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
