Punjab and the national economy
By Shahid Javed Burki

IF politics proceeds on its promised course, there is likely to be a considerable rearrangement in the distribution of power among different political groups. This will have profound implications for the economic development of Punjab, Pakistan’s largest province in terms of both population and the contribution it makes to the national economy.

Given that, it is important that all players in the political game must recognise that maintaining the economic momentum picked up in recent years by Punjab is of vital national interest.

Today Punjab is a significant contributor to the national economy. By my estimate, it contributes a slightly higher share to the national output (60.1 per cent) compared to its share in total population (57.4 per cent).

The government of Punjab estimates that in the financial year 2007, the province accounted for 61.3 per cent of wholesale and retail trade, 57 per cent of agriculture and 58.2 per cent of industrial value added in national output. Overall, Punjab contributes more than 50 per cent to the country’s GDP in almost every sector in the national accounts. And yet much of the economic power is wielded by the federal government.

As the current chief minister of the province put it in his ‘vision 2020’ statement issued in 2005, the federal government is “totally in-charge of fiscal and monetary policies; it frames the tax policies, trade policies and also plays an important part in regulatory environment of firms and companies”. Under the current order of things, the provincial governments operate within highly circumscribed space. In fact, this space is even more limited than that envisaged in the Constitution of 1973. That document provided much greater autonomy to the provinces than is currently allowed by those who wield power today.

There was a political reason for Punjab’s remarkable economic performance over the last several years when its total output expanded at a rate significantly higher than the increase in the national product. It happened because political power in Islamabad and Lahore resided in the same set of hands. That has not always been the case and may not be the case in the future.

The sharp exchanges between Benazir Bhutto and the current chief ministers of Punjab and Sindh following the unfortunate incident of Oct 18 do not augur well for relations between the centre and the federating units if politics proceeds on the course on which it is travelling at this time.

The tension between the centre and Lahore that developed when governments belonging to different parties assumed power in these two places in 1988 caused considerable economic harm not only to the economy of the province. That particular episode in the country’s history also did a lot of damage to the national economy.

Economists now believe that it is important to bring the government as close as possible to the people it serves. In large federating systems, this means the grant of considerable functional autonomy to the federating units. It also means the creation of a system of local government that passes power on to people’s representatives.

It is interesting to note that the way General Musharraf has governed the country in the last eight years is to accumulate considerable economic and political power in his hands while, at the same time, establishing a system of local government to which considerable power has been devolved. The provinces suffered in this system of governance.

The reason Punjab was able to function with a fair amount of autonomy was not because the system allowed it but because of the very close links between the province’s chief executive and the leader of the party that provided President Musharraf the main base of political support. That situation may not survive.

It is important to recognise that geography has placed Pakistan in a unique situation. It has on its four sides, centres of growing economic activity and potential. China, to Pakistan’s north, is the largest country in the world in terms of population. It is also the world’s fastest growing economy.

To the east is India, the second billion plus country in the world and also one of the world’s most rapidly growing economies. To the west, are the oil-producing and exporting countries accumulating large amounts of capital surplus to their needs. And to the northwest are the countries of Central Asia with enormous resources and, once they are able to resolve their political problems, enormous economic potential.

It is inevitable that when economies grow rapidly they trade with one another. The four areas of immense economic activity in Pakistan’s immediate neighbourhood will also develop trade and exchanges among themselves. A significant proportion of this will be the movement of goods and commodities and a good part of this could flow through Pakistan.

There is money to be made in becoming the centre of transit trade but that will require investments in a number of service activities — warehousing, trade financing, servicing of vehicles, provisions for those plying the trade etc. These involvements are better done by the private sector but within the regulatory environment created by the provincial governments. Pakistan will benefit only if politicians operating from different centres of power are able to work together.

The only viable way of approaching the dangers inherent in the way the political system operated in the past is to have the politicians contending for power reach a consensus on the distribution of responsibilities among the three tiers of government — the governments at the federal, provincial and local levels. The arrangements that need to be worked out should be even more generous than those incorporated in the original 1973 Constitution.

One important change that needs to be made is to allow greater authority to the sub-national governments in two areas — trade and finance. While the governments below the federal level have some room available to them in the area of finance, they have none in the area of trade. And yet it is trade that will play an important role in determining the economic future of the country’s four provinces.

Unlike most other large federal systems, all Pakistani provinces and territories have international borders; Punjab and Sindh with India, the NWFP with Afghanistan, Balochistan with Afghanistan and Iran, and the Northern Areas with Afghanistan and China.

There is considerable informal trade between these federating units and the countries they border. This trade is informal since national trade policy has put foreign relations above provincial economic considerations. One way of regularising this trade would be to allow a greater role in this area to the governments below the federal level.

Before a new political order emerges, it would be useful if a consensus could be reached among those who are likely to wield power in different places to work for the national good, not just for their narrow interests.
Curtsey:DAWN.COM, Tuesday November 06, 2007