Forging Pakistan’s economic future

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Forging Pakistan’s economic future

By Shahzad Chaudhry

Serious deficiency of vision and intellectual exercise in policy formulation, not to talk of probity, bedevil Pakistan’s continuing misfortune. This stands out as the biggest failure in governance regardless of any other balancing achievements in other domains

Do we have a blueprint of recovery
for Pakistan’s economy? I hope that was the first question Hafeez Sheikh may have asked of his team on taking over Shaukat Tarin’s vacated slot. If there is one, it has indeed been the most well kept secret. The usual political refrain is the negative investment climate that the security situation has cast on our economy and hence the absence of any positive signs of economic activity. There cannot be a more transparent attempt to provide a cover to pervasive ineptitude.

The financial czars are adept only at numbers and fiscal responses; hence the proclivity for macro-stabilisation as the first order of business. But then two years are enough to bring the numbers to a reasonable level, and the IMF facilitation of over $ 11.3 billion has practically done that. What continues to befuddle the minds of many is what are the other politico-economic whiz-kids doing as some steer the macro-indicators within a stable regime? There is absolutely no sign of a strategy, short- to medium-term, or long-term, to kick start a desperately dwindling economy. Negative manufacturing production, barely floating services sector and hyperinflation portend darker days unless some direction and vision is detected from the political leadership. The balance of trade figures are propounded as an achievement when both the exports and, dangerously, the imports have plummeted. The balance of trade must improve with higher exports, not with drastically reduced imports, which is the first sign of a ‘stagflating’ economy. People do not import simply because they are doing no business nor is there sufficient economic activity.

As a starter: what are those three or four or five areas of the economy where, if activity can be initiated as part of the policy, it will entail a cycle of positive sentiment encouraging other sectors to pick up slack and generate enough economic confidence? China, during the recent bout of global recession when its exports may have faltered under slowing US and European economies, maintained its growth rate through sustaining activity by inducting over $ 650 billion in the infrastructure side of the economy; India suffered slightly, but has now recovered significantly on the back of a well-balanced spread of its economic structure, more than half of which comprises the services sector. Its manufacturing too is well established and finds sufficient capacity for consumption within India’s growing domestic market.

Pakistan may not have the fiscal space to trigger a recovery on its own, but can it not look into policy incentives to encourage some chosen sectors to do so? Nations attain glory on the back of abiding commitment and sacrifice by individuals across the social spectrum. Instead, we await handouts, foreign investments and some inexplicable compassion and sympathy from the world while unrestrained free-market cartel barons continue to extort and fleece the desperate and the dispossessed. Serious deficiency of vision and intellectual exercise in policy formulation, not to talk of probity, bedevil Pakistan’s continuing misfortune. This stands out as the biggest failure in governance regardless of any other balancing achievements in other domains. Adjustments in centre-province relationships, as per the provisions of the proposed 18th Amendment, to the benefit of the latter, will not take away the federal responsibility to formulate a national economic recovery plan, with provinces implementing the enunciated philosophy.

Pakistan is currently beset with the issue of raising revenue. The chosen path is to enhance tariffs and taxes on two basic needs, electricity and petroleum products — both feeding inflation and backbreaking for the poor. Alienation is a consequent by-product. Instead, if some state institutions — which practically eat up most available liquidity just so that they might stay afloat — were to be dispensed with, the state and its economy will have sufficient resources to at least fund a sector or two through the Public Sector Development Programme (PSDP). A certain bank was kept afloat by inducing funds to the order of tens of billions twice over during the previous government’s tenure so that it may survive severe mismanagement. PIA is being kept in the air through massive funding by the government; it is excessively overstaffed and has the world’s most distorted employees to aircraft ratio (500 people to every aeroplane while the world average is only 50 to an aeroplane). Ever considered the damage that gets done when temporary employees are made permanent under popular executive discretion? The edifice of the organisation crumbles from within.

None of these organisations can ever turn profits for these have been over-exposed beyond their real value, and it is akin to political hara-kiri not to shed politically implanted manpower in these institutions; these must therefore be privatised. One other factor that inhibits such bold moves is sham nationalistic pride; it would be better to hand these over to some party who can retain the colours and instil pride and profit in their functioning. Air Blue is as Pakistani as any other airline and is run on sound corporate principles.

Another factor is the perceived strategic role for each of these organisations. Without prejudice to any eventual need by the state under emergent or operational conditions, clauses suitable for extending such a lien can be incorporated in the sale agreement. Pakistan State Oil (PSO) is caught in the middle of a spiralling circular debt with no end in sight. Pakistan Steel Mills was unnecessarily stopped from privatisation by the Supreme Court and has since eaten away thrice as much as the state may have saved. Again, the time lost because of inaction is lost resource multiplied many times over because of the gorging nature of these white elephants as indeed the implied loss in not being able to put the same money to good use elsewhere.

In the case of the steel mill we were also deterred by an underlying possibility of ArcelorMittal being at the back of an acquisition bid. Mittal reportedly now owns more than 10 percent of the world’s steel manufacturing. For how long shall we hide behind the façade of a nationalistic pretence when international finance and the economy continue to be woven into an integrated labyrinth spreading over continents and borders? To keep face, we may ask all such bidders to work through joint ownership with local groups. In such a case, if money for investment comes from across the border, so be it. China and Japan own major business ventures in the US; and they can hardly be classified as bosom allies.

The government need not do what it is not equipped for, like running each of these outfits. It must only retain regulatory control as through the Oil and Gas Regulatory Authority (OGRA), National Electric Power Regulatory Authority (NEPRA), etc., and make a regulatory authority for each; its prime purpose, to safeguard consumer interest and state monitoring. The money so spared can then be put to better use.

(To be continued)

Shahzad Chaudhry is a retired air vice marshal and a former ambassador

http://www.dailytimes.com.pk/default...5-4-2010_pg3_2