Charter of economy: a redundant concept

The Minister of Information and Broadcasting Ataullah Tarar referred to the federal budget 2026-27 as “sagacious” and invited the opposition to sign a charter of the economy – a suggestion that was initially aired by former Finance Minister and current Foreign Minister, Ishaq Dar who drew inspiration for the title from the Charter of Democracy that was signed between Benazir Bhutto and Nawaz Sharif on 14 May 2006. About 93 percent of the total budget for this country consists of current expenditure – the outlay an amalgam of the rising mark-up on 83. 285 trillion rupees (298 billion dollars) domestic debt and another 137. 5 billion dollars in external obligations, followed by allocation for influential sectors (inclusive of annual civilian and defence pay raises at the taxpayers’ expense), flawed policies (particularly the over one trillion-rupee allocation for pensions next year though employee contributions became mandatory for those hired in 2024 onwards though the amount is not known – a time period that will take decades before it begins to pay dividends), the applicable National Finance Commission (NFC) Award that provides 42. 5 percent of total taxes collected by the Federal Board of Revenue (FBR) for the Centre’s use, and for Benazir Income Support Programme (BISP) allocated under 5 percent of total current expenditure. Development expenditure by the Centre is where serious differences arise, requiring constant adjustment if the Centre is politically weak and not at all if it is strong – a principle that also applies to the economically disastrous policy of allocating funds to members of parliament for projects specific to their constituency. It is, however, the source of revenue that is probably where the charter of the economy can best be applied. Each administration has its “favourites” – easily gleaned from the grant of tax exemptions extended to specific sectors. The PML-N, for example, favours its support base, the traders, the Khan administration favoured real estate activity, and the PPP has typically favoured its grass-root workers and used state-owned entities as recruitment centres. All these policies are under process of being phased out under the ongoing IMF programme though the process remains painstakingly slow. There is therefore a need to undertake empirical studies to assess whether the policies that prompted the Charter of Democracy are still applicable today and, more importantly, whether they were ever implemented. The latter query can be easily answered with a resounding ‘no’ though the two parties have since worked in partnership at the Centre. The common thrust of all the national parties, including the decision makers today, is to attract foreign direct investment (FDI), which has remained elusive to-date. The plea today should no longer be to agree to a charter of the economy dated twenty years ago but instead to understand the massive geopolitical changes in the international world order since and to adjust accordingly. Three exogenous changes in the international world order are having far-reaching global consequences, including in Pakistan. First, the emergence of a unipolar world subsequent to the collapse of the Soviet Union in 1991 that initially continued the military and financial dominance of Western democratic countries, all with robust economies, with the institutional framework to sanction all those countries with impunity that failed to follow their dictates. But by 2017 a multipolar world had emerged as Russia reaffirmed its superpower credentials as did China though Western countries continue to look towards the US for guidance that is increasingly coming at a high economic cost. Second, the expansion of North Atlantic Treaty Organisation (NATO) eastward, in spite of Russian warnings that it would be its red line; it is little wonder that when the US and its allies proceeded to announce Ukraine’s imminent inclusion into the security bloc triggered the conflict with Russia that continues to this day. The subsequent sanctions on Russia led to deindustrialisation in European countries, particularly Germany, and by following the US foreign policy dictates the European Union began to procure fuel at more than double the cost of gas from Russia, making it uncompetitive in the international market, especially as it related to China. The Memorandum of Understanding between Iran and the US signed this week past indicates a change in warfare, asymmetric where the militarily more powerful country is unable to declare victory, as opposed to kinetic – a change that can compel the more powerful country to concede on more than four-decade-long sanctions. What is increasingly evident is the truth behind Vladimir Putin’s assertion in his interview with Le Figaro on 29 May 2017 published two days later: I have already spoken to three US Presidents. They come and go, but politics stay the same at all times. Do you know why? Because of the powerful bureaucracy. When a person is elected, they may have some ideas. Then people with briefcases arrive, well-dressed, wearing dark suits, just like mine, except for the red tie, since they wear black or dark blue ones. These people start explaining how things are done. And instantly, everything changes. This is what happens with every administration. Putin’s reference was to the deep state, consisting of unelected officials, including wealthy private individuals, who can and do manipulate policy. The US support for Israel and anti-Russian stance epitomizes the deep state’s control of US policy, and therefore it was a very astute observation that explains why US foreign policy has not adapted to the changing geopolitical considerations. In Pakistan, the deep state’s existence has long been acknowledged though not openly until very recently with the reference to the hybrid system. This does not make Pakistan the exception but rather the norm. Third, globalisation, relative ease of movement of capital, led to the US oligarchs investing capital in countries that could produce at cheaper cost enabling them to realise higher profits, while controlling all multilateral donor agencies that led to the formalisation of global rules. The dollar hegemony, dating back to Bretton Woods, 1944, consisted of the dollar as the world’s primary reserve currency, medium of exchange, and unit of account. With the establishment of SWIFT (Society for Worldwide Interbank Financial Telecommunication) in 1973 transfers by any individual or country could be stopped with accounts frozen as happened to Iran in 1979 or to Russia since the start of the war while it provided the US with cheap credit. Today there is little debate on the emergence of a multipolar world, with the increasing use of yuan as an alternate currency, and the increasing use of real time transfers through the Chinese Cross-Border Interbank Payment System (CIPS) – a system resilient to sanctions as well as cheaper – instead of SWIFT. In spite of Pakistan’s close and long-standing ties to China our reserves are still held almost entirely in dollars (though they are almost entirely debt based with over 10 billion-dollar rollovers held by Saudi Arabia and China), the bulk of trade is in dollars (except some barter trade), remittances emanate from the Middle East and the West and imports are largely from the West though imports from China are at a high of 18 billion dollars while our exports are no more than 3 billion dollars. So what can a charter of the economy consist of? All political parties’ have the same objective notably development, low inflation, and high employment though the way forward may vary based on which economic theory the administration may support. But what about a country like Pakistan that is shackled by domestic and international debt and where elite capture continues to prevail in terms of allocations and policy decisions? And with a resurfacing threat to default compelling administration after administration seeking an IMF programme with its associated conditions? The best option would be to seek a consensus on foreign policy objectives that are linked inextricably to economic objectives, curtail elite capture of the taxpayers’ money, which continues in next year’s budget, and implement pro-poor growth policies across the board instead of limiting them to BISP. Copyright Business Recorder, 2026

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