Last few days were consumed by a debate on the financial crises of Pakistan. Exchange rate which was artificially managed during the last regime went out of control. Stock exchange market took plummeted. The depreciation in rupee introduced a sharp increase in inflation. Moreover, purchasing power is declining and creating serious problems for the middle and lower class of society. Situation becomes more aggravated as people spend their depreciated income on inflated services and commodities.
Politics has converted an already difficult situation into a crisis. Political elite from both sides of the fence, government and opposition, are engaged in useless fights. Sane voices from political circles are lost somewhere in the noise created by an undesired blame game. The government is being criticized for the depreciation of rupee, the stock market and to reach IMF. Opposition parties are taking this as an opportunity to snub government and are trying to create a scenario, where they can claim government does not have experience to run country. No doubt depreciation will be followed by inflation as our economy is overburdened with a balance of payment crisis. Major sectors like energy, industry and transportation are heavily dependent on imported sources of energy. Cost of production will increase due to appreciation of dollar. The calculation is very simple add the appreciation cost to products and commodities.
On the other hand, the government is linking this crisis to the last ten years. It is of the opinion that bad governance, lack of direction, nepotism and high corruption rates are the basic reasons behind the current crises. Trade balance deteriorated, especially during the last five years. The government’s own statistics show that it reached the level of 37.7 billion US$ in 2018, and from 20 billion US$ in 2014. The previous government tried to manage the gap by generously borrowing from internal and external sources. However, less efforts were made to create a sound production system and an export strategy.
No doubt depreciation will be followed by inflation as our economy is overburdened with a balance of payment crisis. Major sectors like energy, industry and transportation are heavily dependent on imported sources of energy. Cost of production will increase due to appreciation of dollar
The previous government also missed or could not exploit the full potential of two important and huge opportunities. First, CPEC started during the regime of PML-N. It was and is a historic opportunity to revise the economy of country. Unfortunately, the real potential of CPEC could not exploited due to one or other reason. PML-N blamed it on Dharnas, Panama and interference from institutions which hamper the progress of CPEC. However, governance and corruption are missing links which PML-N did not want to talk about it. For example, in energy sector, CPEC helped Pakistan to install almost 12000 MW of electricity. But the government could not translate the benefits of this additional electricity due to the bad governance of sector. The government did not invest in the required resources or better transmission and control of theft of electricity, which incurred a loss of almost 212 billion per year. It exactly corresponds to the amount of circular debt in the energy sector.
The second opportunity was related to a sharp decrease in oil prices in the global market. It went even below the 50 dollar per barrel. This could have been used for the betterment of the economy and given a boost to industry and production sectors.
It is a shrinking space for economic leaders of the government to take sensible decisions regarding the economy. Interaction with finance managers of the government reveals that they want to take measures which have positive and lasting impact on economy and the welfare of people. They were busy in exploring options other than IMF.
A high level delegation visited Saudi Arabia and UAE to find new avenues to strengthen our economy. But the government could not find a suitable deal for Pakistan. Previous governments also exhausted resources from China. Even during the interim period Pakistan received 2 billion US $ from China. The government concluded that in present circumstance it is favourable to explore multilateral institutions’ option. However, the government is now in negotiation with IMF for a good deal.
The whole scenario presents two very simple and important lessons for our political elite and managers of state, especially in the present context. These will also help us to understand how we can act differently from the past. Firstly, all the political parties need to take economy seriously. Political parties should install key financial experts to look into the matters of economy and only they should be allowed to talk about the economy. State managers should also learn to not interfere in economy and let the economic managers, manage it.
Secondly, all stakeholders should come together and devise a common agenda of charter for the economy. The charter should be approved for a certain period of time like one decade, two decades or more. The charter should be signed by all political parties and stakeholders irrespective of their affiliation. It should be made a part of the constitution for a decided period and it should be made obligatory to follow.
The present IMF deal provides us with an opportunity to follow a consensus based decision making for the economy. It can act as the base for a proposed charter of economy. Government should negotiate with opposition parties and other stakeholders about the fundamental reforms in economy. Identify the areas of interventions and start to intervene there.
Finally, government should take this opportunity as a point of correction and start to work on fundamentals of economy. It should not be like the past, where resources were used without proper planning. Resources should be used for productive activities like enhancing the industrial base, revolutionizing the agriculture sector and innovation in technology. It can complement the CPEC investment and can provide necessary support for the successful implementation of CPEC.
However, to avail this opportunity Pakistan needs to act differently this time according to the requirement of the economy. Pakistan should move to reform its system, its governance and policy direction. Governance must be the first and foremost area of intervention for the implementation of reforms in other sectors. Governance has been a key area which hampered the course of development and the welfare of the people. Therefore, for any meaningful results in the economy reform in governance is essential.
The writer is the Chief Operating Officer at Zalmi Foundation. He can be reached at @shakeelramay
Published in Daily Times, October 18th 2018.