Rashmi Talwar

‘Pakistan –The sick man of South Asia’: Dr. Ishrat Husain

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In an unfiltered conversation at webinar organized by Amritsar-based ‘Majha House’, eminent Pakistani banker, economist, Dr. Ishrat Husain, talked candidly on his book ‘Governing the Ungovernable’, Institutional Reforms for Democratic Governance’- tracing Pakistan’s dismal economic condition. The ex-Governor of State Bank of Pakistan; Dean and Director IBA, Karachi was in conversation with Aaditya Dar, an Economics Lecturer, University of Maryland, USA. Preeti Gill, Director, Majha House – a cultural-literary hub, opened the session with – “Governing the Ungovernable,” –is an intriguing title taking a ‘comprehensive look’ at flaws that led to institutional decay in Pakistan, weaving Pakistan’s political, social, and economic history, for its rise and falls.


Q. What led you to write this book?

A: As a civil servant, later a public policy fellow at Woodrow Wilson Centre, Washington USA, I researched -“Why Pakistan from such a sterling position of 40 years of an upcoming economy became a ‘Legard’ in South Asia?”

And I found all ‘conventional factors’ such as- Lesser foreign assistance flows; Garrison state syndrome; love of US for Pak Dictators; Global economic conditions being adverse and lastly if Religious extremism and terrorists destabilized the country; explaining the Pak economic downfall were nullified. Instead, I found a decay of Pak institutions! My idea as to -“Why the military became so powerful in Pakistan? – was, because the army as an institution strengthened itself- they took mediocres into the armed forces, and after 10 years transformed them into a first-rate human resource while civil services took the best and brightest and after 10-years transformed them into “cynics” and “no-doers”.

It was a startling revelation, how a stronger institution i.e. Army, occupied the vacant institutional civilian space. Also, how the state of various institutions, led to the downfall of Pak economy,  motivated me to write this book.

QWhat do you mean by – ‘Love of US for the Dictators’, How true is it?

A: “Love of the US for the military Dictators” is  a popular belief  that whenever military dictators ruled, Pakistan received foreign funding, which is untrue, as a factor, for the economic graph of Pakistan.

Pakistan was in military alliances with the USA, right in the beginning.

In the 1965 Indo-Pak war, the US took away all the spare parts of military equipment, supplied by American vendors to Pakistan. Then, in the 1971 Indo-Pak war despite the tilt of US President Richard Nixon and his assistant for National Security Affairs Henry Kissinger, Pakistan benefitted nothing from the US. Both were periods of military dictators Gen Mohammed Ayub Khan, and Gen Agha Muhammed Yahya Khan, in 1971.

Thirdly, under martial ruler Gen Zia-Ul- Haq, Pakistan aid was cut-off from the US. US only resumed support, despite sanctions against nuclear bomb testing by Pakistan, when it needed Pakistan for intervention in Afghanistan against Soviets. In 2001 – during military dictator Gen Parvez Musharraf, more US sanctions were imposed because of the military coup.

I therefore drew the conclusion that the ‘US’s Love for the Dictators’ was not true!   After 9/11, despite military sanctions, the US came with big help to Pakistan.  And when Musharraf quit in 2008, the US sanctioned $2.5 billion dollars yearly to civilian ruler Asif Zardari under the Laugar Bill.  Even during civilian rule of ZA Bhutto – who was anti-US, Pak got huge aid from very rich OPEC countries. Whenever there is convergence of interest between the US Administration and Pakistan – whether it is democracy or dictatorship, the US comes in!

Q. Did religious extremism and Terrorism effect economy of Pakistan?

A: The extremism and religious terrorism in Pakistan took shape after 2001 when Pakistan joined the US against Taliban in Afghanistan. Pakistan’s, TTP Tehreek-e- Taliban (Pakistan), believed we were in the wrong faith-wise, and they inflicted acts of terrorism in Pakistan.

But in 1990 to 2001, the economic growth rate had already come down from 6 ½ % to 4 %. The economy slowed down when no terrorism and religious extremism was in Pakistan. And from 2014 when extremism was absolutely eliminated from Pakistan, the growth rate stumbled again. So, there is no correlation between the intensity of terrorist activity within the country and the GDP growth rate.

Secondly, religious leaders in Pakistan have a lot of influence. A newly founded Tehreek-e-Labaik, Pakistan could bring crowds on streets and completely impede movement of goods and services on roads and highways. But in election, the religious parties bagged not even 10 to 12 seats in assembly or national assemblies. Religious parties divide us into Shias, Sunnis, Barelvis, Deobandis, Ahl-i-Hadith etc.

Therefore they don’t attract that kind of support and if they do, they can change the entire ‘edifice of our constitution’ as also law-making. They have street power with support from ‘Madrassas’ and kids enrolled there.

Q. What about restructuring key institutions, like banking?

A: I took over as Governor of State Bank of Pakistan (equals RBI Governor). Interest rates then were almost 20% to 21%.

How can you do business in such an environment where the borrowing cost and the cost of capital are so exorbitant? We undertook reforms of strengthening the Central Bank as a regulator.   Today, instead of having to bear the losses and subsidize that from the exchequer, these banks are contributing billions of rupees, as their corporate taxes. But unfortunately, since 2010, access to the sectors like agriculture, and low-cost housing, SMEs, has declined. It is because of ‘obstructing’ the credit by a very dominant player, which is – the government of Pakistan.

Q. Like India, Agriculture is central to the economy of Pakistan, what’s the role of irrigation authorities, in the context of climatic havoc like floods in Pakistan?

A: Indus Basin Delta which irrigates 78% of our land is inefficiently used. There’s an inequitable distribution of water. With the influential tamper with water courses, even at minor canals, the tail-end users are denied water for even a decent yield per acre. We used to recover 100% of the operation and maintenance cost from farmers, today only 10% are collected from farmers, as all big landlords are members of state or provincial assemblies, and don’t allow any reform in this sector.

Presently, devastating floods (Sep-Oct 2022) in Pakistan created havoc. Experts say (flooding) recharges some groundwater, so repletion rate could be stopped, but see, at what cost! Groundwater is only used by tube-well owners, who are very influential politicians.

Q. Will division of West Punjab solve the water sharing issues or worsen them?

A: Well I think Indus Basin works, but for the future, water management is entering a completely new phase with melting of glaciers.

In Gilgit Baltistan recently I saw first-hand how much the glaciers were melting. India, Pakistan have a responsibility to draw a new water contract to sustain the livelihood of both nations. The Treaty needs to be revisited in the light of the climate change challenges.

Q. What are the current bottlenecks in the administration of justice in Pakistan?

A: The rule of law is the most critical ingredient for democratic governance. And that is why I say – we are “ungovernable”. An ordinary citizen of Pakistan does not have access to the entire chain of justice.

How can a poor person afford  high costs of legal processes given the corruption scenario in Pakistan? Land title disputes occupy 80% of the court management registers, with tampering of records, disputes go on and on.

How can you have collateral where the land title is in dispute and it is under litigation? My proposal was to formulate – ‘alternate dispute resolution mechanism’ and computerize and digitize our land records. Otherwise, it is the law of the jungle whosoever is influential, powerful, will do according to his/her own discretion and resolution.

Q. What’s ‘Garrison State Hypothesis’ (GSH) and alleged funding of militancy in Indian Punjab & Kashmir, how did these factor in the downfall of the economy of Pakistan?

A: This idea that all the money is sucked away by the defence as in the GSH is flawed.  Actually, all the money is being sucked away by debt servicing.

The defence took $7.5 Billion, last year.  Debt-servicing is going to take away $20 Billion; And that is the Federal government’s net revenues! Our debt ratio today is close to 100% of GDP, creating a fiscal imbalance.

Q. Why do you call your country ‘ungovernable’?

A: I am disappointed that a fast-moving country that was among the top 10 developing countries, has now become the “Sick man of South Asia” despite all we have done to make Pakistan a great nation. That is because our institutions of governance have completely failed us.

Author can be contacted at: [email protected]

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