Balancing the Costs
When the Indians went public with their series of nuclear blasts in May 1998, we were already in serious economic straits. This is an enduring legacy of many past governments but more recently a gift of the Bhutto-Zardari combine that ruled over us from 1993 to 1996, the Mian Nawaz Sharif regime has since been fighting a losing battle. The Indian nuclear blasts presented us with an opportunity to come out of the nuclear closet but it was quite clear that the western powers would make us pay an economic price for the luxury of exploding the bomb. Even then, we could have perhaps survived on the strength of repatriation of salaries from Pakistanis abroad but the foreign exchange freeze of May 28 simply blew us apart. In one surgical strike on ourselves we stopped the in-flow of foreign exchange and destroyed our financial credibility for the future almost irretrievably. Take for example, the innovative US Dollar Bond Scheme recently unveiled by the PM, very lucrative but few takers. Not that the in-flow from Pakistani expatriate earnings has been eliminated altogether, it continues on the basis of “Hundi” but that credit is not counted officially in the exchequer’s data, remaining a part of the parallel economy. That the country has not come apart economically is very much because we are kept afloat by the unofficial sector.
Having shot ourselves in the foot with respect to one of the major props of our foreign exchange reserves, economic sanctions imposed on us by the US and other developed nations affected us in varying degree. Thanks to Indian belligerency after their own nuclear explosions, this proforma application by the US and others did not have much enthusiasm. However, if it had not been for China to start with, and then Saudi Arabia, UAE and Kuwait providing critical “bridge-financing” funds, we would have been bankrupt and in default, in fact we are already almost at the end of the grace period. At the same time IMF, bent on extracting its own pound of flesh, set conditions guaranteed to make the common man come out in the streets in violent protest. Such harsh terms would be unacceptable to any self-respecting government in Pakistan, caught in an economic vice, between the devil and the deep sea, we had few choices but to opt either for seeming confrontation or roll over and play dead. One may or may not agree with either Mian Nawaz Sharif or Ms Benazir, as different from each other as chalk from cheese, on any number of counts but they have one feature in common admirable in any leader, both not only have plenty of courage but on vital issues can stand their ground even to the perils of the seats — and their lives. It is only when they take up confrontation on extraneous issues less than a matter of life and death that one questions their judgement. On the core issue of routine IMF conditionalities like raising electricity tariffs, etc Mian Nawaz Sharif took the route of populism, lowering the tariffs by as much as 30%, positioning himself as a champion of the masses. This reduction was also meant to serve as a factor to stimulate the economy by lowering the price of production across the board. That premise fell apart at the altar of the greed of our industrial bosses who have not responded in kind, opting for profit-taking rather than passing on the benefit to the consumer.
A Half Year Scorecard
For those fed up with the “civilian coup” that saw Asif Zardari virtually take over the affairs of governance in lieu of his wife, Ms Benazir Bhutto, great expectations are vested in the success of Mian Sahib, who came to office with the largest mandate, seat-wise, in this nation’s democratic history. These mainly centre around sound governance, the country having been reduced into economic apocalypse by acts of both commission and omission. Given the limitations of our leaders in matters of governance, expectation as to radical change is a pipedream that we must now grow out of hoping and longing for, unless we are masochists who revel in our frustration because that’s all we are likely to get. Public memory being notoriously short, perception usually overwhelms reality.
Woe Betide Us — Planet Lollywood?
The American Movie-Star Sylvester Stallone (along with a few other superstars) runs his restaurant PLANET HOLLYWOOD far better than we have been running our economy, which exercise is more akin to living in a fantasy world of figures, most of them fudged to fool everyone and his uncle, Uncle Michel Camdessus of the IMF among them. If we thought last year’s growth rate of 4.6% was bad enough, compare it to the 3.1% for this year. The macro-economic situation remains under tremendous pressure because of a number of deep-rooted structural failures as well as policy weaknesses. Economic performance has been short of targets for some years, the pressures on prices have continued unabated, fiscal deficit have remained stubbornly high and balance of payments deficit have been on the increase as a percentage of the GDP. Even last year’s growth rate of 4.6% was attributable more to divine nature than anything else, a bumper cotton crop and increases in the production of a number of minor crops. Really scary was the slump in manufacturing, small scale manufacturing registered 8% plus to offset the huge decrease of 1.25% in large scale manufacturing, a negative growth. The major pressures originated in the high budget deficit of 6.3% of the GDP, balance of payments deficit in excess of 7% and the alarming increase in prices plus of 13%. To put it very bluntly the state of the economy is abominable despite all our efforts at getting additional resources and some real progress in controlling expenditures. The challenges before our economic managers are very serious, the ability to meet these challenges depends upon identifying the root cause of the economic imbalance, that remains the substantially large fiscal deficit. Government revenues in last year’s Budget, in particular tax revenues, are insignificant in relation to the GDP despite all the additional taxation efforts. The success of Mr Sartaj Aziz’s proposals made on Friday evening depends not upon rhetoric alone but on reciprocity by the business community to the liberal concessions and on strict implementation of the reduced taxation measures. Unless we can increase the numbers in our tax net and get those who are already in the tax net to pay their actual dues, we will remain economically adrift searching for friendly shores who will disburse easy loans.