No time to waste
Democratic governments in general ignore seemingly obvious risks and by the very nature of their underlying structure are not considered far-sighted. The main focus being invariably limited to the immediate tenure term or on how best to counter the opposition; right or wrong may not count. Little wonder then that no government since 1815 has ever seen in advance a big CME (Coronal Mass Ejection) or a large volcanic eruption coming its way and more often than not, almost every government finds itself battling with damage control of poor policy actions rather than proactively working on prevention. This PTI government is no different; fighting the very inflation that itself can be largely held responsible for triggering; solving the wheat and sugar crisis, which predominantly can be traced back to its own doing; resurrecting the national airline by first itself shooting it in the foot; fighting corruption by inadvertently aiding it in the first place; taming the energy tiger after unleashing the current chaos to begin with; resolving the gas crisis after unnecessarily tinkering with a perfectly well performing supply chain; the list goes on. Now when we finally thought that the economy was getting back on track—mainly through some stability in energy inputs to domestic manufacturing and in the government wisely deciding to stay away from the private sector—for the second time in these two and half years, it seems that we again run the risk of undoing what has been achieved over the last 6 months. The team of advisors and ministers are back in the foray to meddle where not required, impart counterproductive policy decisions, disregard conflict of interest and yet again set disproportionate priorities that take the focus away from growth and employment generation. As our competitors turn up their game to recapture the market share recently lost by them to Pakistan, ironically our own economic managers are inadvertently helping them achieve their objectives. Here we go again!
Remember the window of short-term gains through currency devaluations is always limited and before one realises inflation and productivity reversals will land us back to where we were in 2018/19. When it comes to the economy, unless the government gets it right, it can end up being its own worst enemy. Let us offer it some advice based on hard experience that can perhaps help it tackle the compiling mess it quickly seems to be getting in to. First, don’t underestimate the effects and speed of governmental policymaking in causing economic downturns. Markets, especially in the developing countries, are strongly correlated to the general business sentiment and an informal perception on the evolving future outlook. And since economic activity takes place in a ‘live’ situation, as soon as the faith of the investor wanes in the government’s ability to genuinely solve emerging problems and challenges, the economy nosedives. To counter this, the government needs to respond immediately. Not only does it need to quickly address any issues that disrupt operational continuity and the ensuing economies-to-scale, it needs to at the same time also work on giving businesses and industry a new sense of security in the knowledge that in its ranks it has competent people in decision making positions and that the entrepreneurs and managers will not be made to suffer by repeatedly citing standard excuses relating to pre-existing conditions.
Second, do not fuss too much about debt, previous or current. Constant warning or kicking dust about the dangers of government borrowing simply hobbles one’s own economic agenda from the very start. This is exactly what happened to this government, as a number of its own plans had to be put on hold just to live up to its never-ending pre-election rhetoric on debt. Now with only half its term left, it is running against time and simply has to move on with its growth plan by accepting the on-ground debt situation, and by devising a strategy to work its way around it. The important thing is to focus not on the quantum of debt, but on how its cost can be reduced and whether or not it is being put to productive use. Fake hawkery on debt ultimately just ends up taking one down under its own weight.
Third, focus on incremental productivity to bridge the inflationary gap with Pakistan’s export destinations. Unless we improve productivity, Pakistan will never come out of the poverty trap. By now, we all know the damage that is incurred on the long-term prospects of an economy by covering inflation-differentials through periodic currency devaluations and that the only way out of the poverty trap is to ensure that somehow incremental productivity consistently exceeds any inflation-differential, if present between the developing and the developed economies. For anyone in doubt the ASEAN economies serve as a glaring example—and especially, China in recent years—of the wonders that a focus on productivity can bring to the fortunes of a country.
Finally, the fourth, don’t count on anyone else to govern, the responsibility lies on your shoulders alone. Perhaps the original sin of this government was to be unsure in its own ability to govern and look over its shoulders for appeasement. The decisions to give freedom of space to the private sector to perform, somewhat lowering of interest rate, and announcing stimulus through an oversight blanket to some key sectors of the economy have done well to stabilise the economy. However, these incentives are still much too small and will need a considerably more extended period of coverage before yielding their real potential in terms of results. Neither any defunct ideology, nor the vain hope of comity nor the fear of answering to anyone but the public, should be allowed to stand in the way of delivering the promised policies in its manifesto. The important thing in all this advice is that with two and half years already gone, there is simply no more time remaining to waste!