State of the Economy
The business of elections is now past, the nation having delivered its verdict, the important thing now is to knuckle down to the realities of governing a country. In order of priority the first issue to come to grips with is the economy of the country. For a short period of time and till November 19, 1988, the masses were the most important commodity in Pakistan, one week into the post-election process the perceptions of being shrugged off is manifest in the horse-trading confined to a few elected representatives in seemingly smoke-filled corridors and the back-rooms of power. While the political process is one of compromise and any other route leads to disaster, political parties do not have any right to compromise on the commitments made to the electorate.
The Annual Report of the State Bank of Pakistan should be out shortly for the financial year 1987-88. It coincides ideally as an audit on the previous regime and as a financial statement on which to base future fiscal policies. The last time around we were taken by surprise by the candid nature of the observations, particularly in bringing the then government to task for bad fiscal management. We have a feeling that the last Report somehow slipped through bureaucratic monitoring and saw the light of day because of a number of intangibles not under the control of the powers-that-be. This time we do not expect anything but a watered down version of what the authors may have really sent to the Ministry of Finance for final approval. Our changeable as a chameleon genius still rides supreme in the Ministry of Finance, though one expects to say “Goodnight, Dr Haq” any day now. We are used to the good doctor’s penchant to trot out statistics designed to show his own performance in a favourable light. If previous experience is any indicator, he will have conveniently doctored the Report to project an excellent growth rate of 5.8% to highlight the efficacies of his policies. In comparison to the other developing countries this is indeed a credit-worthy achievement, particularly in view of the various external and internal pressures that the economy is being subjected to, but the economic price to be paid by the country in the future will be devastating. To achieve this growth rate we have criminally neglected the maintenance of the existing logistical infrastructure and their quality enhancements resulting in a serious situation developing with respect to the gradual deterioration of the standards of roads, services of electricity, water, gas, etc. We will have to pay through our noses in the future for the satisfaction of achieving this growth rate today. Pragmatic policies based on national interests rather than on crass selfish attempts at individual glory would have stood us in better stead, ambitious targets for growth should have been substituted for a concurrent upgrading of socio-economic facilities at par with the national requirement.
Despite the excellent growth rate, the Report would be misleading if it does not take into account the fact that macro-economic variables have been under great pressure during the year under review and that erratic and bad fiscal policies of the government continues unabated resulting in the national deficit growing larger and the government resorting to ever increasing bank borrowing to stay afloat. Deficit financing is not a happy tool and is standing measure for last resort but Dr. Haq has used it as an automatic response for every occasion. In short order he has put our children in hock tomorrow in order to live in comparative consumer-comfort today. The statistics are not available with us but the portents are ominous enough to be noticed and if the aspect is not brought out by the State Bank Report we should consign it to the Fairy Tale section of any library with self-respect.
The State Bank Report will definitely be long on rhetoric about the performance of the economy in spite of the various pressures, particularly in the last few months. A close look at outside statistics indicate that the agricultural sector’s contribution to the GDP will have doubled in comparison to the previous year. As such to lay part of the blame as usual on nature should cut no ice with us as it may be familiar ploy, acceptable for cricket, not for stating the obvious deficiencies. The past few years have seen our agricultural commodities particularly rice and cotton, the major export earners, under severe price pressure externally yet we withstood the onslaught. Commodities are now on an upswing the world over, locally to blame atrocious weather for our poor economic performance would be an outright deceit, on the contrary the cumulative agricultural performance has been our sole saving grace over the past year. Because of short-term borrowing on the international capital market our debt servicing has jumped from approximately US$ 750 million to US$ 1.5 billion in one year. This is an abysmal situation and has to be seen urgently by the elected government once it takes office. A 100% rise in one year and a sharp and severe fall in foreign exchange revenues hardly speaks of good economic management. With a liberal import policy and a consumer-oriented society we have succeeded in putting ourselves in an economic bind. We simply cannot afford a liberal import policy, the cost of consumer goods being high without commensurate quality locally, there is an uninterrupted inflow of foreign goods into the country and we have failed to put up any genuine roadblocks. While our imports may have gone up as much as about 20% to the corresponding period last year, the ratio of export earning to import cost is not yet favourable and we have to constantly dig deep into our dwindling reserves. At the same time our home remittances have fallen quite sharply and this needs to be reflected in the State Bank Review along with the causes and any remedies thereof that can be instituted to maintain earlier levels of inflow. Our export diversification is a miserable failure papered over by favourable statistics.
To compound matters further, our people are not putting enough into savings as in the past with the result that this has become another cause for concern, to be sure the DFIs have mobilised funds beyond the targets envisaged. WAPDA Bearer Bonds brought in more than Rs 3 billion instead of the Rs 2 billion targeted, similarly Bankers Equity Limited, National Development Finance Corporation, etc have all achieved more than expected. There is no fear that this will not be reflected in the Report as this represents almost the only bright spot in an otherwise grey economic environment. The concern is that share values have registered a decline compared to the same spending period last year, so has been the remarkable fall in the trading of shares indicating a waning of investor confidence. With a new government in the Centre to be made by the PPP, pragmatic policies have to be annunciated by Ms Benazir to ensure that investor confidence returns in force to fuel stable economic growth. There is no greater stimulus than peace and stability to spur industrial output. The many industrial units that PPP nationalised in the early 70s today represent a horrendous picture of bad bureaucratic management and outright corruption tracing back to the PPP Regime and accentuated during the Martial Law period. The Benazir Government will have to further the process of denationalisation, to revive the sick industries while at the same time bringing the production units under better management. Some of the aberrations are indeed unique, particularly the appointments in the Corporations of the Ministry of Production. In one special case, a fertiliser salesman has become the head of the State Engineering Corporation, you can guess as what state the units of that Corporation are in. The nationalised industrial units have all adversely contributed to the economy by siphoning of funds badly needed by the Government elsewhere. We have managed to create a bureaucratic elite wallowing in wealth stolen from the presently sick industries. The State Bank Report is not expected to disclose this.
Most of the remarkable rate of growth is attributable to small scale industries, industrial undertaking in areas where there is either no bureaucratic control or very little of it. This is an aspect that needs to be highlighted as it shows clearly that the economy tends to grow where there are no bureaucratic machinations to siphon off investor effort and patience. Bureaucracy naturally seems to retard economic growth because of a number of reasons, prime among them being corruption, mal-administration and gross inefficiency.
Dr. Mahbubul Haq has recently rushed through a number of investment banks in the private sector as well as appointed directors drawn from the bureaucracy to the Boards of nationalised banks. There must be a criteria for this but weighted deliberately for political favourites. This has to be immediately looked into by the PPP when it forms the Federal Government as the sudden haste is manifest of ill-conceived design. The permissions for investment banks should be held in abeyance and antecedents of applicants duly verified. At the same time it is a fact that at least one of the persons appointed as a Bank Director has been under cynosure by the PM’s Inspection Commission for gross corruption and mismanagement before retirement while his only claim to fame is Dr. Haq’s need to score points with this person’s brother, who is a senior Pakistani official in the World Bank. Persons of ill-repute, some of them outright rascals have no place on the Board of the Dogcatcher Society, what to talk of the nationalised banks. This negates the very process the appointments are meant to serve. Among the many people who have graced the portals of the Ministries of Finance and Commerce, Dr. Haq was and is perhaps the brightest but his intellectual honesty has been compromised by political and personal motivations, a selfish attribute hardly expected of a man who is not known to be corrupt himself. One expected so much from him and we have been rewarded with only flashes of brilliance, in sum getting so little.
No mention will be made in the State Bank Report about Countertrade and Barter and that is hardly surprising as Barter is an untouchable subject being used as a private scam vehicle for vested interests in bureaucracy and Countertrade is anathema being a threat to Barter. Foreign Trade, unless equalized without delay, is going to create horrendous problems as the trade deficit is already too large to cope with. The new government must expose this scandal and end the loot of the economic till being “socialistically” practiced by the COMECON countries, Sweden and Finland (the last two through their State Trading Companies, Sukab and Kemira Oy).
The common man will not understand any of the aforegoing, his interests being more in the tangible range starting with the PPP’s slogan of the 70s, “Roti, Kapra aur Makan” and going on to other necessities such as water, electricity, transportation, gas (as fuel), etc not to speak of medicine, education and so on. One should not be surprised the State Bank Report is watered down considerably from what must be the actual facts and that can be the first priority in the PPP challenge, to correctly disclose how economic facts are either distorted, hidden under a blizzard of favourable statistics or simply misrepresented for the benefit of the average layman. Why not get the Report to be compared to a fresh Report about the economy stating the correct picture and comparing the two to show the deliberate falsifications.
We had advised against any delay in the political process though one can understand the technical reasons to be cautious so as not to open a legal Pandora’s Box. Misrepresentation and rumours are a part and parcel of a vacuum, take for example the COAS’ call for a broad based Government. Certainly every Pakistani will wish the same but what the COAS probably really meant was that the majority party should seek a broader consensus, not necessarily an alliance with the opposition. Vested interests will stoop to any level to create confusion, to draw President Ishaq and the Pakistan Army into controversy. PPP will make the Federal Government, that is only a matter of time, may be a couple of weeks give and take a little. Now is the time to exercise patience and not be knocked out on technical grounds on one pretext or the other. This would be a real tragedy and would have disastrous economic consequences as the streets will certainly not accept a contrived verdict.
Ms. Benazir is destined to be the Prime Minister of Pakistan shortly, it is as simple a statement of fact as is the economic locomotive of disaster headed against us down a one-track rail-line. If we do not take effective and concrete counter-measures, PPP will be left holding an empty bag because of the policies of our errant genius. They will have to pay a heavy price with the masses the next elections around which should be as early as February/March 1990. Ms Benazir has succeeded in freeing the consciousness of the people, who have voted without fear or coercion. This energy having been released has to be put to good economic use. So do us a favour, Madam Prime Minister, now free the economy of Pakistan from the straitjacket of bureaucratic control.
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