Gulf-created economic crisis
Saddam Hussain’s invasion of Kuwait took less than 24 hours, Iraq’s military “feat of arms” against a vastly inferior opponent could not envisage the many months (and even years) of economic crisis that the Middle East would be thrust in or would affect the world. One of the greatest favours that President Ishaq may have done for the previous Government is that by throwing them out of power they have absolved them of the ensuing economic crisis, leaving Prime Minister Mustafa Jatoi holding a mixed economic bag, all the rabbits are sitting up on the hill laughing their heads off, the price of democracy and power politics thereof.
Economic recession looms as a real possibility in the western world, for the Third World this spectre is a certainty, this includes countries like Pakistan. If the present situation does not explode into war, then there is a chance of barely surviving economically for the next financial year, if war does break out then we are in for a long haul before getting out of trouble, if ever.
The obvious first problem is the shortage of crude oil. With increased domestic production upto 63,600 barrels per day (approximately 35% of our requirements), we have not really cut into our daily petroleum needs, fair to say we have not fallen behind, the balance still has to come from somewhere. The Caretaker Government took an excellent decision on August 28, 1990 to substitute oil as a fuel in power and cement plants with the available surplus gas. Instructions may have been given to WAPDA to increase hydel power, this is easier said than done and is, in any case, a long-term solution. On the other hand, we can put up Combined Cycle Gas Units without any hassle within 6-12 months provided we have a fair cost denoted for the low heating value gas (and provided we can get it past the bureaucrats sitting Buddha-like in the Ministry of Water and Power and its entity, the Private Power Cell (PPC). Our biggest problem is not going to be normal gasoline but a wide variety of petroleum products like gasoil, HOBC and kerosene. The given tanker programme states that 30,000 MT gasoil should have arrived in Karachi between 25 and 28 Aug on MV Oscoanne, similarly 25,000 MT kerosene between 29 and 31 Aug carried by MN Athenian Harmony. Thereafter MV Sealord is carrying 27,000 MT gasoil and 11,000 MT kerosene. About 250,000 MT gasoil and 6,000-8,000 MT HOBC has been contracted to arrive by the end of September 1990. The Japanese have been quick off the mark and by August 04, 1990 (two days after the Iraqi invasion of Kuwait) had cut deep into the market by purchasing their requirements upto 2 years, our situation is vulnerable because 85% of our petroleum products were supplied by Kuwait through Kuwait National Petroleum Corporation (KNPC). We could have done better than putting all our eggs in one basket, however vested interest and national interest rarely go together, this has been the bane of successive governments, fact being stranger than rhetoric.
As Pakistani expatriates start returning from Kuwait and Iraq, the loss of their home remittances will create quite a dent in our foreign exchange expectations (expected to drop from Rs 31 billion to Rs 14 billion), this should be a cause of serious concern. The problem is force-multiplied by the lack of employment opportunities in Pakistan and the fact that in most cases, the returning Pakistanis may have also lost most of their savings and belongings in their host countries, this would restrict them from easy rehabilitation in Pakistan or provide for means to start their own business. There has been some concurrent exodus of Pakistani expatriates from other countries in the region but despite the uncertain situation they should be encouraged to stand fast, indeed fresh contingents of Pakistanis should be sent out to replace the nationals of other countries who are leaving the region in droves because of apprehension of impending conflict.
As oil prices soar all over the world, the prices of all commodities and materials will spiral upwards, of particular sensitivity will be petroleum-based products. At US$ 30 a barrel from the average US$ 15 a barrel, the oil import bill will go up by Rs 20 billion. This will have an adverse impact on our import bill, at the same time the pressure on the US dollar will cause considerable sympathetic pressure on the Pakistani rupee, causing substantial devaluation. Naturally the overall cumulative effect will be a force-multiplier depressive action on the economy. Given the expertise and experience of our bankers, (especially people like I.A. Hanafi, Governor, State Bank of Pakistan, AGN Kazi Deputy Chairman Planning Commission and Ashraf Janjua, Economic Advisor in the State Bank of Pakistan), certain adjustments must already be in place to offset any major depreciation of the Pakistani rupee. In the last financial year our consumer imports have shown a marked increase whereas our capital imports have registered a substantial decrease, this is an unacceptable development. We must immediately reduce the imports of non-essential consumer items to almost zero, this is the only way to conserve our foreign exchange.
One great silver lining is our considerable autarky in food grains, except for scaled down imports of buffer stocks of wheat, palm oil and sugar. That we are able to feed ourselves to a great extent relieves a foreign exchange pressure on us, most countries in the Third World are not even able to do this. It must be our endeavour to increase our sugar output while reducing our consumption of ghee. At the same time a clampdown must be enforced on large scale smuggling of ghee and sugar into India and Afghanistan.
One of the ways to ward off recession is to artificially create employment by wide ranging public sector projects, God knows our socio-economic infrastructure is in total disarray, in need of urgent rehabilitation. However, if jobs are to be created to ensure a force-multiplier effect on the economy, the private sector must be inducted so that they can bring in their entrepreneurial skills towards boosting the economy.
One of the ways to invigorate the economy is to reduce taxes, this would give a fillip to industry, at the very least the extra burden on industry will be taken off allowing for greater production, in turn this will result in increased commerce. Unfortunately we are now in the hands of bureaucrats, who inherently do not possess any inherent liberal instincts, they are more likely to go the conservative increased taxes-route thereby burdening the economy and adding to the depressive effects leading to a recession. We are presently in a process of democratic transition, in the period of about 50 days to the elections the Caretaker government can hardly make definitive structural changes to the economy as in the absence of the National Assembly they have no such mandate. To an extent, the geo-political situation could not have come at a worst time for us, we are going through a spell of domestic crisis, not alien to us but certainly inconvenient at this time, to say the least. Decision-making is in a state of limbo till the result of the Oct 24 elections.
As fuel prices soar within and outside the country and long lines of vehicles queue up at petrol stations, these will be the immediately visible effects of the Gulf crisis, miserable months, even years of economic recession cannot be far behind. A concerted campaign must be started by the government for belt tightening, public must be educated by the extensive use of the media towards conservation measures in everything. Unless this is done immediately, our profligate days are going to drag us down into greater misery. Rationing of everything must become a fact of our daily lives, shortages of everything may not occur but conservation should still be deemed necessary even what is considered to be most trivial. At the same time stringent laws must be brought in to punish excess of any kind, it must be remembered it is not the poor who indulge in prodigal ways, even if they wish they could not, not having the means, it is the rich and the elite. The laws must apply equally, the privileged must cease to remain more equal under the laws of the land.
One of the ways to ward off economic recession is to increase all indigenous production, whether it be in the agriculture or industrial sector. This fulfils manifold purposes, the three prime being, (1) creates more employment opportunities (2) makes for exportable surpluses and (3) cuts down the import bill. This attitude of self-reliance is important because it force multiplies our strengths. If we can increase substantially the production of rice, cotton, fruits, vegetables and derivatives thereof, we will increase our foreign exchange earnings significantly.
The most important action to take immediately is to create a properly organised permanent National Crisis Centre (NATCRICEN) in Islamabad (with subsidiary Centres in every Provincial Capital) that should be manned on a 24 hours basis to assess and evaluate various situations as they develop including the monitoring of economic indicators and be capable of reacting accordingly. The urgent need is to ensure proper coordination, NATCRICEN should be managed professionally by competent personnel capable of taking immediate decisions without long drawn out Committee deliberations, decisions which can stand upto inspection in the light of day i.e be without vested interest and in the general public good. Given the bureaucratic nature of our reactions this will take some doing, the problem is that there is no buffer time to an economic crisis, we are in the vortex now, the decisions have to be taken without delay.
The essence of dealing with the economic crisis created by the Persian Gulf problem is to anticipate future situations, rather than react to them, with decisiveness. Given our bureaucratic track record, a tall order indeed!
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