There is no free lunch in international politics. Countries guided by realpolitik offer concessions to other members of the international community only if they expect in return benefits for their own national interests. Policy makers, who do not understand this truism and its implications, and the countries they serve are likely to emerge as losers ultimately. We need to understand clearly that heavy economic dependence on other countries and an independent foreign policy in the best interest of a country cannot go together. Once a country starts relying heavily on foreign donors for its essential economic needs, it loses control on its destiny and forfeits the right to formulate policies, both internal and external, in its own best national interests. Such dependence in fact provides donor countries with the lever to manipulate and control the policies of the recipient countries.

Pakistan unfortunately has placed itself in the unhappy situation in which it cannot do without heavy doses of foreign aid on an annual basis simply to keep its economy running. The addiction to foreign economic assistance, which started in 1950’s when we hooked on to the American aid, has got worse with the passage of time. Consequently we are running heavy and unsustainable fiscal and current account deficits. In the financial year 2017-18, Pakistan faced a fiscal deficit of Rs.2.2 trillion, which amounted to 6.6% of GDP, forcing the government to rely on internal and external borrowings to meet its budgetary requirements. Such heavy borrowings pushed the public debt from Rs.14 trillion to Rs.24 trillion at the end of 30 June, 2018 approximately during the five years of the PML(N) government at the Centre.

The unsustainably high levels of fiscal deficits were mainly due to our low tax to GDP ratio (12.4% approximately in 2017-18 as against the average tax to GDP ratio of 15% in the developing countries) and high levels of defense expenditure and debt servicing liability. Interestingly, many developed countries have tax to GDP ratios exceeding 25%. Our fiscal problems would be greatly ameliorated if we succeed in raising our tax to GDP ratio to about 20%. This would require widening the tax net, eliminating tax exemptions for the elite, and reforming our taxation system so as to end corruption, facilitate economic growth and put the main burden of providing additional tax revenues on the elite. Since our leaders and policy makers, both civil and military, belong to the privileged sections of the society, they have so far frustrated all attempts to move in that direction either out of sheer ignorance or to protect their selfish personal interests.

It is, therefore, unlikely that the PTI government, which is surrounded by the representatives of the privileged sections of the society, would do any better than the previous governments. This is especially so because Imran Khan and his PTI stalwarts relied on a simplistic and misleading narrative that corruption was the root cause of all the economic problems of the country and that there would be rapid improvement in the lot of the common man and the state of the country’s economy once they came into power because corruption would end. There cannot be two opinions about the need for the eradication of corruption in the country. However, this alone cannot solve all our economic problems of slow economic growth rate, widespread poverty, growing inequalities of income and wealth, backwardness in academic fields, especially in science and technology, unsustainably high levels of fiscal and current account deficits, and a high rate of inflation. For overcoming these problems, we need a careful mix of fiscal, monetary and trade policies besides the efforts to eliminate corruption.

In fact, the past nine months have seen deterioration in many economic fields. By way of example, IK had claimed that government revenues would double after the PTI government came into power. In fact, Government revenues have fallen short of targets by a wide margin during the current financial year. On the other hand, the total government expenditure despite the massive cuts in development expenditure is likely to increase instead of going down in 2018-19. Consequently, the government may end up raising the fiscal deficit to 7% of the GDP, thus, leading to accumulation of the public debt at a higher pace than that witnessed during the PML(N) government.

High levels of current account deficit essentially reflect the excess of national investments over national savings or, in other words, they show that we are living far beyond our means. The high level of current account deficit ($11.4 billion during 2017-18) because of a record high trade deficit estimated to be $31.1 billion during the same year was the greatest failing of the PML(N) government, which forced the government to use its dollar reserves and rely on foreign borrowings to meet the current account deficit. As a result of the high levels of current account deficits in successive years, Pakistan’s external debt reached the high figure of $95 billion by the end of 2017-18. The remedy obviously lies in measures to raise significantly our national saving rate, which was about 12% as against national investment rate of about 16% in 2017-18, to over 20% in the near future besides supportive fiscal, monetary and trade policies to lower imports and increase exports.

In essence, the lowering of the current account deficit requires that we learn to live within our means by adhering strictly to policies of austerity and self-reliance. But serious measures to implement these policies and raise our national saving rate significantly, which would require increased taxes on the affluent sections of the society enjoying tax exemptions currently in one form or the other, a more egalitarian system of salaries and pensions for the government officers, and high rates of taxes and import duties on luxury items to discourage their consumption, are likely to be resisted by our leaders and policy makers who are the beneficiaries of the current exploitative economic system in the country. Mere slogans of putting an end to corruption are unlikely to improve the economy or the lot of the common man as the PTI government is discovering to its discomfort.

If this pessimistic prognosis is actually borne out by future developments as appears likely, Pakistan as a nation will remain at the mercy of powerful donor countries which will use their political and economic clout to manipulate and control our internal and external policies to serve their national interests instead of the national interests of Pakistan. For instance, it is our dependence on the US in economic and other fields which has prevented us so far from completing the Iran-Pakistan gas pipeline which would have provided us with reliable gas supplies at cheap rates for meeting our requirements. Washington also appears to be using its political and economic clout to undermine CPEC which carries enormous benefits for Pakistan’s economy besides offering us obvious strategic advantages. It is again because of our heavy economic dependence on Western donors and multilateral financial institutions that we see Pakistan’s fiscal and monetary policies increasingly coming under their control.

This is not the way in which we should conduct our national policies. It is unrealistic to assume that our heavy dependence on foreign sources of economic assistance would come without explicit or implicit strings attached or without the loss of our national sovereignty to formulate our policies in our best national interests. The moral is that we should adopt policies of austerity and self-reliance as the Chinese have done if we want to emerge as a prosperous country and acquire a dignified position in the comity of nations.

The writer is an author, a retired ambassador and president of the Lahore Council for World Affairs.

javid.husain@gmail.com

Mere slogans of putting an end to corruption are unlikely to improve the economy or the lot of the common man as the PTI government is discovering to its discomfort.