Daily Times

Bill Clinton would never have wondered how a regime striving to protect crony capitalist interests in Pakistan would create a stupid’s economy in its bid to buy more time to survive financially. The federal budget does nothing but highlight the government’s march to that dead end it has been heading to ever since day one. There is nothing that started with this budget and there is nothing that will end with it. At the onset, let us be clear: running Pakistan and its economy is not a cakewalk and any government, including the present one, has to make hard choices in an economy where productivity, tax collection and exports are abysmal and where chronic rent-seeking, real-estate driven wealth stagnation still remains the most dominant economic activity.

However, there are a few things that make the economy of this country run and one expects that any economic manager would at least ensure that those things remain in optimal functioning condition. So, in a country with limited resources and vested political compulsions at the centre of economic decision-making, just enough must be spared to keep the economic engine running. So the budgetary choice in Pakistan has always been to leave something for the sectors that run the engine versus not leaving anything for them for the sake of vested interests or for the sake of wrong economic priorities. The PML-N has been programmed to make the second choice intuitively and the same has happened this term.

No matter how much the whizzes of value addition would want this country to be a developed economy, the fact remains that it is primarily an agrarian/commodity-centric economy for now. The lack of skilled resources makes it far from a high-end, value-adding economy and the road to that will be to hop from tree-to-tree and not jump altogether mindlessly in the form of IT parks and bullet trains. So, just when the quest for modernity should remain central to our national aspirations, it cannot happen overnight. A sound economic policy will have to take stock of what we have and move from there step-by-step. And whether we like it or not, we primarily remain an agrarian economy. So, the easiest route to economic growth remains investing in agriculture and related low-skilled industries and services; here lies the biggest problem with the economic policy of the current government.

The PML-N is famous for low growths (yes, the actual numbers give the impression the media wrongfully and skillfully creates about the PML-N being a development genius) but it is the agriculture sector growth that suffers the most under the Noon regime and this time too it is no different. In a year without any catastrophe and better economic growth across the globe since the 2008 financial crisis, agricultural growth remains a sluggish 2.9 percent. That happens when the focus of infrastructure development is wholly and solely on lifting the real estate price of cities and towns of Punjab, and the government withdraws any incentives for farmers to increase productivity. The farmers, in something almost unprecedented, surrounded Lahore protesting this exploitation at the hands of the government and the buyers. The prices of all major agricultural commodities have declined while the economy is showing a growth of 4.2 percent. To understand this anomaly, one should carefully study the state of the banking sector, especially in the light of massive government borrowing in the last two years to cover financial mismanagement, for repayment of circular debt and for infrastructure projects announced and executed in haste.

Yes, urban and semi-urban Pakistan, particularly Punjab, is happy on the back of an economy that is getting steam from a booming real estate sector where money is making more money. However, the government and all of us need to realise that such real estate markets rely heavily on availability of cash and if through economic mismanagement the cash dries up, the music stops. There is a reason the financial crisis of 2008, in its build-up, crashed the real estate market in Pakistan and there is also a reason that the real estate sector started rebounding in 2011 on the back of bumper cotton and rice crops leading to money in the hands of rural buying of real estate in the urban centres.

And cash is another concern I have with ‘Daronomics’. One thing buried under budgetary documents is the government’s plans to increase external receipts to the capital account by 12.2 percent. Not only has Mr Dar increased reliance on foreign funds for an economy whose strength is and has never been exports, he has done it in a way that binds the country in a tight spot for years. Earlier it was only for independent power projects but now most of the projects in the government sector are designed with dollar denominated payments. This has created a capital flow profile where the country will have to ensure a stronger rupee for years ahead. However, a stronger rupee, supported by external receipts (mostly loans) and sale of national assets in haste contributes nothing to the economy and is unsustainable if Shaukat Aziz’s example is anything to go by. More so, this strong rupee is hurting exports, which ultimately is stifling the transfer of real wealth to the economy.

In short, this policy is leaving behind an economy that is running like an Olympic sprinter without oxygen and we know where that heads. It is about time the serious segments in society bring the government away from the track of disaster to an economy built of sustainable growth and fair distribution of resources. With the current phase, the economy adds $ 10 billion in a year to GDP but $ 1.5 billion of this comes from the crash sale of UBL and HBL shares alone, and without such shenanigans the meagre growth of 4.2 percent would be the same as we had during the Zardari days. At least then we thought we had some assets that generate income and/or could be used when needed. If this goes unchecked, Daronomics will be remembered not as a stupid economic idea but an economic idea to run a stupid lot.

The author can be reached on twitter at @aalimalik