M Ziauddin
The Prime Minister is the only change that seems to have happened to Pakistan since the advent of the PTI government which came in riding Imran Khan’s catchy slogan of ‘Tabdili’. Everything else, from governance to economy, politics, foreign affairs, social order and the rest has remained as it were even after 16-month of the PTI-led coalition government.
And looking at the policies that are in vogue currently and the early signs of those in the making, one gets the feeling that we are going to see a nauseating repeat of what successive governments in Pakistan have been doing all these 72 years.
Still, because of being an outsider inside the power corridor, Imran Khan continues to remain a novelty. All others in key cabinet positions, in parliament, in opposition and in various state organisations look as if they have remained all along permanent fixtures of ruling elite, playing musical chairs all the time and doing nothing much else. Even the 40 or so task forces set up soon after the new government was sworn in, to develop reform packages for bringing about the desired ‘Tabdili’ seem to be doing nothing else other than re-inventing the wheel.
The most depressing repeat that one witnessed the ‘Tabdili’ government undertaking was on the economic front. The ruling party which in its election manifesto had promised to introduce an egalitarian system on the lines of ‘Riyasat-i-Madina’, eschewing the practice of seeking dole from our permanent donors was instead seen begging for dole from friendly countries in the very first months of its rule and then after a little dilly dallying, handing over the country’s economic management to the International Monetary Fund (IMF) which serves as the very antithesis of egalitarianism.
Here it would not be out of place to point out that when a country hands over its economic management to the IMF bureaucracy, even the most glaring slippages in meeting the Fund’s targets are overlooked. In fact, a clean chit of health is given to the recipient country every time a loan tranche is released. We have already received two tranches and as many clean chits of health. And the World Bank, the other Bretton Woods institution, as if on cue has started endorsing the ‘all is well’ narrative of the Fund. Even the so-called independent global rating agencies like the Moody’s again, as if on cue, has upgraded the ratings of Pakistan.
So, the usually false ‘feel good’ sense is prevailing among the government circles as these Fund and Fund related institutions proclaim that Pakistan’s economy is now well on the road to stabilization. And the PTI government is using the ‘credibility’ of these foreign certificates to claim credit for having brought the economy out of the woods and putting it firmly back on the road to progress and prosperity, notwithstanding existence of a plethora of negative indicators like the massive shortages of gas which is adversely affecting production all around, both in manufacturing and agriculture sectors. Investment continues to remain shy because of high interest rates. All round price increases have drastically curtailed demand, causing further contraction in production forcing factories to either close down completely or work at half the capacity leading to workers being thrown out which in turn has further decreased demand even for essential goods. This is certainly a recipe for recession. And since inflation is also seemingly galloping at the rate of over 13 per cent the economy appears to have been engulfed by stagflation.
The high interest rates have attracted the attention of international money traders who have brought in over one billion dollars as investment in government securities; most of it of short-term duration. They will earn large profits and repatriate them in dollars; however, when interest rates will be brought down, these money traders will take their money to other more profitable havens in a jiffy disrupting the overall domestic economy causing further hardships locally.
Since the entire foreign direct investment which came in to the country over the last seven decades hasgone mostly into fabrication of only local consumption goods and nothing for export, revenue earnings in rupees by the sponsors are being remitted home as profits in dollars causing further erosion in our FE reserves.
Banks, some of which are foreign owned have been racking in huge profits because of large ‘spreads’ - the difference between the interest rate paid by banks to depositors and the interest rate charged on loans to borrowers.
During 2017-18, debt servicing amounted to Rs1.5 trillion, which shot up to Rs2.0 trillion in 2018-19 but has now been budgeted at Rs2.9 trillion. This means that debt servicing would be doubled in two fiscal years, with its share in federal expenditures rising from 32 percent to 47 percent.
Meanwhile, the higher interest cost has, at the same time, displaced many expenditures, most notably, development expenditure. Also, the bank credit to the private sector as on Dec 13, 2019 was Rs 88 billion as against Rs 395 billion last year.
The gaping trade deficit was the main reason for the balance of payments hole the country had fallen into. The current account improvement owes exclusively to a 21 percent decline in imports or to the tune of $5 billion as opposed to a paltry growth of 4.7 percent in exports or worth about $500 million during the current year.
The Circular Debt has already raised its ugly head at Rs.1.69 trillion and is posing a serious threat to the overall economy. At the same time, the tax revenue shortfall continues forcing IMF to recently revise the target downwards by Rs.269 billion.
The most significant sign of stability is the stemming of declining reserves, which have risen to $10.8 billion as on Dec 13, 2019 - the highest since May 11, 2018 when they were recorded at $10.7 billion. But even most of this amount is with the State Bank of Pakistan is not ours it is made up of swaps from Saudi Arabia, the UAE, Qatar and China.
All this is a repeat of the situation that we experienced during the last IMF programme that we completed in September 2016 or for that matter the handful Fund programmes we could complete in the past. And the fate of the economy at the end of the current Fund programme signed in May 2019 is not likely to be any better than what we were burdened with following the completion of the last Fund programme.
The only times we have escaped this fate were the decades of military dictatorships which luckily were the periods when our defence forces were ‘helped’ the Americans achieve their strategic objectives in our region.
During Field Marshal Ayub Khan’s reign (1958-69) the two military pacts that we had recently entered into with the US - SEATO and CENTO - were paying us hefty rents in the shape of civil and military assistance to serve as the front-line state against global communism. Also, it was during this period that the World Bank was helping us build the Tarbela Dam. At times during this period we had recorded annual average growth rates of as much as 12 per cent.
During the regime of General Ziaul Haq (1977-88) we were getting paid for fighting the US war against the Soviets in Afghanistan. Our annual average growth rate during this period was more than 6 per cent.
Again during the reign of General Musharraf (1999-2008) we were being paid for fighting the US war against terrorism, again inside Afghanistan and as a result our economy was growing at an annual average rate of over 6 per cent during this period.
Ayub, instead of using this period of free dollars to restructure the national economy to enable it to sustain on its own without the foreign crutches wasted them on preparing for war with India which he waged in 1965 and lost the ‘free lunch’ era.
General Zia thought the war would never end as it was being fought between two superpowers and the dollars would continue to keep flowing his way, therefore he never thought of using this period of ‘free lunch’ to reform the national economy and liberate it from dole dependence. So when the war ended with the collapse of the Soviet Union, the US which had no boots on the ground simply walked away leaving the messy aftermath for Pakistan to manage. And we suffered what is called the lost decade in the 1990s.
Finally, the billions which flowed in during Musharraf’s rule instead of being used for economic restructuring were wasted on consumption as the then prime minister Shaukat Aziz could not grow out of his banker’s skin.
And now, instead of taking the difficult path of Tabdili, PM Khan seems to have adopted the easy way out of the crises facing Pakistan which is likely to lead us further down the drain.
