By any normal standard, economic policy since the onset of this government has been a dismal failure. It is true that the malaise to a large extent is simply a “carried forward” entry, but then this government so far has also only been adding (that too on a compound basis) to the decay rather than trying to improve things through prudent and swift policymaking. To make matters worse the Finance Minister, leader of the team, has just been busy bad mouthing his own economy – A cardinal sin in economic management! Someone either needs to gag him on this or at least to tell him that if he, the captain, paints such a gloomy picture of the economy, it will only shake the investors’ confidence, as markets primarily operate on stability, confidence and perception. He will be better off to instead focus on finding solutions and on calming businesses and entrepreneurs. If it is foreign direct investment that Pakistan indeed seeks then the message should be of continuity and further facilitation and not that of witch hunting cum knee-jerk actions merely to prove a point by negating the past. On a separate note altogether, countries need symbols that integrate and empower the nation and these should be preserved rather than making a mockery of such heritage or iconic sites/buildings!

Back to the economy - from what one hears one should know in the next two weeks the direction the finance ministry will determine for the economy in, as currently the matter is being debated in the advisory council. Well, the embarrassment on shoddily handling Atif Mian’s case aside, the economic advisory council itself comes across as being a strange lot of experts. Most of them have either been on board with the previous governments or are simple bureaucrats who one doubts will have any fresh thinking to contribute or are just mere academics with little hands-on practical experience. One fails to see that how such a motley group can be instrumental in bringing about the touted ‘change’. Anyway, one is assuming here that if the likes of Atif Mian are really the kind of advisors this government is seeking then it must also be aware of what Atif Mian’s work advocates or what his general economic views, recipes and leanings are. People who follow him would know that he and Amir Sufi (his co-author in the book ‘House of Debt’) primarily argue that governments should mainly focus on providing relief directly to the ordinary people. They criticised Obama’s policies to fight the 2007 to 2009 financial crisis (followed by recession) arguing that Obama government’s policies were too heavily biased towards protecting banks and creditors rather than the individual borrowers cum homeowners, and that increasing credit (quantitative easing) tends to be disastrously counterproductive when the fundamental problem is too much debt. Again, according to them, what then is the solution to this problem? Answer: The Islamic way: By directly attacking debt per se on the common man either through outright forgiveness or by shifting the prevalent form of the financial system away from its present reliance on inflexible debt towards building a new financial contract between lenders and borrowers that in-turn also encompasses the principle of fair risk sharing between the two. Their theme being that government and the financial institutions have to assume pain instead of putting it on the common man; that is, if we are to avoid artificial market bubbles and undesirable debt. The sub-prime crisis of the United States or Europe may not be entirely relevant in case of Pakistan, as here we have a situation where the government in fact is the main borrower.

Still, the lessons from the west and Atif Mian & Ami Sufi’s commentary on the same can give us a good idea on the kind of pain they would have in mind when referring to the difficult decisions needed in Pakistan to rescue its economy. Going by their writings, one’s guess is that their recommendations would not be much different from what perhaps the IMF is proposing: Going forward an increased share of risk on sovereign lending for our financial institutions (meaning commercial banks who in recent years have had a free run by undertaking sovereign lending at almost commercial rates should be asked to further rationalise their lending rates to the State); Devaluation of the Pak Rupee to spur competitiveness; privatisation; fiscal tightening; and jacking up prices of all utilities. The only exception perhaps being that unlike the IMF, Atif Mian and Amir Sufi, are more likely to interpret difficult or painful decisions to be the very reforms that enable companies to produce competitively (including power and gas producing companies), whereas, the IMF opts for the easy way out by simply jacking up the rates and in-turn unfairly burdening the consumer, because it appears that over the years they have lost faith in the ability of Pakistani governments to turn around the state owned institutions on free market principles!

So what does the above tell us? Answer: In simple terms, despite all the fuss thus far, the government basically has a single option: Focus on somehow quickly increasing exports. After all for any country to develop sustainably it must have at least one cash cow that generates an annual surplus, e.g. oil, gas, iron ore, gold or general merchandise exports. The recent Asian successes - given their inherent advantages of young and abundant labor, naturally ingrained discipline and hard work, and a mindset to accept to work on lower margins – have in almost all cases used exports as the conduit to their growth and development. Examples are numerous like Japan, Singapore, Malaysia, Indonesia, but the more recent and relevant ones are China & Bangladesh. It is an open secret by now that Bangladesh’s pivot of development since the 80s has rested on establishing labour-intensive export oriented industries. Regardless of which government has been in power, this policy has been pursued single-mindedly. If you get a chance to go to Bangladesh you will observe that export is almost a way of life and the commitment to an exporting-operation is extreme – the wheel of the export engine should not stop come what may, everything else is secondary. Exports’ competitiveness in Bangladesh is closely guarded by the government, even if it means taking difficult decisions like keeping a cap on minimum wage and on electricity and gas tariffs for the exporting industries. And it is this mindset, which has taken Bangladesh from almost negligible exports in 1971 to $35 billion today – textiles lead the way despite the fact that the country produces no cotton. However, the story of its industrialisation is no longer limited to textiles. Following an astute policy of prioritisation on industrial development, the incoming investment has been channelled in a way that key industries to the export supply-chain or the industries producing for domestic essentials are being developed on a priority basis. For example, keeping to the government’s plan, in the last five years bulk of the investment has gone to 4 sectors: the energy sector, followed by the health sector, then the housing & real estate, and finally tourism & hospitality, i.e. a national spend in the prescribed order.

The trouble is that increasing Pakistani exports on a sustainable basis is by no means an easy or a short-term job. Export is about commitment, sacrifice, resolve and a culture that supports domestic companies to compete in the tough global arena. Regardless of what anyone says, there are no quick fixes to the current declining trend in Pak exports. Meaning, unrealistic expectations should not be raised, like that exports will be doubled over the next 3 or 5 years. If exports are what this government genuinely wants, then the sooner it adopts a prudent view by simply undertaking the very strategy that our neighbouring countries like China, India, Sri Lanka and Bangladesh used, the quicker will be the results – No need to reinvent the wheel. Owing to some very damaging policies of Mr. Ishaq Dar - that resulted in loss of manufacturing competitiveness, in-turn leading to de-industrialisation in the economy – Pakistan’s export surplus today stands eroded. Recreating an export-surplus, as we know, is a tedious and slow process that cannot be achieved overnight. The reality is that textiles still constitutes the lion share in our national exports and this lead sector suffers from some fundamental structural issues. Over the years governmental policies have been negative whereby the industry has been burdened unnecessarily on account of taxation, excessive oversight and a high inputs cost owing to prevailing rent seeking cum mismanagement in the allied sectors feeding into textiles - in the process rendering it uncompetitive. To add at best $8-10 billion over the next 5 years or even to safeguard current levels, the government will have to adopt a holistic approach by partnering the very stakeholders who actually make it happen. For starters: the present industrial power tariff for textiles should be fixed for at least the next three years by proactively correlating it to the parity benchmark of Rs128: USD1; release all stuck refunds of the exporters; ensure raw materials like polyester, cotton, dyes, chemicals, etc. at regionally competitive rates; facilitate import of all types of raw-materials and accessories meant for re-exports; introduce a one-window oversight cum compliance facility for exporting industries; and last but not least help the industry in skill development so that in can achieve enhanced value addition. Promoting exports takes creating an environment and momentum, a job that entails efforts as elementary as improving ‘ease of doing business’ to the more complex things like revisiting poorly negotiated trade treaties (even if they are with friends).

Finally, choosing exports as its main stay to economic development will surely be a step in the right direction. It will do the government team some good to read Joseph Stiglitz’s recently released work on exports, where he depicts exports as the most desirable surplus, because it creates three things in one stroke that no other surplus does: Creates world class goods at competitive rates; Creates Jobs; and Creates Modernisation. However, interestingly his study points to the fact that the three most successful Asian countries that used their export surplus optimally to change the lives of their common people are Japan, Singapore and China. And the reason for this he opines is that in the export push of these countries the states were direct stakeholders, if not the main drivers. For example, the phenomenal rise of Japanese exports had nearly a 40% (direct & in-direct) share of the government, likewise in Singapore where flagship state owned companies like Singapore Airline, Singapore Refinery, etc. led the way, and in China where the State still directly drives Chinese exports.

He argues that for equitable distribution, a significant portion of the surplus (exports or otherwise) must directly pass from the government hands and this where also the importance of professionally running state owned enterprises on market principles gets highlighted – Some food for thought for our new leadership!

 

The writer is an entrepreneur and economic analyst.

kamal.monnoo@gmail.com