Given that the exercise of appointing a caretaker set-up, to oversee elections, affects economic policymaking for near about 4 months (1 month prior to the elections + 2 months in office + 1 month post elections) the questions is that what exactly is at stake? Answer: About US $ 95 billion worth of economic activity (Pakistan’s GDP is about $285 billion) and around Rs. 1.60 trillion worth of financial outlay (the total financial outlay in Pakistan’s Budget 2017-18 being Rs. 4.75 trillion). Well, heck of lot by any stretch of imagination and especially in context of Pakistan where the economy already seems to be struggling! What in essence the process entails is to handover financial management to selected personnel with little emphasis on transparency or without placing a real filter in place on ascertaining expertise or establishing accountability. Also, key time-specific policies and decisions are (needlessly) put on hold either due to an absence of mandate for the caretakers or simply because they are not taken seriously by the institutions dealing with the State. As we know that financial policies and economic management are elements that cannot be frozen in time and instead need to be attended to on a real time basis – the damage otherwise could not only be colossal but long-term.
Little wonder that we are already beginning to see the fall outs (as mentioned above) from this lull in decision making or due to sheer incompetence of the people currently managing our economic affairs. The Pak Rupee has gone into a free fall since the last two months with devaluation against the US Dollar being only half of the story, the rest of the half being against other major reserve currencies of the world, Euro and Sterling, where the impact has been even more severe. Trouble is that the pressure is likely to increase in the coming months with no real respite or remedy in sight. The natural course of action to stem the slide would have been to go to friends for placing deposits to strengthen our reserves and to negotiate a support package with the IMF by agreeing to a prudent reforms’ program, sadly both seem beyond the capacity of the caretakers – so we just have to wait. And while we remain in this state of limbo, the situation remains fluid: the pressure for further devaluation mounts and inflationary fears become more and more imminent. Needless to say that managing this brewing crisis will require some deft handling. On one hand is the eroding competitiveness that is now manifesting itself in the shape of a no confidence in the national currency and on the other hand is the challenge to keep interest rates at realistic levels to avoid putting up the cost of doing business from the opposite end of the stick. Already there have been three interest rate hikes by the caretakers with the latest one taking the rate up to 7.50%. Economic-101 lesson will tell you that consistent increases in discount rates is bad for business and ultimately hits economic growth and employment generation. Ironically, we do not have to go too far in Pakistan’s economic history to locate the period when interest rates climbed to as high as 24% and the havoc they played with investment, development and growth – the period is precisely where Pakistan’s GDP growth rate was the lowest in its history! Meaning, other ways to combat inflation will need to be adopted, but then again what to do as we just have to wait!
The pain does not end here. As if their performance was already not bad enough, one now surprisingly finds them also pointlessly tinkering with petroleum price adjustments in a way that simply erodes perhaps the only justification for their being in office: that their decisions will not be guided by cheap populism. Global oil prices are firming up and the need of the hour is to slow down any luxury-oriented consumption of petroleum in the economy. Pakistan still supplies the cheapest fuel in South Asia to private cars and motorcycles, which in turn creates a vicious cycle of burgeoning sales of private vehicles, in the process inflating the import bill, compromising the advantages of public transport, burdening infrastructure and damaging environment. So, why on earth decrease fuel prices, which under the present circumstances is tantamount to smoking away precious dollars?
The justification of increase in sustainable exports due to devaluation is pretty much ill founded. This author has written extensively on currency-value correlations with exports, but keeping that aside for now, even for an argument’s sake if this rationale is adopted then it is up to the government to use this short-term advantage in a way - through accompanying trade & investment policies and priority operational allocations - that resultant gains, if any, are instead turned into long-term returns. Obviously, we are failing in this as the rising trade deficit has remained un-checked, swelling to more than $37 billion by June 2018, and even the exports after showing limited-period gains are back on a downward trajectory – Our June (2018) on June (2017) exports figures are in negative. Again, who is to blame? No one of course, as after all we only have a caretaker set-up in place! Finally, last but not least, the June’s FATF (Financial Action Task Force) showing by our team has been below par. From what one gathers not only has Pakistan been officially placed in the Grey List (with now a formal danger of being relegated to the Black List), but also that the terms set for Pakistan to see itself come out of this Grey List are quite stiff. Again, this author wrote earlier about the disadvantages of going into the June session of the FATF with a caretaker set-up in place, but never mind, as the need of the hour today is to plan ahead. It is crucial to Pakistan’s chances of success that all stakeholders in power immediately get together to appoint a professional body led by a competent but independent person of related competence, to see to it that we indeed do and achieve what is being asked of us. Further, there should be clear instructions that all related governmental departments (foreign office, ministries of Finance & Defense, FBR, State Bank, etc.) will have to lend their utmost cooperation to this apex body, because failure is just not an option. But then again, we just have to wait for the new elected government to assume office and to first find its bearings; while the clock ticks! One can only hope and pray that the new parliamentarians have enough sense to discard this rather unique practice (to Pakistan) of appointing a caretaker set-up to oversee the transition process every four years. Why can’t they also have a little faith in themselves and in their national institutions to hold free and fair elections as is done in most democracies of the world?
The writer is an entrepreneur and economic analyst.