In his keynote speech, the CoAS highlighted the pivotal role of economy in ensuring national security. He mentioned that "economy is showing mixed indicators. Growth has picked up but the debts are sky high. Infrastructure and energy have improved but the current account balance is not in our favour. Our tax to GDP ratio is abysmally low and this needs to change if we are to break the begging bowl".
What was wrong with Army Chief's speech? In my view, he was too generous in presenting a balanced picture. The economy is in a far worse condition and the institutions that deal with economy have simply collapsed. Our Economic Planning and Interior Minister Ahsan Iqbal, sitting some ten thousand miles away, reacted angrily to the Army Chief's discourse on economy. This is unfortunate that a relatively educated minister, perhaps without reading the entire text of the Army Chief's address, vented out his anger.
The factual position is that our economy is in a worse condition as compared to June 2013. And some independent economists have been pointing out the decay in the economy during the last four years. No one paid any attention and now a lot of water has flowed under the bridge.
The International Financial Institutions like the IMF, the World Bank and Asian Development Bank knew exactly where the economy of Pakistan was heading. Until a few months ago, they all praised the economic management of the current leadership in general and its finance minister in particular.For them, Pakistan's economy was gaining traction with each passing day and that the structural reform program was "broadly on track". One fine morning they woke up to know that Pakistan's economy has landed in difficult terrains. They all see now that balance of payment situation is worsening, fiscal slippages is mounting and growth is decelerating.
No Sir; all these Institutions knew very well what was happening in Pakistan's economy. People like myself, Dr. Hafiz Pasha and a few others were writing all along but all of them kept their eyes and ears closed. Did they remember our "Open Letter to the IMF" carried by Business Recorder when the Managing Director of the IMF was visiting Pakistan? Didn't we mention as what was going on in Pakistan's economy? The IMF are equally responsible in throwing Pakistan's economy in tailspin. Had they been doing their job professionally, Pakistan's economy would not have come to this stage where the country's Army Chief had to highlight the current state of the economy.
It is an undeniable fact that a country's economic strength has a direct bearing on its security. According to Paul Kennedy, a nation's military strength rests on its economic strength. A strong economy can ensure a strong defence, which in turn, enhances a country's power and strengthens national security. Economic backwardness generates violence, conflicts, political turmoil and hence, weakens national security. Undoubtedly, the chain of causation runs from a strong economy to strong defence to strong national security.
A weak economy cannot ensure security; former Soviet Union is a classic example. When Soviet economy was growing strongly, they could afford a higher defence spending. But when its growth continued to decelerate during the 1980s (2.7% p.a.) their defence spending as a percentage of GDP continued to rise (15.4%). The Soviet Union collapsed and disintegrated. On the other hand, Kuwait was a prosperous country but its defense was too weak. Kuwait was overrun by Iraq. As Robert McNamara stated "security means development and without development there is no security".
The bottom line is that economy matters for security. This is what the Army Chief highlighted in his keynote speech. Instead of reacting angrily, the government should take necessary steps to address the emerging serious balance of payment crisis.
While each element of national economy matters for security, four are noteworthy. Economic growth is critical for a variety of reasons. If a country's economic growth is low the country would be regarded as a problem/basket country for others; even 'friendly countries' would avoid dealing with a problem/basket country. Their foreign policy stance viz the problem/basket country would be different. But if a country's economy is growing strongly (7-8% p.a.), the country would be regarded as an opportunity country, keeping in mind the opportunity to do business with that country. Such a country would command global respect. The foreign policy stance of rest of the world would be more accommodating towards that country.
A slower economic growth would fail to create enough jobs. People in general and youth in particular would find it difficult to get jobs. Unemployment, particularly youth unemployment, would rise which would be a sure recipe for social chaos, civil unrest, and political turmoil. It is bound to create security issues for the country.
A slower economic growth would generate inadequate resources and along with reckless spending would cause budget deficit to rise. A higher level of budget deficit would lead to a rapid rise in public debt. A higher public debt means more interest payment and shrinking fiscal space. Little resources will be available for national security, human development and infrastructure.
Higher/reckless spending would lead to higher aggregate demand, which in turn, would result in higher import, larger trade gap, widening of current account gap, more external borrowing, and a rapid increase in external debt leading to balance of payment insolvency and compromising on national security.
Prudent economic management, sound macroeconomic policy, and a strong economic team are vital for the country's economy and security. Every individual from a clerk to secretary; from a Sepoy to General, from a corporate leader to an industrialist, from a student to a teacher, from a laymen to an educated person; are bound to be concerned if the state of the economy is deteriorating. Because economy affects every individual; civil or military. Every individual has the right to talk about economy because it affects their well-being.
With the exception of the ruling elite for their obvious compulsion, hardly anyone would agree that Pakistan's economy is sound and that it has been performing robustly. The facts about the economy are as follows. Notwithstanding finance minister's claim about rising economic growth (we know how it has been achieved), the fact remains that Pakistan's economy has been growing in the range of 3.0-4.0 percent per annum over the last nine years. Pursuance of the IMF dictated stabilization program over almost a decade has suffocated the economy. Stabilization policy, by definition, is an anti-growth policy. How can growth accelerate when the country is pursuing an anti-growth policy for almost a decade? Does it make sense? A growth rate in the range of 3.0-4.0 percent has now become a 'new normal' for Pakistan.
Low economic growth has failed to create sufficient jobs for even the new entrants in the job market. Accordingly, unemployment particularly youth unemployment situation has worsened. It has become extremely difficult for university graduates to find reasonable jobs. The country is witnessing educated youth or prime age (20-24 years) people turning into ruthless killers (remember! Safoora Goth incidents and recent killing in Karachi where university graduates were involved). Isn't it a national security issue?
Notwithstanding, what the finance minister and the IFIs have reported fiscal deficit numbers for Pakistan, the fact remains that our budget deficit remained above 8 percent of GDP during the last four years. Accounting tricks and gimmickries to show a lower deficit number on paper would not change the ground realities. Can anyone explain that in the midst of sharply declining budget deficit (from 8.2% to 5.8% of GDP), public debt can rise from 63% to over 67 percent of GDP? Either fiscal deficit number is understated or public debt number is overstated (which is actually the case). Both can't be right.
Persistence of higher fiscal deficit has forced the government to borrow recklessly, resulting in accumulation of debt. This is what the Army Chief has pointed out ("debts are sky high"). Large fiscal deficit also fueled aggregate demand which has been translated into rapidly rising import, widening of trade deficit and deterioration of current account balance. The larger the current account gap the more we borrow in dollars and more rapidly we accumulate external debt.
Since 2008-09 and until 2016/17, Pakistan has added $43 billion of debt. In other words, more than half of the external debt and liabilities have been added during the last nine years while less than half in 61 years. Should we call this prudent economic management? Have we strengthened our economy or weakened it to the core? Every saner element in the country would be frightened the way we have accumulated debt in the last nine years.
The ongoing fiscal year (2017-18) is itself a challenging year for the people of Pakistan. The balance of payment is in a precarious condition. The current account deficit is likely to touch $18 billion and along with debt servicing of $9 billion, Pakistan's foreign exchange requirement is expected to be $27 billion. Inflows from traditional sources, Chinese sources and foreign direct investment would be around $12 billion, thereby throwing a financing gap of $15 billion. From where this ($15 billion) amount would come? Should we go the IMF once again, probably by March/April 2018?
These are valid concerns of every Pakistani, civil or military. That is why! It has forced the Army Chief to speak on the state of the economy. It isan irony that Pakistan is facing serious balance of payment situation at a time when we have a dysfunctional government. Pakistan has seen such balance of payments crisis in the past (1998-99, 2007-08) but has recovered because there was at least a functional government that would take appropriate measures. Unfortunately, the country is confronted with a similar type of problem but there is no functional government. Perhaps going to the IMF for a bailout package is the only preferred option that the government has chosen.
Indeed! This will be disastrous for Pakistan. We hope that the sanity would prevail.
(The writer is Principal and Dean at NUST School of Social Sciences and Humanities. Email: [email protected])
Copyright Business Recorder, 2017