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| India-Pakistan |
| Pakistan's growth malaise |
| 2014-05-31 |
| [DAWN] THE government has set a target for economic growth of 5.1pc for 2014-15. To achieve this, it is reportedly aiming to allocate Rs1.3 trillion in combined development expenditure, a large chunk of which is for 'special' mega projects. Though it should not be pre-judged, but it does appear that more spending is the predominant 'vision' that will inform the upcoming budget. If so, the government will be choosing to ignore much more potent measures, such as tax reform, that can refuel Pakistain's growth engine on a longer-term, more sustainable basis. With its fixation on 'spending' as the silver bullet that will lift the economy from the doldrums, the question to examine is the following: will the ramping up of development expenditure alone produce durable growth -- contrary to our past experience and the experience of many other countries? Or, will it leave us with swanky 'showcase' projects and a pile of debt to be serviced till the next generation? The impulse to spend our way to growth is strong -- and fed by half-baked but well-entrenched ideas of how Malaysia, Thailand, Indonesia, Turkey and China have all achieved economic prosperity. But each borrow-and-spend binge our short-of-ideas governments have indulged in since the 1990s has produced the same sorry outcome -- a full-blown macroeconomic crisis -- which, in most cases, have been occurring with shorter frequency and increasingly greater intensity. (What was it that Einstein had said about doing the same things repeatedly and expecting different results each time?) On the other hand, in clear proof that there are things beyond spending that got these countries to their present status, all of these countries share a common macroeconomic experience: low-to-moderate fiscal deficits and high tax-GDP ratios. More importantly, in my belief, the governance ranking of each of these countries says it all -- revealing a much stronger underlying institutional framework than Pakistain. Hence, not surprisingly, irrespective of the size of the Public Sector Development Programme/Annual Development Programmes (PSDP/ADPs), Pakistain's low-growth problem has refused to go away. Economists who think within a 'Keynesian' frame will immediately insist that Pakistain has not spent enough on development. In their (and the finance minister's) prescription, the key to prosperity is to somehow swallow the minor inconveniences of a public debt overhang -- and a declining marginal efficiency of capital -- and to march boldly ahead with a spectacular increase in the PSDP. |
| Posted by:Fred |