..? by Tariqullah Khan
I watched the address of PM Imran Khan on YouTube this morning before going for Eid prayers. After such a daunting struggle the PM and his team must have learnt a lot of lessons and have obtained the respectable democratic mandate from the people of Pakistan. New Pakistan has a lot of potentials as reflected in the optimism and determination of the PM and his team. We may have different perceptions and must share our perceptions with a view to offer different perspectives as humble contribution to the dream of New Pakistan.
The PM emphasized the principles of good governance as enshrined in the society?s local aspirations attached to the Prophet peace be upon him. He highlighted the national targets of his government. Then there are international human and environmental development goals led by the UN organizations such as SDGs. In the past there has been a conflict between these three ? local aspirations were not recognized, national targets were misguided and international goals came in conflict. The PM?s approach removes the conflicts and creates a potential synchrony between the three which is essential for coherent policy approach to economic transformation.
The PM?s second point is related to interest cost of public debt finance through which the burden of current expenditure is shifted to future generations. 80% of newly borrowed money will be paid to pay the interest cost of existing debts!
Over the last 40 years our teams at the Islamic Development Bank and different universities and research centers have mostly focused on this problem. This is the crux of all other problems, be it abject and perpetual poverty and malnutrition, excessive bullet proof cars and waste, water and environmental problems or name any other social problem that will be rooted on the interest cost of borrowing. People leading the PM?s reform team will say this statement is an exaggeration, and hence the reforms will have the existential risk of failure unfortunately!
People close to the government who may have the chance to read this independent view may pass it on to the government. The government first needs paradigmatic reform and after that the government needs institutional reforms to enhance changing the paradigm and achieving the transformation goal.
The current dominant paradigm is Linear Economy ? extract, produce, consume and waste and extract more, produce more, consume more and waste more. In this paradigm, waste is essential for wealth creation; you need more bullet proof cars and don?t worry this is actually the ?respectable? business of financing, lenders are there always ready to do the business! This business is so important that the BIS system (primarily BIS, central banks and IMF) are there to protect the business of banks as banks are serving the society by lending. So therefore, any central banker will always work within this paradigm and no meaningful reform is possible through the central bankers.
So what is the alternative paradigm? The alternative paradigm is Circular Economy. In the linear economy, future generations and the environment are irrelevant, implicitly as well as explicitly. An alternative paradigm must make future generations and the environment integral and inherent within the paradigm. The PM in his speech mentioned some countries. In countries like Switzerland, Singapore, Sweden, Denmark, Norway, South Korea and Canada – one of the top economic challenge is ?separate waste collection?. Households, businesses, organizations, individuals etc., must dispose their wastes into categorized waste collection boxes; plastic into plastic, paper into paper, tin into tin; garbage into garbage. We can see that garbage is one of the several waste collection boxes! The waste going to the other boxes will be used as material input in reproduction; the pressure on resource wastage will be eliminated. Material input will reflow in a circular form instead of ending at waste! This is just an example to clarify the term circular economy. In a broader sense, the circular economy is a compassionate economy that cares for the future generations and the environment by rationalizing our current practices. Simple, powerful but far fledged in old Pakistan mindset, yet very low hanging opportunity in new Pakistan mindset of the PM as evident from his speech. The financial system including Islamic finance shall be reformed to cater to the needs of such a compassionate system. The educational system, at different levels, shall adopt new pedagogical approaches to establish the new paradigm. Other social institutions, zakat, awqaf, charities etc., must be reformed and blended with for profit finance to cater to the needs of circular economy SMEs and micro businesses.
The State Bank of Pakistan procedures and policies will require changes, the mandate of Finance Ministry and other ministries will require changes, reporting systems of businesses and NGOs will require change. In short, drastic institutional reforms will be required for enhancing circular economy and compassionate finance.
I am pleased to add here a recent paper elaborating the above points.