Price of compromised sovereignty
The most recent red flag for the Pakistani elite was last week’s mini-budget. Almost every aspect of this mini budget exposes a deep crisis at the heart of what is and what will be Pakistan for the more than 110 million Pakistanis under 23. To begin with, let’s count some of the more obvious crises.
Shaukat Tarin, the Minister of Finance, has been left in limbo despite a six-month deadline given to the right people who brought him to power in the first place, to convert his status to an elective term, i.e. the Senate of Pakistan. Siskin’s selection itself was the product of the need to replace Abdul Hafeez Shaikh, whose Senate election was lost (by commission or omission), despite all the mathematical indicators suggesting a sure victory.
The problem here is not only that Pakistan cannot seem to be able to decide who will occupy the most important position in the country – the finance minister – but also that when it does decide, it cannot seem to be able to find a way beyond. of simplicity. and simple processes.
When the country’s finance ministry is one day a merry-go-round for macroeconomic management talent and a document branding as a new national security policy is articulated the next day about the country’s economic potential, something really is wrong. . Something is wrong.
The personalities involved in the various economic crises afflicting Pakistan are largely insignificant in relation to the content of economic policy. At COP26 a few weeks ago, Pakistan joined most of the world’s countries in declaring its intention to engage in a coherent climate transition that would favor renewable energies over fossil fuels. The government’s reasonably strong climate change team, led by Malik Amin Aslam and Rina Saeed Khan, admirably seeks to bring climate issues closer to the center of gravity of Pakistani policymaking. During last week’s mini-budget, we saw the hard and cold mathematics of the insatiable appetite of the Pakistani elite throw a flamethrower at the fundamental logic of climate risk mitigation. Solar electricity, hitherto untaxed, will now cost 17% more, but neither tax reform nor climate reform will result from this agreement.
The perpetual dead end in which the Pakistani elite find themselves is the product of this kind of choice. Continue to replace one macroeconomic official with another, keep chasing after the small pieces of income from economic transactions, the consequences are damned. In a first geo-economic Pakistan, there are two types of sovereignty that matter – monetary sovereignty and fiscal sovereignty. Economists like Stephanie Kelton and other economists in modern monetary theory would argue that there are very few monetary rulers, the most obvious being the United States of America. But monetary sovereignty is not entirely rooted in the sheer freedom a country enjoys to do whatever it wants with its currency. Rather, it is about whether a country can make money supply decisions that are primarily informed by national economic interests, such as price and wage inflation. Pakistan is not a monetary sovereign.
Fiscal sovereignty is a relatively much simpler proposition: A truly fiscal sovereign country gives itself the power to decide how much to charge its people to keep the lights on. The mini budget presented last week is the equivalent of a contractual arrangement which confirms the absence of such fiscal sovereignty.
In the short term (and everything the Pakistani elite does is for the short term), there are only three ways to exercise monetary sovereignty by proxy. The first is to have a quantity of exports which compensates for the absence of monetary sovereignty. The second is to have an amount of transfers that compensates for the absence of monetary sovereignty. And the third is to have a source of low-cost credit that alleviates the lack of monetary sovereignty. In short, if you don’t have your own money, you must have either products and services that the world cannot live without (exports) or a skilled and unskilled workforce without which the world cannot live. (remittances) or sugar moms. and sugar daddies who will pay your bills for you.
The Pakistani elite have lived and thrived on the labor of their remittances generating expatriate workers and the availability of cheap grants and loans for so long that the country does not even know how to start manufacturing products and services whose world needs. The recent external pressures on Pakistan are not due to the fact that expatriate and migrant workers have stopped sending money home, but rather because the various creditors in the country have started to tighten the conditions under which their benevolence is available. Complaints against the United States, China, Saudi Arabia, or the IMF are the most obvious and easiest to resolve for a Pakistani elite that simply refuses to introspect and reform.
The lack of fiscal sovereignty is even more comical in light of the dynamic supporting the Pakistani elite. The rich Pakistanis would like anyone but the rich Pakistanis to pay for the extravagance that the Pakistani elite indulge in. The mini budget is a perfect example of the embarrassing and cancerous Pakistani tradition of paying the bills by slashing the family budgets of poor and middle class Pakistanis. Since the early 1990s, a parade of tasteless, colorless, and remorseful robot-men have supported the idea of tax reforms with virtually no impact on the country’s financial results. People stricken with isomorphic mimicry continually rely on measures such as tax-to-GDP ratios and the resulting inflated debt profiles. But the truth is, the fiscal stasis in the country is the product of low risk, zero innovation, and therefore low growth economic culture. Exactly the kind of culture we might expect when the strongest and most capable in the room receive grant after grant after grant, are never held accountable, and are allowed to continue to dominate all key decisions.
The broader political culture that has emerged should be of little shock value. Low IQ conspiracy theories and low intellect solutions like a return to an Ayub, Zia or Musharraf capture and maintain priority in public discourse.
The only disruptors of this insanely stupid pattern are groups like the TLP and identity narratives like those employed by various subnational groups across the country. The icing on the cake is the “brilliant” solutions that are offered to the challenge of radical postures. Everyone outside the ever-shrinking tent is a terrorist and all terrorists should be treated with an iron fist. And so the only real competence of the state is to hammer. It is, like coal and fuel oil, a non-renewable resource: it has limits. The growing number of deaths from actual terrorism in recent months, as Pakistan’s Second War on Terrorism continues, is not disconnected from these issues.
The negotiations that any so-called radical group is seeking are the ones that will change the mathematics of the dynamics of the haves and have-nots in Pakistan. Sadly, the top of the pyramid within the Pakistani elite is occupied by grizzled men, all too stupid or short-sighted to realize it. The short-term cost of ridiculous new taxes and inevitable inflation in the country is borne by poor families and the middle class, especially in the cities. But the medium and long-term cost is systemic and will ultimately be borne by the Pakistani uber-elite: because at some point, the costs will overwhelm the system.
Over the next three decades, most estimates point to dramatic and continued population growth. By 2047, when the young population is expected to peak, the country’s total population will almost certainly exceed 325 million. None of the macroeconomic systems in place today are capable of satisfying even the 220 million inhabitants that we have today. Price controls, vaccinations, local public administration, environmental regulations, food and drug administration, schooling, maternal and newborn health – each of these systems has failed and collapsed.
How much will it get worse as fiscal and monetary sovereignty continue to shrink? Keep watching the Pakistani elite continue to play chicken with this incoming freight train.
The writer is an analyst and commentator.