CIAO DATE: 01/03

Pakistan A Year Later

Teresita C. Schaffer and Willard Smith

The South Asia Monitor
Number 26
October 1, 2000

The Center for Strategic and International Studies

 

As General Pervez Musharraf approaches his first anniversary as Pakistan’s Chief Executive, the three issues to watch are economic management, his relations with domestic political forces, and policy toward Kashmir and India. The scorecard is mixed. An IMF financial stabilization package seems likely by the end of the year. His devolution plan aims to reshape local elected institutions, but meaningful change will take longer than the three year timetable the courts have set. His cautious posture toward Islamic parties raises questions about his willingness to rein them in. No breakthrough with India is in sight. Dealing with Pakistan’s crumbling institutions and other deep-seated problems is a long-term enterprise.

Stabilizing government finances: Musharraf’s government needs IMF help to meet its external debt burden. Key to the IMF negotiations is the fiscal deficit, which has averaged 7 percent over the past nine years. The revenue shortfalls of the past few years reflect both the structure and the implementation of the tax code. The government is conducting a tax survey. Plans to enforce the sales tax aroused the fury of the nation’s shopkeepers, who closed down the bazaars for two weeks in May and June. The Ministry of Finance claims that revenue collection is up 12.3 percent over FY99, and reports from the IMF suggest that an agreement should be in place this year.

The real test, however, is whether the government uses the breathing space provided by the Fund to make the needed long-term policy changes. The World Bank estimates that Pakistan spends five percent of its GDP on administration, four percent on defense, and six percent on financing its foreign debt. Some of this money needs to be shifted toward development and social expenses. The government is trying to reduce administrative costs but the verdict is still out on whether they will succeed. It has also pledged to allocate 2 percent of federal and provincial budgets to information technology, hoping to boost efficiency.

Pakistan increased defense spending this year by 10 percent, well below India’s 28 percent. This is still a rising share of GDP and of government spending, hard to reconcile with the country’s development needs. The recent decision to begin serial production of the ‘Shaheen-I’ missile makes it clear that Pakistan is not planning a major change in course in this area.

The crackdown on corruption and tax evasion is wildly popular. The National Accountability Bureau’s recent decision to prosecute former Navy Chief Adm. Mansurul Haq, the first corruption charge against a military officer, will boost its credibility. The government estimates that it has recovered 10.3 billion rupees to date. But the true measure of success is whether the anti-corruption drive deters future corruption. Much of the money involved is abroad, and the number of alleged offenders makes timely and fair prosecution a tremendous task.

The non-government economy: A good cotton crop has spurred exports and provided abundant raw materials for the key textile industry. On the other hand, recent reports indicate that, in Baluchistan and Sindh alone, 2.2 million people and 16 million livestock have been affected by a severe drought. Cereal production is likely to fall 20 percent short of last year’s levels. Real GDP growth is projected at 4.5 percent in 2000, with 8 percent export growth and 9.5 percent import growth.

 

Long Term Needs: Social And Economic Investment, Rebuilding Institutions, Growth

Reviving development will require steady attention to three other issues. The first is chronic under-investment in the social sectors. The government has stressed “poverty alleviation measures”, notably education and health, in its policy statements. Female education in Pakistan is at one of the lowest levels in the world, and population growth, now estimated at 2.6 percent, means that the 140 million population could double in 27 years.

Second, many of the country’s institutions are barely functioning. The Water and Power Development Authority (WAPDA) is a case in point. The previous government, in desperation, asked the army to take it over from its civilian managers. A major effort is under way to rebuild the income tax service from the ground up. This is a huge task, but if successful could be a model for rebuilding other institutions.

Finally, the country needs to increase investment. Foreign investors are watching the government’s renegotiation of its contract with a group of independent power producers, a highly visible symbol of its fears. The test will be whether the country can generate and finance enough broad-based growth to pay their debt and make a dent in poverty. One prominent economist estimates that this requires at least 6-7 percent growth.

Restoring Domestic Politics: Musharraf has maintained some non-electoral aspects of democracy reasonably well, though a recent raid on a leading English-language daily by electricity inspectors and an army escort raise questions about whether the mood is changing. His agenda aims to reform the electoral system. The timetable was set by the Supreme Court of Pakistan, which legitimized the government’s takeover for a three-year period. Last March, the government announced that local council elections would take place late this year, following the removal of numerous dead or non-existent people from the electoral rolls and the creation of a more independent Election Commission.

The Local Government Plan 2000: The next piece of the package was a major revision of Pakistan’s local government institutions, announced on Independence Day in August. The heart of the plan is the “Nazim,” a new elected official responsible for delivery of basic government services in an area roughly equivalent to an American county. Grass roots-level appointed officials would be subordinate to Nazims. His budget would come from revenue sharing from the provinces. Local elections would be on a non-party basis, though candidates’ party sympathies would no doubt be known. Parties would function at the provincial and national level. The plan represents a major change from the current top-down administrative structure. It aims to address what it regards as the chronic problems of local government in Pakistan: corruption, poor record keeping, poor communication between the different levels of government, an overbearing civil service, and popular apathy.

 

Building Up Local Government, Handling the Islamic Parties with Care

Both of Pakistan’s previous military governments tried grass roots, non-party approach to reforming the political structure. In both cases, the reforms were co-opted by the feudal social structures they had hoped to supplant, and the hoped-for transition to elected government was a long time in coming. This plan appears to be a bit more carefully thought out, but has understated the social, political and economic challenges involved. The relationship of the Nazims with the provincial governments is not clear; they compete directly for funding. Certain of the Nazim’s tasks, such as irrigation, are hard to handle on a single-district basis. Many districts lack the economic base or institutional capacity to support the functions they are responsible for. Finally, this is happening at a time of enormous disaffection from the central government in the smaller provinces. Thus there may not be a consensus on the relationship of the federal government to the provinces.

Other political forces: Musharraf has been trying to obtain at least the neutrality of a significant portion of the two major political parties, Bhutto’s Pakistan People’s Party and Nawaz Sharif’s Muslim League. The two leaders are still unpopular. The Muslim League is going through a succession struggle, and is still strong in Punjab; the PPP’s base is in Sindh. Musharraf has met with members of both. Some people from both parties may be prepared to play, but it is not clear what form this will take – or whether it will lead to the classic “King’s Party” syndrome which has plagued Pakistani politics.

More troublesome is his relationship with the hard-line Islamic parties and militant groups. Musharraf has had harsh words for those who spread violence and intolerance, a reference aimed at the fomenters of sectarian violence in Pakistan’s countryside. But he has deferred to Pakistan’s principal Islamic party, for example by rescinding a decision about the procedures for administering Pakistan’s anti-blasphemy law. He seems unprepared to insist on policy changes they strongly object to.

The Pull of Kashmir: Kashmir is one of the few issues that unite all of Pakistan, and Musharraf’s history suggests that he considers it a question of Pakistan’s honor. There is no evidence that he has changed Pakistan’s policy of supporting militancy in Kashmir. He and his foreign minister describe the support as “diplomatic and moral”; others are less cautious. The country’s economic stagnation and political uncertainty and his reluctance to pick a fight with the militants make major changes in this policy extremely difficult.

And yet Musharraf’s public speeches suggest a growing concentration on Pakistan’s domestic problems. His speech to the Council on Foreign Relations in New York is a case in point. His agenda of foreign visits has slowed down. The brief cease-fire between India and a Kashmiri militant group raised Pakistani concerns about being left out of a Kashmir-India dialogue. Right now, India’s insistence that violence in Kashmir cease before it will talk to Pakistan effectively locks Musharraf into his own Kashmir hard line. The chances for a major change are not bright, but with such high stakes, even small chances should be exploited.

Whither Pakistan? Economic progress, government reform and the electoral timetable can strengthen the domestic legitimacy of Pakistan’s government. In the longer term, the country needs to rekindle a constructive sense of nationhood, built on revived institutions and healthier relations among the provinces. Separatist sentiments have grown palpably, and resentment against “Punjabi rule” is powerful in the rest of the country.

Despite the interesting overture from Russia during Putin’s visit, Pakistan is internationally isolated and needs move toward better relations with India. The problem is India’s as well, but the sense that a dysfunctional government is taking risks with the peace of the world led to widespread international disaffection with Pakistan a year ago, and the problem remains. At the end of the day, the acid test for Musharraf’s government is: can it deliver?