Daily Times

No, the wrong spelling of exasperated does not in any way suggest lapsing into senility, thankfully. First of all, a review of previous articles highlighted that the only letter conspicuously absent as the first initial of all previous article titles was the letter X. Hence, nudged and annoyed by something known in the medical profession as obsessive-compulsive disorder, and the absence of words beginning with X, which could be used as a suitable title, a bit of improvisation. Secondly, exasperation, when it reaches a particular level, is xasperating!

Has anybody else found it baffling that the price of crude oil has fallen more than 60 percent in the last one year but the cost of air travel, where fuel is 50 percent of the cost, refused to budge. And note: domestic travel is not monopolised by the state-owned airline, which might have motivated the government to maintain ticket prices at constant to protect the loss making national airline. Economists have always insisted that perfect competition in a free market will benefit the consumers so why has competition not worked?

On a related issue, the national airline should now be, with costs crashing and revenues constant, highly profitable so why does the government still want to sell it? This phenomena of sticky air travel costs is not limited to domestic markets; even international travel continues to fleece the workers travelling by economy to foreign lands to earn a living, with the sole objective of sending precious foreign exchange back home to their loved ones. Considering that these precious workers’ remittances are the reason behind why government manages to balance the current account, as much as it can, should not these workers be protected from what can only be referred to as airway robbery?

Does anybody else find it bewildering that the government continues to struggle with bringing down the cost of remittance for workers, which continue to hover at around 11 percent? Imagine that a whopping $ 1.8 billion, approximately, may have been appropriated by the banks as their share of the $ 18 billion remitted during 2014-2015. A 50 percent decrease in this cost might have increased the disposable income of these workers’ families by approximately $ 900 million with obvious benefits to the economy as a whole. And this is just the tip of the iceberg; there are estimates that only 50 percent of remittances come through banking channels. If the government could only streamline and simplify the process of sending money back home, it might not even need to borrow dollars or sell stuff to make ends meet, and could even increase its vote bank.

And there is a double jeopardy involved here. The government admirably, in the past, brought down the rupee exchange rate from Rs 108 to a dollar to Rs 98; one can only pray that it can repeat that act again. Nonetheless, since fuel is generally imported and paid for in dollars, this decrease in cost should have further benefited travellers by an even higher reduction in travel costs. Albeit, the only outcome of a stronger rupee was exporters cribbing about the loss of international markets; why did the prices of imported goods not decrease proportionately for the consumers? Who hijacked all these gains? And why did the price of the roti go up? Are we not growing our own wheat? Should not the cost of transporting it from farm to market have come down? Conversely, now with the rupee sliding back to Rs 106 to a dollar, every other businessman is in a hurry to increase prices.

Load shedding is even more confusing. If the cost of power generation was adversely skewed because of expensive fuel, today the average cost of electricity delivered should be lower than the average tariff recovered. It would therefore make sense to generate and sell more electricity, if there is actually idle thermal generation, resulting in profitable DISCOs. No, this is not the disco where people dance; this DISCO is an abbreviation for state-owned power distribution companies, probably dreamt up by someone with a sense of humour. And if the numbers are making sense, why privatise DISCOs? Again, cheap electricity will invigorate the economy.

Is it not incomprehensible that interest rates have come down to six percent, a decline of 50 percent in just over three years with no impact whatsoever on prices. Especially in the case of state-owned enterprises such as the national airline and DISCOs, this should have made a significant dent in costs but what did the consumers get? Zilch! Even in the private sector the drop of 50 percent in financial and energy costs should have resulted in a huge decline in costs of every other consumable.

At this stage, pundits will excitedly point out that the inflation rate fell by 50 percent. The inflation rate has always been an alien concept for normal citizens; it just does not seem to appropriately mirror the on ground situation. Pertinently, if inflation was down why did the price of roti go up? Except, what did happen was that wages were kept down on the behest of low inflation.

Getting back to befuddlement of interest rates, why does the Central Bank provide cheap loans only to banks? Why not the rest of us? If preferential rates can be allowed to exporters and rich businesses, why can preferential rates not be charged on mortgages for the middle class and the lower class? More pertinently, why should microfinance or agri-lending not enjoy the lowest rate? And what exactly is the KIBOR, if not a cartel. The Central Bank provides cheap money and the banks end up lending to the government, the very same money, at a higher rate, and everybody including the International Monetary Fund (IMF) is happy with this arrangement. Amazing! Our deposits, our money, our government, but the bank’s profit. Whoever dreamt up this model was surely a genius!

Remarkably, economics has dreamt up complicated theories of international trade, supply and demand, exchange rates and interest rates with classy names such as monetarism and what not, which seemingly provide credible defence for all of the above anomalies. Unfortunately, all of them are beyond the comprehension of simple men. For instance, keeping all those things constant, which might adversely impact the desired results, economists can easily prove that an increase in interest rates reduces inflation and vice versa except sometimes it might not. Economics can also prove that a stronger currency is bad for the economy, when it is not good for the economy, depending on other factors that are either kept constant or assumed away. And economic theory will prove that costs coming down should rationally result in lower wages, no benefits for the consumer and more profit for the free market entrepreneur.

Since most of us have no clue about what economists mean every time they utter their pearls of wisdom, the best policy has been to sit on the fence and keep nodding. But perhaps this cost of silence is increasing by continuing non-existent benefits; maybe it is time to ask these stupid questions. In the end, the conclusions might just be that economics is crazy!

The writer is a chartered accountant based in Islamabad. He can be reached at syed.bakhtiyarkazmi@gmail.com and on twitter @leaccountant