|
Riaz Riazuddin Published May 27, 2022
ARE there common elements in the three seemingly disparate [different] situations mentioned in the title of this piece? Perplexingly[in a confusing way], yes. Take autarky first. This is a nationalist concept of an ideal, fully self-sufficient country that consumes what it produces; without any imports, exports, foreign investment or indebtedness. Autarky lies at the opposite extreme of free international trade and finance. No country fits this Robinson Crusoe picture of the economy today.
Even North Korea, the most isolated country, has extensive trade relations with a few countries, including Russia, China, and India. As there are gains from trade between individuals as well as nations, economic arguments for autarky are weak. A nation, however, must strike a balance between dependency and autarky in light of its domestic and geopolitical situation.
Are we as a nation self-sufficient, or dependent on outsiders? This may seem like an absurd[illogical] question, given our elevated levels of imports and indebtedness. We are a big nation, and our politicians sometimes invoke (in their speeches, but rarely through actions) the need to move towards autarky to lessen dependency on foreign institutions.
What kind of policy actions are needed to reduce dependency? Most of these actions lie, ironically, in the macroeconomic stabilisation that is derided [ridiculed] by them. Stabilisation policies help a country move towards greater self-sufficiency by tightening financial belts and reducing trade, fiscal and other deficits, thus paving the way for lowering debt in relation to the economy’s size. So, stabilisation is a move towards autarky, whether it is under a home-grown or IMF programme.
Stabilisation programmes driven by the IMF are governed through the Articles of Agreement. According to Article I (v), one goal of the Fund is: “To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting [turn to and adopt] to measures destructive of national or international prosperity”. This means IMF lends temporarily under adequate safeguards. Safeguards demanded by a lender are to ensure that it will get its resources back on time, and other objectives of lending will be met. This is one reason why IMF programmes are labelled as very rigid — because their flexibility is constrained by the needed safeguards. Although this approach cannot be termed irrational, it remains problematic.
Take the recent case of Sri Lanka, which last month announced a default on its external debt pending an IMF rescue. A week later, the IMF tweeted, “The IMF and a Sri Lankan delegation held initial technical discussions on a possible IMF-supported programme. Rapid progress in restoring debt sustainability would allow for deeper Fund engagement and reduce the hardship faced by the people of Sri Lanka.”
It indicated that initial talks could not ensure adequate safeguards needed by the IMF to provide its resources. This sounded like the IMF’s objective had failed. The objective is stated in Article I (v) — providing Sri Lanka “with opportunity to correct maladjustments in [its] balance of payments without resorting to measures destructive of national or international prosperity”.
This failure has resulted in the destruction not only of Sri Lanka’s prosperity but also a political crisis that has led to bloodshed.
If our authorities keep believing that our economic and financial condition is not as bad as Sri Lanka’s, then their inaction is likely to prove risky.
The Sri Lankan authorities could not undertake tough stabilisation measures despite the IMF Executive Board’s assessment in March 2022 that “… the country faces mounting challenges, including public debt that has risen to unsustainable levels, low international reserves, and persistently large financing needs in the coming years”. Sri Lanka is going through extreme stabilisation imposed by default. With the beginning of the default and till the time Sri Lanka secures financing, it will be forced to tighten its belt to a punishing extent. In hindsight it appears that Sri Lanka would have been better off accepting IMF conditions, because by not doing so, it is undergoing far harsher conditions imposed by default. During this period, Sri Lanka has been compelled to move towards less dependency but at an exorbitant [very high(prices)] cost that includes the loss of many lives. Default does unleash[release] forces leading to nationalistic objectives of achieving a little more self-sufficiency, but at the cost of extreme national distress. It is, therefore, often said that ‘default is not an option’.
Default was not an option for Sri Lanka. But when debt starts becoming unsustainable, it automatically becomes the only option. Are we learning any lesson from Sri Lanka’s experience? If our authorities keep believing that our economic and financial condition is not as bad as Sri Lanka’s, then their inaction is likely to prove risky, both politically and financially. No government would want to preside over a default. Default is an extremely bitter pill to swallow. It is, therefore, better to take a less bitter pill by voluntarily imposing fiscal consolidation and to move incrementally towards self-sufficiency. Debt dependency, unfortunately, requires debt sustainability or its continuity. Debt shackles[fetters] are not easy to break. Doing so requires long-term patience as we gradually reduce our aggregate consumption in relation to the size of our economy and increase our savings and investment.
Pakistan’s total debt and liabilities to GDP ratio declined from 93.8 per cent in June 2020 to 86.2pc in June 2021. Due to this improvement, the February 2022 IMF Staff Report for Pakistan found its public debt to be sustainable. It, however, highlighted “the risks to debt sustainability from delayed implementation of fiscal and structural reforms and from the continuation of low growth”. A new assessment of sustainability will depend on the updated debt figures (not yet available), FY22 GDP (which has so far grown by 6pc) and the government’s ability to secure financing from IMF, friendly countries, and multilateral institutions.
All this is still possible if the government takes difficult measures that it has so far avoided. Who is going to implement tough fiscal tightening? Will this job be left to an interim set-up? A rapid incremental move towards self-sufficiency is still possible irrespective of whoever implements the stabilising measures. Confused signals are, unfortunately, coming from various voices in government. Import-banning gimmicks won’t consolidate the fiscal position. Time is of the essence where taking decisions is concerned. Sri Lanka sadly missed the opportunity. Are we ready?
The writer is a former deputy governor of the State Bank of Pakistan.
rriazuddin@gmail.com
Published in Dawn, May 27th, 2022
Faisal Bari Published May 27, 2022
MANY public-sector universities, especially the older and bigger ones, have been facing severe budgetary pressures for the last few years. Inflation has been close to double digits during many of these years. The government has cut funding for recurrent expenses of universities a number of times, and in those years when the funds have not been cut, the government has barely covered the previous years’ expenses in nominal terms.
The universities cannot increase their tuition fees by much. So, they have been feeling the squeeze a lot. Expenditures have been increasing, even without any expansion of facilities, due to inflationary and other cost-push factors, while revenues have not been increasing and government assistance has been going down. It is not surprising that some of the older universities, that also have significant pension liabilities, have been severely short of funds. Some have not been able to make their payroll in certain months and have, at times, had to be given emergency funds. Some universities have delayed salary payments and even pension payments to their faculty, staff and retired employees.
Read more: Higher education sector has remained under-funded, say stakeholders
But all this did not stop governments from continuing to set up new public-sector universities. Punjab alone had announced the creation of around 10 universities last year. The federal government has also set up a number of new higher education institutes — some very expensive ones among them. The recurrent expenses of these universities and higher education projects, once they start, will have claim over higher education funding as well. This will only mean more pressure on all the universities.
A few days ago, we saw the current government proposing only around Rs30 billion for recurrent expenses for universities for next year. Last year, the amount was approximately Rs65bn. If universities were in trouble with Rs65bn, what are they going to do with only Rs30bn? How are they going to survive the next year?
The amount our universities actually need is well in excess of Rs100bn.
The amount our universities actually need is well in excess of Rs100bn. The last government could only give Rs65bn. This had created a very serious problem for a number of universities and had even driven some to the brink of insolvency. If the proposal for cutting funds to Rs30bn goes ahead, this will completely decimate higher education in the public sector.
The appeal to the government would be to increase higher education funding. The future of young people and the future of the country depends on producing human capital that will put Pakistan on a decent growth trajectory and keep it there. Higher education plays a crucial role in this goal.
Read more: Higher education is in the doldrums
If funding cannot be increased, at the very least the universities should be given as many funds (in real and not nominal terms) as they had last year. If we assume an inflation level of around 10 per cent, it would mean funding of about Rs72bn for the coming year. Even with this funding level it might still be necessary to a) stop most development projects, and b) reverse or at least halt the development of new universities/ projects that were announced last year. We clearly cannot afford new universities at this stage. And if we keep reallocating from the same fund, we will keep compromising on the quality of education that we can give to our students.
If the government, God forbid, does decide to cut funding to Rs30bn, then we should have a serious debate in the higher education sector about closing down a significant number of programmes in many universities and maybe even a number of universities themselves. There is no conceivable way in which public-sector universities can continue to offer all the programmes that they currently are if their funding is cut by half.
Asking universities to raise their own funding is not going to be of much help. How much can they raise the tuition fee by, even if they wanted to, in one year? Raising non-tuition revenues in the higher education sector in Pakistan is not easy. It is hard enough for private not-for-profit universities, it is near impossible for most of the bureaucratic, rule-governed public-sector universities to do. So, the only viable option will be selective closures.
Does the current government really want that? Is this the ruling coalition’s plan for higher education? They do not want to raise fuel prices for fear of the public reaction and for, supposedly, not wanting to hurt the poor, but would they be fine with killing the higher education sector in the country? It seems to be a really strange choice the government seems to be making.
Ideally, the government should be raising funding for the higher education sector substantially as the previous government had reduced it by too much and, at the same time, had started many new university/ higher education projects. But, these are tough financial times as well. Clearly, the government has not made it a priority to give education, school or university level, more funds in these times. If more funding is not available, the government should keep the funding levels at last year’s level but stop the work on new projects and move resources towards universities that are in financial distress.
If the government decides to cut funding by half, they should seriously consider closing down many programmes and universities. It will happen by default. It is better to do it by design. But the government should then also accept the fact that education has a fairly low priority for them. The consequences in terms of the impact on the current cohort of youth and on future growth prospects for Pakistan should also be acknowledged and accepted.
The writer is a senior research fellow at the Institute of Development and Economic Alternatives, and an associate professor of economics at Lums.
Published in Dawn, May 27th, 2022
|
