policies that are self-correcting as fruits of growth trickle down later. But as Dr Mahboob-ul-Haq, one of the architects of those policies found out himself, this did not happen. By the time of uprisings, he lamented that only 22 families were owners of major part of Pakistan’s wealth and that common man had been left behind. These income inequalities later morphed into a rallying cry for independence of East Pakistan.
Now that the myths surrounding growth miracle of the 1960s can be safely set aside, let us turn to the questions that I posed earlier. Yes, it is not DG ISPRs domain to comment on these issues. But we have to understand Pakistan’s present dire economic straits to get a context of his institution’s unease. The army, without any doubt, is Pakistan’s most powerful and premier institution. Its very existence and functioning is tied inextricably to how well Pakistan, especially its economy, functions.
My own belief is that the army’s leadership, just as I’ve been pointing out, has also concluded that the economic conditions have reached a dangerous juncture from where it could easily snowball into a major crisis that could threaten Pakistan’s integrity. One marker of the crisis we face can be gauged by debt levels at the end of 2008 and 2018. By end fiscal 2008, Pakistan’s total debt and liabilities stood at Rs6.6 trillion. By end fiscal 2018, the number had ballooned to Rs29.8 trillion. By now, the number has crossed a Rs33 trillion. The dollar component of debt and liabilities that stood at approximately $37 billion by end fiscal 2007 galloped to $61.8 billion by end fiscal 2011. Under Ishaq Dar, Pakistan embarked on a gluttonous borrowing spree that brought the amount in question to $95 billion by end fiscal 2018. Now, official statistics show this number to be above $105 billion.
Amidst all this piling up of mountain loads of debt, the most worrying aspect is that Pakistan’s growth rates have barely touched five percent and its human development indicators have barely budged! Put another way, whatever Pakistan is spending and on whatever manner it has been spending, it is very unproductive! As government’s commitments increase (both at federal and provincial level), they are not matched by asset creation and income, which has left little space for independent fiscal choices. What we have learnt from history is that when a country loses its fiscal independence, its spending choices are dictated from outside. The cherry on the cake is that Pakistan has worryingly witnessed serious mismanagement since July 2018, its utter incompetency in economic management reflected in the fact that hardly 10 months down the line, it was compelled to outsource economic management to the International Monetary Fund (IMF).
In my personal opinion, the DG’s foray into the economic sphere was a sign of confusion and worry regarding the state of affairs. Out of this confusion and worry must have come the idea of 1960s-style economic management. Unfortunately, such ideas should be left where they are. Pakistan’s challenges and its economic landscape are much different than what they were in the 1960s. Merely attempting to change the administrative system, in short, won’t halt the rut.
Pakistan’s economic challenges call for more. It calls for a change in thinking, and a movement away from concentrating on a few macro-level indicators. In one of my previous columns, for example, I pointed out how absence of land entitlements and property rights holds up billions of rupees of capital without any use, making them ‘dead’. It follows then that instead of the useless ‘rural development’ strategies and PC-Is that our policymakers have become so enamoured to, concentration should instead be on creating a legal system that not only ensures property rights but also relieves the people of cases hanging in courts for years without any resolution.
Let us conclude by suggesting that the Pakistan Army’s worry is understandable, a worry that is shared by Pakistan as a whole. But in recalling a mythical era, it is betting on the wrong horse. The rescue and revitalization of the economy, if it is to come, will come through thinking innovatively and differently about conducting economic management and policymaking.
The writer is an economist.