Is Pakistan a Failing State?

By Gustav Ranis

On May 11 Pakistanis are expected to go to the polls and celebrate transition in what's been a rare five-year civilian rule. The election may or may not usher in another period of civilian rule. Fundamental reform is required of the political system that functions under the shadow of military power and religious extremism. Otherwise, Pakistan is destined to drift as a failing state.

I first entered Pakistan in September 1958, two weeks before the civilian government of Iskander Mirza gave way to Muhammad Ayub Khan who turned out to be a benevolent dictator - until he went astray by encouraging war with India in 1965. Indeed, Pakistan has had 40 years of military rule out of 65 years since independence.

The coming election will put to test the Pakistan People's Party leadership of Asif Ali Zardari, who succeeded his murdered wife, Benazir Bhutto. Polls indicate that Nawaz Sharif of Punjab's Muslim League is likely to take over, though the uncertainty over the return of previous dictator Pervez Musharraf and the efforts of Imran Khan, the cricket legend, cast doubt on the outcome. The reception for Musharraf on his return from self-imposed exile abroad was underwhelming, and he was has been arrested on a court order on a charge of violating the constitution. But his ego remains intact. Khan had a tumultuous rally in Lahore recently, but even though the military may be supporting him, questions about the sustainability of his appeal are being raised.

Regardless of who takes over, Pakistan continues to teeter on non-governability. Its own version of the Taliban with ties to the Afghan Taliban, are complicated by the strong mysterious influence of the ISI, the country's intelligence service. Any prognosis of the political economy future of the system is hazardous. Karachi, Pakistan's largest city, seems to be virtually in the hands of the local Taliban, and northern Waziristan, at the border with Afghanistan, is but one target under frequent attacks by militants. The Pakistan military continues to carry a big stick, but seems not particularly anxious to intervene in the election, partly out of concern about losing US aid, which could be automatically cut off in the case of a military coup. The strength of the Supreme Court, which has repeatedly and successfully challenged the executive branch, leading to dismissal of a prime minister, contributes to the signs of a failing state.

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It should be noted that in the late 1950s and 1960s Pakistan was generally admired as a development paradigm and attracted the attention of development economists, in contrast to India which then lagged behind. But after 1990 when India's reforms began to take hold, the situation completely reversed, with India en route to middle-income status and Pakistan, in the absence of reform, exhibiting an economy which continues to be creaky and in the doldrums.

For decades, Pakistan has refused to tax its feudal landlords, leading to a 12 percent tax/GDP ratio and a high dependency on foreign donors, with 99 percent of the population reporting attendant corruption. Only 860,000 of the 183 million population pay tax. Amnesty offered in December 2012 to the richest tax evaders to pay a 40,000-rupee penalty on undervalued income and on assets of as much as 5 million rupees has had little response. The current account has turned to deficit with higher prices for imported oil accompanied by lower prices for exported cotton. Foreign-exchange reserves are consequently currently under $13 billion, below 2 months of import requirements, and the rupee has depreciated by more than 40 percent since 2007.

Pakistan's education lags behind Bangladesh's. Only 0.7 percent of the Pakistani GDP is spent on health. The literacy rate is at 53 percent and poverty at 24 percent, with a Gini ratio of .41, a measure of income disparity, with zero indicating no disparity. Population growth, though declining since the late 1980s, is still at the highest level in the subcontinent. Budget deficits are at 7.5 percent of GDP, above the government's target of 4.7 percent. Infrastructure is lagging, especially power, short by 4000 megawatts if blackouts lasting as long as 18 hours a day are to be avoided. Indeed, energy shortages are estimated to cut growth by 4 percent , bringing it down to an average of 3 percent from 2008 to 2012.

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Gustav Ranis is the Frank Altschul Professor Emeritus of International Economics at Yale University. © 2013 Yale Center for the Study of Globalization

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