Post 2008 global financial crisis, the interpretation of white collar and management crimes has taken a new meaning in the court of law. Hearing cases on imprudent positions taken by the managements of the likes of market icons Goldman Sachs and Fanny Mae and Freddie Mac, the Supreme Court of the USA went that extra mile to convey a message that in key decision-making positions that affect public lives, even incompetence and stubbornness against good advice are punishable offences. Remember there is a very thin line between conflict of interest, rent seeking, incompetence or pure bad luck with one’s decision-making. The performance of our economic managers thus far seems to be a border line case on this new scale of the global management order, but for the time being they seem to be getting away with it since this is no US and accountability in any case on economic decision-making has historically been non-existent in Pakistan. For example, I can’t recall a single incidence where an economic manger has been called in for the crime of piling up non-productive national debt in his tenure or for taking decisions that have gone on to hurt future economic growth and development!
The thing is that like most other areas, one finds that this government’s management in its economic affairs has also been seriously wanting and unless its economic leadership is willing to listen (to sane advice) and to change, they run the risk of causing irreparable damage to future economic prospects of Pakistan. Needless to say, poor economic policies sooner than later manifest themselves in the shape of inflicting punishment on people by compromising on their inherent rights to prosper. A simple glance at the Pak economy and the most worrying indicator that comes across is that exports are falling and sliding fast. Exports as we know tend to be a developing country’s cheap ticket to growth because not only does it earn precious foreign exchange but it does so by converting a nation’s weakness, poverty, into its strength in the shape of cheap labor. As the developing country’s exportable trade grows so does its employment since its competitiveness mostly lies in its cheaper labor. A decline in the exports of Pakistan – which is still to transition to real value added exports – thus means that employment opportunities are dwindling and Pakistan’s competitiveness as a producer is suffering. And despite this adverse and rather dangerous trend, the government continues to be stubborn by not allowing the Pak Rupee to drop to its ‘real’ value, which as mentioned above is rendering Pakistani manufacturing uncompetitive. China’s Rinminbi over the last eighteen months has devalued by nearly 40 percent, India’s Rupee by nearly 18 percent from its one time high, Bangladesh’s Taka by about 12 percent over a similar period; not to mention the stronger currencies like Euro, Sterling, Yen, Russian Ruble, Brazilian Pesos and South African Rand all of which of late have significantly lost value against the US dollar. The trouble though, is that export markets once lost are difficult to regain. Therefore, the longer we delay the inevitable correction in the value of the Pak Rupee, the more damage it will cause.
The declining graph of exports will become even more critical in the months to come when one can almost foresee a declining trend in our remittances from abroad. This money which is sent home by non-resident Pakistanis is bound to come under pressure as the Euro-zone that accounts for nearly one third of this amount is going through its worst recession since the 1930s and the Middle East, which commands the bulk of these inflows, is riddled with serious internal conflicts of its own. Also, low oil revenues that form the backbone of the Gulf economies are witnessing a low price – low demand cycle, in-turn affecting employment opportunities in the region, and last but not least, the recent foreign policy goof-up by our government vis-à-vis Saudi Arabia and its allies is likely to carry negative implications for our workforce engaged in those countries. Even otherwise, the figure that is touted to be now touching the $16 billion mark appears unsustainable when compared with our regional competitors. For example, India being 6 times our size receive $70 billion annually and that too where its workforce abroad is employed at a much higher average per capita remuneration scale than ours. And this ratio when converted even on a simple pro-rata basis, i.e. without taking into account the comparative wage levels, means that at best our remittance in reality should hover around the $11.60 billion mark or a little under.
Finally, what the embarrassingly low level of investment (domestic and foreign) in the country tells us is that Pakistan is further slipping on the index of “Ease of Doing Business” in an economy. Ironically, the leadership appears to be in a state of denial and to everyone’s surprise pursuing policy measures, which can only lead to further flight of capital or result in a basic disinterest in investment per se. What they instead need to follow are the initiatives similar to those taken by Indonesia and India in recent months. Both are using market-friendly policies to coax more output out of relatively young workforces. The two countries between themselves, attracted almost $125 billion in private capital last year. The lesson here is that nations that make an honest effort to lift productivity and respect their investors tend to come out as winners. Here on the other hand, our government and its regulators are busy threatening the genuine business and industrial community, not realizing that in doing so they are just killing the proverbial hen that lays the “golden” egg! The other day one was rather ashamed to read a news handout from FBR that it is looking to invoke an old legal clause to start posting revenue officers in business and manufacturing premises to control tax theft. The institution’s incompetence and its ethical track record not withstanding, this exercise would be tantamount to taking our economic management back to the stone ages. In this day and age of information technology where governments strive to minimize contact between the taxpayer and collector, and where the use of behavioral economics tends to be the preferred tool of shoring up tax revenues, we seem to be going back in time!