We are being advised on how numerous economic landmines were left by the previous government and that the current knee-jerk economic measures by our managers are simply to avoid them, meaning unavoidable. Perhaps yes, but still some policies bely logic or are rather counterproductive and foolhardy, and frankly quite baffling.
For example, if exports are indeed essential to our needs, then why choke or stifle the export sector for want of raw materials and equipment? No brainer here that to export value-added goods, you need to import key production raw materials and components that are ultimately re-exported, and to grow exports, your industry will need continuous balancing, modernising and capacity expansions—now one can say on good account that the exporters have been facing grave difficulties in all these three areas.
Needless to say that this, if not immediately corrected can have long-term repercussions. The trouble is that on an overall economic level as well, even if extreme measures like general import compaction, indiscriminate taxation, wage and utility increases, financial mobility squeeze, exorbitant lending rates, etc were essential in the short run, such a policy direction is not sustainable beyond a certain point. And this point could be arriving much quicker than what the government may have anticipated.
So, really it will be prudent at this stage for Mr Miftah Ismail to start taking the markets in confidence by candidly advising on his economic strategy—hopefully he has one—on how he plans to return things to normal by the next scheduled elections. Not only will this lend confidence both to the investors and the markets, but it will also help the economy so that the next incoming government does not have to grapple with the same situation.
So, essentially what should he do? Well, to start with, telling the truth about missed opportunities. One is not saying that it is his fault, but then as a finance minister, he has a moral responsibility to acknowledge the missed opportunities during this period, so that we all know the cost that we have had to pay due to continuous poor economic management by our successive economic managers.
These missed opportunities are in the shape of industrial output per se (production once lost cannot be covered again), retail sales both domestic and exports, and a dip in fixed-asset investment, which is bound to transform our very long-term ability to grow, the erosion of home consumption thereby further placing an enhanced dependency on exports, and last but not least, massive youth unemployment, especially amongst degree holders, which in-turn risks further undermining the national confidence in education per se—no rocket science in nations that fail to educate themselves fail to develop meaningfully.
Once we are confident that the government has cognizance of the losses the people and the country have had to suffer, it will automatically be in a better frame of mind to undertake policies that help rather than hinder, that facilitate rather than be an impediment. Make no mistake, the economic resurrection can only come from the private sector and the sooner the managers allow the private sector the freedom of space to flourish and for its entrepreneurial juices to flow freely, the sooner the results will follow.
More importantly, the time to significantly change direction is now, because otherwise, it will be a case of too little too late. Today even the most robust and structured global economies are realising that these are unusual times and for them to meet the emerging global challenges their responding policy measures also need to be quicker and more flexible.
For example, with the moot on succession due to take place towards the end of the year, the present Chinese leadership is suddenly worried about its prospects due to a similar sort to the above mentioned missed opportunities. It’s all of a sudden abrupt and quite significant policy rate cut shows the panic that can set in even amongst the best of us. However, again it could be a case of too little too late for China. The government’s obsession with its unrealistic zero-covid policy combined with a general global slowdown where most central bankers seem to be busy fighting inflation using the monetary tool and with a general global deleveraging of the property sector, it appears that for China it is now a case of too little too late.
By all analysis, the traditional Chinese trade surplus will require a serious climbing down and growth is likely to be revised down to as low as low as 4 percent. A lesson here also for Pakistan that unless we start unshackling the economy now, the slowdown could have disastrous effects, further crippling the propensity of our economy to pay back its indebtedness, in-turn getting entrapped in a vicious cycle.
So, what are the solutions? Not very many, but one feels that there are still quite a few sectors in Pakistan that present opportunity. The important thing is to recognise them and then harness their potential to garner the next growth mix that one should be looking for. The buoyancy in the stock market should reflect this new and innovative mix to create excitement on not only the development of new avenues, but also the confidence that the government is serious about facilitating its winners.
Just as China is now realising that policies of simply finding a way out of recession by investing blindly in infrastructure and stoking the rural-urban migration are no longer workable options, we too here have to understand that such days are over, because over the longer term the imbalances that get created are much more damaging than any short-term benefits. Fortunately, the good thing about a democratic dispensation is that, unlike an autocratic one, it is always ready to admit its mistakes and back off where and when necessary!