Economy – Victim of Uncertainty & Perception

2018-02-27T23:11:48+05:00 Dr Kamal Monnoo

Pakistan’s economy is currently faced with two main issues: 1) Uncertainty and 2) Perception. Discussing uncertainty first, while the last two years on average have been good for corporate results, especially for companies locked into the domestic market, the outlook going forward is getting murkier by the day. No one knows what the Pak Rupee’s value is going to be six months down the road and with an ever under pressure Rupee coupled with rising global oil prices, high inflation all but looks to be a certain eventuality. This then means that interest are bound to go up in the coming months and going by the account of various financial pundits, could reach 12% by the end of the year. Remember, in not too distant a past - back in Benazir’s tenure - the Pak economy witnessed destructively high interest rates, reaching as high as 24%. And with all these happenings, if policies in the meantime are not set right, the pit we happen to be falling in could prove be bottom less! With a leadership that doubts its own right to formulate policies and given a rather uncertain future situation on when and who will assume the saddle as PML-N’s term comes to an end later in 2018, precious time for now is being lost since investments and markets don’t wait for anyone. Second, Pakistan’s national image is taking a nosedive and given the recent developments at the FATF (Financial Action Task Force) forum in Paris, the situation is worrisome, to say the least. Despite a tough and an expensive (in every sense of the word) National Action Plan being successfully implemented at home, our foreign policy has failed to convince the international audience in projecting Pakistan as perhaps the most serious player in the war against global terrorism. However, who is to be blamed for this failure is a question largely academic in nature by now, because it won’t undo the actions at the FATF. One wonders at what time the realisation (with the powers that be) will sink in that without firmly taking out militant groups earmarked by the UN, the country will increasingly be sucked into a quicksand of extremism, violence, stagnation, and international isolation.

So what are Pakistani businesses thinking today? Should they grow or should they conserve liquidity to ride the incoming waves? With Pakistan entering the Grey list and a likelihood of possible black listing what happens to our trade linkages and access to global capital? Last, but not least, with a balance of payments emergency, how feasible and practical will be it to sustain operations going forward? These are all genuine fears confronting Pakistani entrepreneurs today and need to be quickly cum explicitly addressed by our leadership through policies and close engagement with the private sector in order to restore confidence, both in the investors and markets. More importantly, to play a leadership role in helping and guiding Pakistani businesses through the turbulent times ahead - Wishful thinking I suppose! In short, the dilemma faced by the Pakistani businesses today it seems stems from the fact that perhaps the reverse ‘Pareto’ principle is in play here in Pakistan. The Pareto principle, also known as the 80/20 rule, is a theory maintaining that 80 percent of the output from a given situation or system is determined by 20 percent of the input. While the principle does not stipulate that all situations will demonstrate that precise ratio – it refers to a typical distribution – ironically, our results tend to show the maximum inverse Pareto correlation: looming uncertainty and a deteriorating image are not just adversely affecting 80% of the economy, but the entire national fortune.

With Pakistan’s competitiveness and global linkages eroding the situation is very precarious, because unless the economy is set on the correct path immediately, we will lose out further to our competitors.:Pakistan’s exports are stuck around the mark of $20 billion/annum, whereas, we just saw Bangladesh set itself an export target of $41 billion in 2018, with as much as $37.50 billion coming from manufacturing; meaning real time activity generating investment and jobs. Ever since 1947, the Bangladeshi per capita income for the first time crossed the $1,500 mark in the process surpassing Pakistan’s per capita income, which is still stuck in the $1,400s. So essentially what is amiss? Answer: Reforms & Prudent Priorities. Go revisit our previous homeland and one sees an unparalleled commitment by all stakeholders to keep the wheel of the industry moving. Every sphere that one explores seems loaded with private public partnerships evolving joint decision making that balances state’s oversight with private sector’s operational freedom. Nearly all policies: energy policy, foreign policy, industrial policy, social policy, environment policy, trade policy and labor policy, all have one thing in common: the national export juggernaut should not come to a halt at any cost. Sadly, Pakistan’s story over the last 4 ½ years has been of encroaching private sector’s domain: a) Government stepping in to undertake all big-ticket projects with virtual disregard to self-sustainability – The new large power plants under CPEC (China Pakistan Economic Corridor) are planned, but still missing are the all important power sector reforms necessary to achieve the ultimate objective of not just producing power but producing it competitively – and b) Naturally with government itself being the largest investor, in the process it has also become the principal borrower thereby crowding out the private sector – Governments around the world, as we know, have never been known to be efficient spenders of capital, the Pakistani government also is no exception!

 

The writer is an entrepreneur and economic analyst.

kamal.monnoo@gmail.com

View More News