Of bad policies and Pakistan's fiscal health

The author of this book is the governor of Pakistan's central bank, which is called the State Bank of Pakistan.

It is not a particularly reflective book, which is a pity. After all, Pakistan had been growing at an average rate of 6 per cent between 1950 and 1990. Since then growth has declined to an average of about 4 per cent. It would have been useful to get some special insights into why this happened.

But Husain largely sticks to the usual suspects, namely, bad policies: the failure to globalise via lower tariffs, to attract more foreign direct investment (FDI), to privatise the large public sector quickly, to reorient the regulatory framework and so on. Having spent 20 years from 1979 at the World Bank, and therefore probably able to apply the formula in his sleep, he gets that part of the diagnosis absolutely right. As he points out, India and China have both done well for themselves by adopting pro-market, pro-private sector and pro-trade policies.

Two questions need to be answered in this context: what prevented Pakistan from doing the same? And why is it doing these things now?

Answering the first, he says that Pakistan had indeed begun doing it. As a result, in 1992 the economy grew by 7.7 per cent and in 1996 by 6.2 per cent. But the Nawaz Sharief government was dismissed in 1993 and the Benazir Bhutto government was dismissed in 1996. So pop went the weasel.

Husain then says that although political instability, policy uncertainty, poor governance, exogenous shocks like the Chagai nuclear test and, of course, above all, the lack of political will to take hard decisions all existed, the effects of these may well have been offset by the rapid growth generated by the right policies. He does not, however, speculate about who killed cock Robin, perhaps because everyone knows and there is no profit in labouring the point.

Answering the second, Husain says that since 1999 (when Musharraf came to power via a coup and a few weeks later appointed Husain as the governor) things have been on the mend. The figures trotted out and the changes in policy certainly suggest this to be the case.

But it is reasonable to expect the governor of the central bank to dwell for somewhat longer on the state of public finances. In Pakistan these depend, to an extent that is reminiscent of Bangladesh in the 1980s, on aid. If the US turns off the tap, Husain will have a much harder job of managing monetary policy.

Pakistan's relationship with the IMF is also important. The chapter on this is clear and incisive. He starts by saying that there is great asymmetry between the IMF and the borrowing country. This is not good because it is none of the IMF's business to try and achieve structural adjustment, which is best left to its twin, the World Bank because it is better equipped to give a country specific advice.

He also says that "the robustness of the assumptions on which IMF conditionalities are based is questionable." Too much micro-management by the IMF, via "five pages of footnotes comprising, adjusters, qualifiers and precise numbers" ties down the government.

Husain has devoted an entire chapter to institutions and governance in Pakistan. Much of it is familiar: why institutions matter, accountability, effectiveness, violence, rule of law, corruption, and so on. But it is strange that he doesn't mention the one institution that overwhelms all others in Pakistan: the omnipresent Army.

As an Indian, it was natural to see what Husain has to say about India. There are only 12 'India' entries in the index. Three refer to tensions with it, five to saying how Pakistan is no different from it and four to the ways in which India is indeed different/better.

I dare say, a book by an RBI governor would not be very different. It is from this base that a strong Indo-Pak economic relationship has to be constructed. It is not going to be easy.

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Economic Management in Pakistan 1999-2002

Ishrat Husain
OUP (Pakistan)
Pages: 271
Price:Rs 395 (Pakistan)

Other books

THE FEAST OF ROSES Indu Sundaresan, Penguin Books India
Price: Rs 375

Reading "" or more honestly, speed-reading "" through Indu Sundaresan's The Feast of Roses, one can't escape the impression that the book's tone is, at least in part, a result of the critical response to its precursor Twenty Wives, published in 2002. The earlier book, which began the story of Mehrunnisa "" later to become the Empress Nur Jahan "" was generally dismissed as a featherweight effort that failed to achieve the depth of other historical fiction novels published around the same time, like Kunal Basu's The Miniaturist.

"Featherweight" is not the first word that comes to mind when describing this sequel, but that isn't necessarily a good thing. The Feast of Roses is a heavier book in every sense, so much so that it errs in the opposite direction. In chronicling the inevitable court intrigues and power struggles during Jahangir's reign, the author saddles us with too many characters, too many subplots, too much research, too much of everything. It almost makes one yearn for the paperback romance style of the first book. Almost.

Cribbing duly done however, the very premise and setting of the story recommends this to readers interested in the period and in the "only woman Jahangir married for love".

- Jai Arjun Singh