Five Flashpoints for Strategic Planners

By Sherry Rehman
Business Recorder
April 27, 2015

For a country navigating multiple internal and external challenges, Pakistan’s economic, governance and policy-delivery deficits have been a constraint on strategic resource-allocation and decision-making. Continued economic fragility has also seriously impacted foreign relations, allowing external actors to mount diplomatic pressure on Pakistan at critical points. Any notion of sustainable sovereignty will require a re-visit of strategic flashpoints, beyond the framework of standard-issue solutions. None of the five identified below are not in the public discourse as sectors that need surgery, but a renewed focus and freedom from old models of politics as patronage-dispensation is required to reinvent the policy-delivery wheel. The magic ingredient will of course continue to be the much sought after political will, which is patchy at best and missing at worst.

1.     Governance

Serious challenges in governance and service delivery have affected the state’s ability to execute policy change. Policy agendas in Pakistan have increasingly become subject to executive paralysis, judicial activism and a fragile administrative capacity. More importantly for Pakistan’s democratic future, governance and executive failures have eroded trust in government institutions. There is little disagreement that the quality of public service delivery is marked by rising levels of inefficiency, poor performance and pervasive corruption. Apart from low service delivery, Pakistan’s global competitiveness has also been severely affected by governance problems, with corruption, inefficient government bureaucracy and policy instability among the ‘most problematic factors for doing business’ in the country. Government departments and ministries lack the capacity to utilise funds including foreign aid, to the extent that by end of the fiscal year they scramble to mop up their budgets by investing in non-essentials such as high-end vehicles and supplementary spending. The lack of transparency and web of non-rationalisations cripples the system.

Take one key example, the pivotal energy sector, which has become a glaring symptom of governance malaise. Recurring crises, an expanding circular debt and regulatory overlaps continue to block reform in the energy sector. The persistent crisis in this sector continues to cripple the economy and severely strains prospects of short-term growth. Estimates suggest that there is an annual loss of up to 2 percent of GDP on account of the energy sector circular debt alone. Broadly, the sector has consistently faced three main issues: circular debt, transmission and distribution losses and low levels of recovery. The ballooning of circular debt has again signified the overarching role of the Ministry of Finance as the lender of last resort at the same time as Pakistan tries to implement IMF conditions to cut back on subsidies to public sector enterprises. In the absence of an integrated energy ministry and clear governance will to collect receivables and coordinate efforts, it has become obvious that reform will remain just a power-point plan on some consultant’s laptop.

Lack of quality governance in Pakistan has not only led to failures in public service delivery but has also impacted and constricted economic growth. Governance reform, linked to civil service overhaul, is crucial for actualising any policy vision or planning futures. Experts point to investing further in the public-private partnership model, in which public sector financing allows the private sector to take the lead in overall management as the shortest route for governments to interrupt the stubborn inefficiency chain in government-led interventions. This may be one of the optimal ways to introduce transparency in management as well as an induction of fresh blood in sclerotic enterprises. But minus civil service reform, guarantee of tenures and clear rule of law mandates to widen decision-making in institutional templates, the executive paralysis and culture of graft will hamstring delivery to citizens.

2.     Terrorism and Extremism

Pakistan’s domestic stability has become critically vulnerable to internal security threats. While external threats cannot be discounted, there is a recognized need for cohesive, inclusive and well-coordinated action against actors who explicitly or implicitly challenge the state and continue to pose security risks. In many ways, the ongoing operation against militants of ‘all hues and cries’ is by definition a landmark enterprise, but a year from its commencement in North Waziristan, it is now bogged in an unproductive stalemate between deficits in coordination and a joint civil-military silence on targeting banned groups that roam free with impunity.

The biggest dis-service to Pakistan right now is the building of a national consensus against terrorism and the quiet shelving of its core goals, which appears to have happened recently. The National Action Plan, created in the aftermath of the Peshawar school tragedy appears to have lost its teeth, as recent disclosures from NACTA, in the public domain, suggest that key agenda items, specifically action or monitoring of proscribed groups, have been quietly dropped. This is both shocking and dangerous. Aside from the incalculable human cost of over 80,000 souls lost, the economic cost due to terrorist attacks in Pakistan has been estimated to be over $28 billion. Pakistan has not only suffered immensely in terms of global competition with significant losses in both exports and foreign investment inflows, but has also been subject to increasing diplomatic pressure internationally due to home-grown militancy.

No rocket science is needed here: the effort against terrorism and extremism cannot reach any serious level of success without turning off the patronage spigot of proscribed groups that target citizens, because until then terrorism will continue to be the single most acute strategic risk to Pakistan’s future. This will require a far higher resolve to face off all threats and all groups, but will also need the strengthening of civilian law enforcement agencies as well as a constant publically articulated resolve by the national leadership to ensure a spirit of unified collective action. As it stands, the reduced mandate of an underfunded NACTA coupled with the government’s inability to form a Joint Intelligence Directorate is not an encouraging trend.

In order to deal with the globally franchised nightmare of sub-conventional and boundary-less warfare, strategic planners will have to go beyond the NAP and clamp down on potential threats of militancy, including those arising from propagation of extremist narratives, including what to block and what to not on broadcast and social media, by government. Right now, once again credible public buy-in is low because of cherry-picked media and open-source websites where the sanction for certain terrorist and sectarian sites to operate freely flouts the sacrifice of soldiers and policemen on the frontlines. The new cyber-crime bill floated by the federal government is a clear example of such political disinegenuity. This must change, as the sequencing of targets or capacity-limits argument is now in danger of cancelling clear gains made in building public confidence as a result of terrorist operations already in the works. At the same time, there has to be clarity and seamless coordination between the military and civilian LEAs to permanently choke militant activities and financing.

3.     Job-Creation

Today, Pakistan is ranked among the most populous countries in the world, with a median age of 23. This demographic profile, however, poses more challenges than dividends. There is a growing consensus among economists in Pakistan that propelling the growth engine will be crucially important not just for economic prosperity but also for stabilizing a highly turbulent domestic environment, and for job creation, which remains largely ignored.

Current levels of economic growth have no capacity to absorb the tidal wave of our labour force. Latest estimates from the Pakistan Labour Force Survey show that over 3.7 million people are still unemployed; the rate of unemployment, at the back of stunted growth, has also gradually risen from 5 percent in 2007-08 to 6 percent 2012-13.

Pakistan’s youth cohort, defined as population between the ages of 15 and 24, is currently estimated to constitute up to 36 percent of the total labour force. By 2050, this number is projected to rise to 50 percent. Given the current pace of population growth – close to 2 percent per annum – estimates from the World Bank suggest that there will be 1.7 million entrants to the labour force every year. This massive shift should shake up planners to devise inclusive policies that prevent further social unrest on the lines of the Arab Spring uprisings in the Middle East, which clearly had a demographic underpinning. At the same time, it also provides an opportunity for economic development when population growth rates are falling across the developed world.

While opportunities for entrepreneurship and private sector-led jobs remain scarce, the already over-burdened public sector continues to attract job expectations, adding to an informal system of patronage that exerts further pressure on public finances. Industries with high growth potential also require advanced skills and training that largely remain absent in the majority of the working age population. On the one hand, there are thousands of job seekers for a job, but on the other hand the market cannot employ them because they don’t have the requisite skills or level of education. This gap not only requires expanding the scope of coverage in the education sector but also optimal use of public finances to enhance employable skills and training. At the same time, progressive policies aimed at increasing financial inclusion of the poor can help create opportunities for self-employment at a time when it has become difficult for both the public and private sectors to provide salaried employment.

Inequality is predicted to be the most important divisive trend of the 21^st century, and without a massive push towards job-creation and a clear pubic conversation on economic growth, Pakistan will be a prime example of a country awash with restless young people in search of a cause. Given that the public sector is no longer able to support the employment needs of a young population, managing the fallout of economic growth with inequality will be crucial to guaranteeing social justice and fundamental entitlements. Social safety net programmes such as the Benazir Income Support Programme are already playing a critical role in household consumption at the bottom of the economic pyramid, among other social benefits, but lack of access to opportunity and income-generation via employment or entrepreneurship will impact change negatively and de-humanize the democratic experience for citizens.

4. Taxation, Taxation, Taxation

It is said that the Mughal Empire collapsed from a lack of modern weaponry including a navy, and a war with no end in the south of its periphery. In reality, the advance of another imperial power and a pincer from the Deccan was compounded by the collapse of its famous tax-collection system set up under Emperor Akbar. The lessons for Pakistan should be very clear. No country that spends more than it raises from its own resources can expect to be taken seriously as a player in the global marketplace of changing geo-strategic interests. Pakistan has a rent-seeking habit since the 1950s. Today, as the US Kerry-Lugar Act’s dollar pipeline dries up, budgetary support will only come from other multilateral donors and organisations with eyes on bigger hotspots, from the Middle East to Africa as well as parts of Eurasia. The ongoing military operation and rehabilitation of internally displaced persons will exert pressure on public spending and further stretch the government deficit.

Crises in public finances have become recurrent over the last few years due to unprecedented natural disasters, a persistently low tax to GDP ratio, increased debt servicing, untargeted subsidies and financing of bleeding public sector enterprises (PSEs). Despite growing demands to expand the tax base, the tax system in Pakistan has come under severe criticism and has only grown even more incapable of meeting expenditure requirements. High levels of continued and profligate government borrowing have led to a debt-trap, making resort to external assistance a chronic habit. The cycle of both domestic and external borrowing continues to compound the problem by squeezing out credit as well as space for much-needed development funding.

Instead of showing better results with time, compared with the 1980s, tax collection has reduced from an average of 14 percent to 10 percent of GDP. “Rent-seeking elites of Pakistan” has become the favourite catch-phrase in cold climates where the loans are negotiated. Back home, they remain a protected species, freed in their minds from the essential social contract with the state that defines modern citizenship. Despite much drum-beating where the taxman is said to go into places where no man has gone before, the wealthiest in Pakistan, with notable exceptions, remain in a cloud of immunity.  Taxing the rich becomes an even more fraught exercise when weaknesses in both policy and administration are amplified by preferential treatment and exemptions granted through statutory regulatory orders (SROs) and limited capacities of the provinces to collect taxes. Complicated procedures have additionally de-incentivized the filing of taxes and increased the cost of compliance, while overlaps between taxes levied at the federal and provincial levels still add to the kafka-esque wireframe. Devolution of the taxation structure should in theory have helped in expanding the tax base, but there is no replacement for the famous missing animal called political will, which is to emerge.

5. Urbanization

Un-noticed by most, Pakistan is now the most urban country in South Asia, even by a UN yardstick. At 36.2 percent, the ratio of urban to rural population in Pakistan is currently the highest in the region, with 3 percent annual growth in urban population. To plan for this level of urban sprawl, Pakistan’s urbanization rates will have to be strategically nested in the context of population growth and the rising youth bulge. As it stands, the share of urban population in Pakistan has grown to 38 percent and will further rise to over 50 percent by 2050. Karachi by itself is poised to be the largest mega-city in the world by that time.

Trends in urban demography have been reflective of Pakistan’s overall demographic structure, which has undergone a phenomenal 600 percent increase since 1961. Growth in population has led to increased migration, resulting in a bloated demographic structure in urban centres. Pakistanis are migrating to the cities at rates that will become unsustainable in terms of provision of the most basic of services, which already go missing in the overstretch and overlap of boards that run the cities.

One of the most important push factors for migrations to cities is the erosion of livelihood opportunities in rural areas. There has also been a substantial change in the social and communal structures in rural areas, whereby local jirgas are now believed to have less moral authority over the lives of indigenous people. In the absence of coherent communities of the past, en masse migration will continue even as mechanization of labour processes erodes job opportunities. This will expand the spatial spread of cities and increase the number of katchi abadis, which can contribute to social unrest in the absence of essential social structures and public services. Karachi alone is home to 562 identified katchi abadis.

The challenge is multiple. Not only are housing, sanitation, water, power and municipal services an issue, job- deficits add to the choke points of crisis. The absorption rate in formal sectors remains low, leading to a rise in informal working arrangements as well as criminal activities and structured begging. Mainstreaming a large youth influx into a working force has therefore gained primacy not only in terms of providing employment opportunities but also in terms of maintaining social stability in cities.

Pakistan’s cities will therefore need attention as well as the creation of public spaces where people can build communities of accord, instead of urban ghettoes which breed anger and intolerance. They will need development boards that conduct public hearings and accommodate competing interests. Just making more land available for low-cost housing will help ease the stress, as will a web of enforceable by-laws that prevent extortion and land-grabbing.