Monday 31 December 2018

How to wreck an economy, S Akbar Zaidi


How to wreck an economy, S Akbar Zaidi
The writer is a Karachi-based political economist.

LESS than two years ago, Pakistan’s economy was being celebrated for being dynamic, resilient, and on a path to high, sustainable, growth. Numerous international journals and newspapers — always critical of Pakistan’s economic management and governance — were waxing lyrical about the prospects for Pakistan’s economy after almost a decade of struggling.
The last fiscal year, which ended in June 2018, saw Pakistan’s highest GDP growth in 13 years. Moreover, from 2013 to 2018, the growth rate increased every year, a phenomenon not seen in Pakistan for quite some time; other than the fake ‘boom’ under Gen Musharraf, which was based on, and further resulted in, gross irrational speculation in real estate and stock market prices. The Musharraf bubble in all its manifestations — cultural, economic, political — eventually broke to reveal its false foundations.
Today, the story is very different. The expected growth rate for the current fiscal year has been lowered to near three per cent, the lowest in nine years, and is expected to be lower still in the subsequent two years. Inflation has started rising again, to levels not seen for the last five years, and the rupee is worth a third less in the international market compared to what it was just a year or so ago. With lower development expenditure and lower projections for manufacturing growth, all accounts suggest that Pakistan’s economy is facing a serious crisis. However, this crisis has not been caused as much by fundamentals, as by complacency, incompetence, and utter mismanagement by the incumbent government.
The PTI government inherited an economy with the highest growth rate in 13 years, albeit strains were more than evident, especially regarding the current account and fiscal deficits. The rupee had been linked to a former finance minister’s irrational ego for far too long, and would have had to give at some point. Moreover, it was also fairly clear that if the previous government of the PML-N was re-elected, it would most certainly have gone to the IMF within days of taking office.
This was also expected from the party which eventually won, despite their public bravado of claims to the contrary. Whatever views any economist held about the Fund, it was clear that Pakistan was on the verge of yet another IMF programme.
The hallmark of PTI’s economic plan in the last five months has been continued uncertainty & ambiguity.
This so-called crisis which has taken place affecting Pakistan’s economy rests unambiguously on the shoulders of the finance and economic team managing the economy since August 2018, and especially on Pakistan’s finance minister. Decisions needed to be made immediately after taking office and a direction to addressing real and perceived, as well as potential problems, needed to be developed urgently. All that one has seen since the PTI government took over is a failure to understand how Pakistan’s economy works, what the key issues and problems are, and how they are to be addressed.
The hallmark of PTI’s economic programme in the last five months has been continued uncertainty and ambiguity. As anyone familiar with understanding how economies work would know, the core of all ills regarding economic planning and thinking is a government which has no clue about what to do about the economy, and hence, its chronic uncertainty.
The PTI economic team reflects such sentiments better than most governments in Pakistan’s recent history. Even if one disagrees with the politics of a particular political party, governments in the past have always put in a plan about what they want to do with the economy. Not all plans have worked, but market sentiment and investors have had some guidelines about what to expect in terms of direction, management and policy. Since last August, this has clearly not been the case as reflected in all markers of investor sentiment and confidence. Even international agencies have had to downgrade Pakistan’s economy’s ratings on how the economy has been managed.
Other than asking its three ‘friendly’ countries for desperate loans and deposits, there seems to be no policy, leave alone a vision, regarding Pakistan’s economy. Although the government celebrates a handful of dollars deposited with the State Bank of Pakistan by two countries, this is akin to giving someone who is completely broke and destitute and insolvent some money for safekeeping, so that they can try and look good, but are in no position to spend or use that money since it needs to be paid back and, that too, with interest.
Pakistan’s accounting books might look good for a few months because of money loaned to it, but these sums will need to be paid back. A loan is not a grant. And claiming that there are no conditions attached — whether political or military — to these loans, is naiveté of the highest order, a point raised by a senior member of Pakistan’s Senate.
Furthermore, while aggressive selective accountability against some political opponents might bring some cheer from the PTI faithful, this is bound to have negative consequences on economic activity in the short run with potential investors far more circumspect.
By saying that we may go to the IMF, or that we may not, or that we no longer need the IMF, the finance minister is stoking the already raging fires of uncertainty regarding Pakistan’s economy. He is fully entitled to opt out of an IMF straitjacket but needs to present a viable option of how he is going to address the growing strains in the economy. His double- or triple-speak, is clearly a reflection of his confusion and inability to find alternatives to bridge the foreign finance gap. The more he procrastinates, the more the damage done. And if by chance, he has found a magic wand which will rescue Pakistan from an inhospitable IMF programme, the sooner he waves it to end this uncertainty, the better.
The writer is a Karachi-based political economist.
Published in Dawn, December 31st, 2018


Saturday 29 December 2018

Saudi 6illion dollars to Pakistan comes with strings , by SUDDAF CHAUDRY


Saudi 6illion dollars to Pakistan comes with strings
Saudi Arabia's crisis over Khashoggi murder is Imran Khan's gain, but Pakistan may still be expected to up military cooperation with the kingdom
By SUDDAF CHAUDRYOCTOBER 28, 2018
Arabia with a pledge of $6 billion in loans. Khan was likely able to secure the deal with fewer strings than a previous rejected offer, due to enormous international scrutiny on the kingdom in the wake of the Jamal Khashoggi murder. But the latest package may require a deepening military partnership with Saudi Arabia.
Khan headlined on day one of the Future Investment Initiative conference in Riyadh on October 23, even as many western officials withdrew.
Bottom of Form
The kingdom’s generosity comes at a critical time for Pakistan, which is facing a fiscal crisis and last month saw $300 million in US military aid suspended by the Trump administration.
“Trump’s decision has stripped the military of resources, forget about the rest of the country,” Pakistani military scientist Ayesha Siddiqa told Asia Times.
On Khan’s return to Pakistan, he stated in a televised address that Pakistan will help end the conflict in Yemen.
“We are trying our best to act as a mediator to resolve the Yemen crisis,” Khan said. Observers have interpreted this statement by Khan as being linked to the terms surrounding the loans, as there were no other significant points mentioned by the PM regarding his visit.
Riyadh in 2015 launched a coalition to fight the Houthi rebels in Yemen and sought military support from Islamabad, but Pakistan’s parliament voted against joining the war.
Saudi Arabia just two weeks ago offered loans to ease Pakistan’s financial woes, but Islamabad refused. “There were too many conditions attached,” said Minister of Information Fawad Chaudry.
When asked what led to Pakistan shifting its position to accept the Saudi loans, Chaudry said: “ There is a change in politics. Obviously Saudi Arabia needs some support. I think the situation has changed now.”
With Saudi Arabia’s reputation under pressure, Pakistan was likely able to negotiate more acceptable terms, but those have not yet been disclosed.
“The terms could not be elaborated due to the fact that it is not in the interest of the mediation currently taking place,” Chaudry told Asia Times.
He said the Ministry of Foreign Affairs would likely present its findings on the terms surrounding the deal next month.
The Saudi Ministry of Foreign Affairs did not respond to a request for comment on the terms.
“They need to bring this to the parliament to tell us what conditions are attached by the Saudis and what they expect from Pakistan in return,” said Miftah Ismail, Pakistan’s former federal finance minister.
“There was no discussion, therefore. Until we understand what transpired at the conference it is hard for us to really know if this is a good decision or not,” said Ismail.
Yemen, Balochistan in focus
According to a diplomat close to discussions in Saudi Arabia, this loan is not only a commercial deal, but the kingdom is also interested in Balochistan.
Balochistan is of strategic interest to both Iran and Saudi Arabia, bordering the Islamic Republic and located north of the Arabian Sea.
Saudi Arabia has faced allegations of backing anti-Shiite jihadist groups in Balochistan, namely Jundullah and Jaish al-Adl, and a heightened influence could be dangerous for Pakistan’s security.
“If you increase investment, it is not just money that pours in. With the money comes influence,” analyst Siddiqa said.
“It’s hard to imagine a $6 billion gift with no strings attached,” said Michael Kugelman, a scholar on Southeast Asia at the Woodrow Wilson Center in Washington, D.C.
“There’s a very good chance Saudi Arabia placed some type of conditions on this support. Riyadh may have made it quite clear that Pakistan will need to rein in its recent efforts to position itself as a neutral actor in the Saudi-Iranian regional rivalry,” Kugelman said.
“Pakistan has an Iran problem and a Saudi problem. [The Pakistani military] is allowing the Saudis to build up their capacity in Balochistan, which is in effect a certain kind of encirclement around Iran,” said Siddiqa.
Pakistan and Saudi Arabia have maintained a defense partnership since 1983, though it is very difficult to pinpoint the exact number of Pakistani personnel in the kingdom. According to Kamal Alam of the  London-based think tank RUSI, there are at least 1,200 Pakistani trainers in various Saudi security and military sectors.
A source close to the Pakistani military said the number is far higher, however. Speaking on condition of anonymity, he told Asia Times there are upwards of 7,000 Pakistani military personnel in the kingdom.
“One of the big questions coming out of this new deal is whether Riyadh has now asked Islamabad to operationalize that military presence and be willing to join Saudi military efforts in Yemen,” Kugelman said.
“Islamabad has long resisted this ask from Saudi Arabia, but with this financial assistance Islamabad is now getting, Riyadh has more leverage,” he added.
According to a political source briefed on the matter but who declined to be named due to the sensitivity of the subject, the Pakistani armed forces have been under mounting pressure from the Saudis to join the conflict in Yemen.
The Saudi-led intervention has never been more controversial, with  Yemen facing what the United Nations last week said could become the worst famine in living memory.
Upon his return from Saudi Arabia, Khan said: “My fellow Pakistanis, today I am here with good news for all of you. We were facing really hard times. We were under high pressure to pay heavy debts. But thanks to Saudi Arabia’s extension of assistance, we are out of this pressure.”
The coming months will reveal if Pakistan is prepared for the reasons behind the kingdom’s generosity and whether the country can continue to deflect military requests in Yemen.