- The accountability mania destroyed business confidence
By: Usman Masood
“It gets worse before it gets better.” Ask a historian and they will give ample evidence of this. Extraordinary circumstances present a rare opportunity for bringing about historic change; something truly naya.
But equally, such delicate times require that steps towards change be well thought out. Remarkably well-meaning policies may hit the wall if the bigger picture is ignored. On the economic front, this requires that policymakers inspire confidence, not uncertainty, into already shaky markets.
Unfortunately, the PTI government has been doing the exact opposite. Irrespective of the overnight heaven it wants to turn the country into, it foremost needs to appreciate that policy inconsistency, which begets uncertainty, has enormous costs for the economy, directly affecting the income of the average person. Thus, you can get away with an off-the-cuff remark in a campaign jalsa, but improvising at an investment conference is sometimes too much to ask of yourself and has implications for people’s livelihoods.
The government should be going all-out to restore business confidence. The major reason why substantial liquidity from Saudi Arabia, UAE, Qatar, and China, could not help was that it could not improve investor sentiment. If the IMF-programme too fails to restore access to global financial markets, the economy will be in much deeper trouble. The least the PM could do is to have a break and have faith. “Nature does not hurry, yet everything is accomplished,” one could hear Lao Tzu’s voice echoing.
Dillydallying on the IMF-programme for a whole year; one largely different mini-budget after the other; suddenly replacing the Finance Minister, and then the governor of the Central Bank; elevating a minister of state to Minister for Revenue before relegating him to Economic Affairs the next day; and appointing a somewhat over-qualified corporate insider to head the chaotic FBR, whose position has since been subject to rumours, are among the many decisions that did not go down well with the markets. These decisions mayn’t have been wrong as such, but were ostensibly haphazard. Instead of clarity, the one signal the market got was that no one, not even the Prime Minister himself, was sure what– or who– could be next. Consequently, the State Bank’s most recent Business Confidence surveys has found a bearish outlook in investors.
Investors worldwide look for a positive, stable economic outlook. They meticulously weigh, not just the incentives on offer, but also risks to the sector and the economy. If things are changing too fast, changes in institutions become critical. In our case, serious investors will weigh how policies such as the drive for increasing tax revenues, or against corruption, may affect them. So investment with any associated risk is not a hunch, but a scrupulously calculated expected payoff.
Is our Prime Minister clear on that? It is difficult to say. On his foreign visits, he often begins by laying out a brilliant vision for Pakistan in front of a mostly spellbound audience. But then at any moment he would turn tense, and switch to graphic tales of accountability which would make any potential investor cringe. “Things have never been worse,” is his favourite hyperbole.
The economic situation he inherited was difficult and admittedly not of his making. The Rupee–grossly overvalued– was all set to take a dive, forex reserves were exhausted, fiscal deficit and debt were high, and inflation was moving up. Thus, there was no fiscal space to provide the much-needed stimulus.
So what could the government have done instead?
Arguably, focusing on establishing stability and credibility through wide-ranging reforms to make the democratic process more transparent, the judiciary more effective, and the executive more independent would have gone a long way. These are longer term goals, but the initiation of even the process would have lent much-needed credibility to the infant government. Once a perception of even imminent fairness and stability were established, investment automatically would have poured in. Unfortunately, what transpired was a very ad-hoc-looking accountability mania.
The government should be going all-out to restore business confidence. The major reason why substantial liquidity from Saudi Arabia, UAE, Qatar, and China, could not help was that it could not improve investor sentiment. If the IMF-programme too fails to restore access to global financial markets, the economy will be in much deeper trouble. The least the PM could do is to have a break and have faith. “Nature does not hurry, yet everything is accomplished,” one could hear Lao Tzu’s voice echoing.
