May 2, 2016 Print

Pakistan’s Economic Coordination Committee meets in Islamabad in April 2016. Photo credit: Pakistan Ministry of Finance

“Nothing is so permanent as a temporary government program,” the Nobel laureate economist Milton Friedman and Rose Friedman famously wrote in their book The Tyranny of the Status Quo. In Pakistan, an emergency committee was formed in 1965 for a war lasting only 17 days, and more than 40 years later it is the “linchpin of economic governance” in the country, explains Ali Salman, president and CEO of Pakistan-based Atlas Network partner Policy Research Institute of Market Economy (PRIME), in a new study. Published in the Sunday magazine edition of Pakistan’s largest newspaper, the News International, Salman’s study analyzes the role that the Economic Coordination Committee of the Cabinet (ECC) plays in the country’s economy, including regulation of money and credit; economic planning; management of imports, exports, tariffs, and duties; welfare state expansion; and much more.

“The decisions taken by the ECC create distortions in the market,” Salman explains. “For instance, the ECC can approve ‘inland freight subsidy on sugar’ despite the fact that it is private business transaction or ‘regulatory duty on import of potato’. By taking such decisions, the ECC intervenes in the free market process of price determination. By restricting the imports of one commodity and facilitating the export of another commodity, the ECC gives this signal that local commodities may get compensation for their lack of competitiveness. It gives them artificial oxygen.”

The ECC, Salman points out, has become informally known as the “Exemptions Committee of the Cabinet,” because of its discretionary power to exclude favored industries or businesses from specific tax and regulatory policies. This provides a strong incentive to seek favor with the ECC in order to receive special treatment.

“Loss-making state-owned entities routinely approach the ECC for bailouts, subsidy and guarantees,” Salman explains. “Their requests are often approved by parking contingent liabilities in the federal budget. There is no way the government can actually anticipate these urgent financial needs of SOEs at the time of budgetary approval that ultimately leads to ballooning of the non-development outlays and hence budgetary deficit.”

Salman’s study, “The visible hand of the state: Understanding the formation and working of the Economic Coordination Committee,” originally supported by a grant from Atlas Network’s Liberating Asian Enterprise program, explains how the nature of Pakistan’s ECC is to function as a double-edged sword, both controlling the country’s economy to the extent that it “becomes an instrument in the hands of the government to further deteriorate the budget sanctity,” but also serving as a vehicle by which quick decisions can be made to circumvent the elaborate and burdensome rules of business that weigh down dynamic markets in Pakistan.

“However, the bigger question that needs to be asked is not on the existence of the ECC as such,” Salman concludes. “Rather, it should be about the rules of business that has strangulated economic decision making by over-burdening a government with choices it should not have at the first place. It is not the business of the government to do business. If this oft-repeated sentence of Prime Minister Nawaz Sharif is adopted as a guiding principle, the government will be relieved of thousands of decisions that it has unnecessarily taken upon itself to make. This will help us in creating a smart, lean and agile central government that will be taking fewer, but well-informed, far more effective and more transparent decisions.”