A bankrupt economy

With no quick fix solutions

According to latest figures released by the government, trade deficit is falling sharply and inflation barely rose 0.4 per cent in the past five months since the PTI government assumed power. Even exports showed modest growth of 5.48 per cent during the period.

This is all welcome news. Nonetheless deeply alarming fundamentals of the economy cannot be simply swept away. It is much too soon for Khan and his economic team to pat themselves on the back.

There are serious macro and micro issues afflicting the economy that need immediate fixing. Decisions like whether to go or not for an IMF (International Monetary Fund) bailout remain in a limbo.

As if there is a viable alternative, the prime minster is yet to make up his mind. On the other hand finance minister Asad Umar claims that the country is now better placed to negotiate with the IMF. But unfortunately close advisors like former apparatchik of the finance ministry Dr. Ashfaq Hasan Khan is counseling the prime minister that if the country goes for another IMF program he will lose the next election just like his predecessors.

The government should decide one way or the other. The present uncertainty is sapping market confidence and the government’s own ability to turnaround the economy. Meanwhile vital statistics of the economy do not paint a very rosy picture.

Take the case of our foreign exchange reserves. They stand at US$ 7 billion (with SBP), barely enough to cover a month’s imports. According to erstwhile spokesman on the economy Dr. Farrukh Saleem they stand at US$11 billion in the negative. He claims that in reality we have been left with zero dollars.

The hapless doctor might be disgruntled at the humiliating manner he was shunted out. Nonetheless there is a kernel of truth in his arguments.

For example US$200 to 250 million is required every week to cover imports and debt servicing payments. This translates into US$1 to 1.5 billion a month. In other words the injections from Saudi Arabia, UAE and possibly China are being depleted faster than they are being received.

Both international credit ratings agencies Moodys and Fitch and even the World Bank have downgraded the economic prospects of the country in their most recent reports. GDP growth rate has been downgraded to less than 4 per cent and serious reservations have been expressed about the general health of the economy.

The bottom line is that the country is virtually bankrupt. The PTI’s oft-repeated mantra is that they were dealt a bad hand by the outgoing PML-N government.

Most of the problems afflicting the economy are structural in nature. Years of mismanagement and a pervasive attitude of living beyond means have brought upon the present impasse.

The present uncertainty is sapping market confidence and the government’s own ability to turnaround the economy.

Admittedly the past governments malfeasance and lack of transparency is partly responsible as well. But the buck stops now squarely on Khan’s table. He has been elected prime minister and must deliver. If he fails, not only him but also the country will suffer all the appended consequences.

Unfortunately for the PTI, when it assumed office the chickens had already come home to roost. In the fast changing international and regional environment Pakistan refused to change its developmental and economic priorities. Hence the present mess.

Our tax base is too narrow to sustain the present level of expenditure. Our entrepreneurs are used to state crutches in the form of subsidies and protectionism and they refuse to innovate or add value to their products.

It is no coincidence that our exports remain obstinately sluggish. The recent 33 per cent devaluation of the rupee has hardly translated into an incremental rise in exports.

This is not at all surprising. Apart from cotton yarn, gray cloth, some agricultural produce, and manpower there is little else   to export.

Just a comparison: Bangladesh once labeled as an international basket case by Henry Kissinger, its exports are about US$36 billion compared to Pakistan’s US$21 billion. Similarly the former East Pakistan’s annual GDP growth is 7 percent plus compared to Pakistan’s highest in 2018 in the past thirteen-years at 5.8 percent.

Pakistani rulers have consistently failed to make structural   changes. Admittedly after debt servicing and necessary defence expenditure there is little room left for maneuverability. Cost of doing business, thanks to a corrupt and incompetent bureaucracy remains one of the highest in the world.

We take great pride in our long standing friendship with China often terming it as, “high as the mountains and deep as the sea.” Indeed Beijing is a friend in need who is helping us both financially through US$62 billion worth of investment through CPEC (China Pakistan Economic Corridor) but is also as our most trusted strategic partner.

We must at least listen to the advice of our most trusted friend and neighbour. The other day the Chinese ambassador to Pakistan Yao Jing was addressing the Lahore Chamber of Commerce and Industry. When businessmen asked him, that after relocating their business from the US, why Chinese companies preferred investment in other countries including Cambodia and India, he gave a candid reply.

According to him fewer Chinese investors coming to Pakistan despite the CPEC are owing to poor trade policies, high taxes, no tax incentives and lack of business friendly environment. He also lamented the fact that despite successful completion of Gawadar port the SEZ (Special Economic Zones) was to be set up by the PML-N government.

Cost of doing business, thanks to a corrupt and incompetent bureaucracy remains one of the highest in the world.

He posed a pertinent question that how could Chinese entrepreneurs invest on a 70-80 percent priority in Pakistan in the absence of the SEZs? This is a strong denouement from an envoy of Pakistan’s closest friend.

Outlays on the social sector tell another dismal story. The Economist in its recent issue states: “it has for so long been a country of such unmet potential that the scale of Pakistan’s dereliction towards its people is easily forgotten. It adds that, “Yet on every measure of progress, Pakistanis fare atrociously.”

What the Economist has written is already known to most Pakistanis worried about its future. The news magazine blames the Pakistani military for its misfortunes. This is only partly true.

Apart from military meddling in civilian affairs, a backlog of four military coups in the checkered history of the country, the civilian elite, our squabbling and effete politicians and a scheming bureaucracy are equally to be blamed. Another factor that cannot be swept under the carpet is the cynical use of religion by our khaki and mufti ruling elites to perpetuate them.

Unfortunately Prime Minister Imran Khan is also chip off the same block. Apart from empty rhetoric, till now he has nothing new to offer.

Same could be said of the opposition as well. A herculean effort hitherto lacking and a focused approach is urgently needed.