Unlike what the government’s economic managers may want us to believe, the Pakistani economy today is headed in a nosedive. The problem, however, is not that the policymakers are ignorant on what ails our economy — so much is written on this subject these days that perhaps even an average student of economics would by now know the answers – but that they seem to be in a state of denial. And this denial is possibly owing to two reasons: a) they genuinely feel that things under their management have improved and headed in the right direction; and b) they themselves have fallen victim to their self-created illusion of good economic governance. Either way, it is dangerous because if the corrective steps are not taken right away, Pakistan may find itself in a Greece like situation, albeit with no ECB (European Central Bank) or EU (European Union) to bail it out.
The irony is that this rapid economic deterioration is being witnessed despite external boons in the shape of historically low oil and commodity prices signaling near zero inflation or even deflation in majority of stable global economies, and a continuing bottomed-out capital cost cycle in global financial markets. Pakistan, as we know, is heavily dependent both on its oil and capital/finance in its import basket. So, under the current circumstances, imagine what would happen to our external account, say if the oil was to trade at $100 or beyond? Anyway, the dichotomy is that, whereas, the present depressed oil prices (around the $40 mark) should have improved the country’s trading account, the reverse seems to be happening. Imports are fairly stagnant, rather showing an unhealthy increase and that too in the wrong areas, while the exports are falling rapidly. For example, in textiles, Pakistan’s largest industrial sector and traditionally accounting for approximately 12% of GDP, 67% of exports and 57% of national employment, total exports fell 13.50% during period-on-period July to October 2015 over 2014.
What is worse, the three main competitive product categories, cotton cloth, bed linen and towels, all lost out heavily to competitors like Bangladesh, Sri Lanka, Vietnam and India, losing volume sales by 10%, 9% and 19% respectively, and this inspite of Pakistan enjoying a zero duty entry tariff with our largest customer, the EU. Analyse this in more depth and one is further alarmed to find out that our textile imports, on the other hand, are instead climbing, all at the cost of the domestic industry. For example, October 2015 over October 2014, the increase stands as: textile and clothing by 29%, synthetic yarn by 30%, worn clothing by 75% and other textile items by 66%. No wonder that the largest employment sector is undergoing unprecedented mill-closures while the government simply acts as bystander, witnessing Pakistan’s main industry get dismantled.
Something is not right. Foreign firms who generally have a nose for deteriorating business climate are fast exiting the country. More importantly, this government is failing its own people. Owing to its failure to pass on a fair share of reduced global commodities’ prices (including that of oil) to the consumers and due to its sheer incompetence in synergising reduced raw-material costs with reduced costs-of-production to arrive at a lower power tariff, the country lost out on competitiveness during the last two and half years’ period resulting in serious setbacks in the domestic supply side dynamics.
And this setback, further compounded by unnecessary misadventures into industry’s operational turf both at federal and provincial levels, flouting of inflation safety valves in anti-trust, disregard of conflict-of-interest safeguards, and an inept price-control market mechanism, in effect means that unlike what is being claimed, real inflation for the common man has not materially eased. The prices of everyday kitchen items, which in Pakistan’s working class’ spending basket can be as high as 62% of monthly take home, have in fact risen. In a recent consumer survey carried out by a leading media house in Punjab, just in the last 15 days the prices of some key food essentials have gone up by nearly 10-20% or more: Lentils (mash and moong) by about Rs40/kg, Flour (basen) by Rs4/kg, onions by Rs16/kg, chicken by Rs10/kg and eggs by Rs6/dozen.
The list is endless, from excessive borrowings to inopportune bond issuances to misplaced spending priorities to mismanaged public sector enterprises to non-transparent fuel sourcing agreements to poorly negotiated trade deals, etc, but the concern is that one almost gets this eerie feeling as if this government is still stuck in a time warp of 80s/90s, while global trade and finance have moved on. To succeed in today’s global business environment, national leaderships need to be smart and astute.
Only this last weekend, in a landmark climate change summit in Paris, the stage was set for all national leaderships to display their understanding and commitment to the emerging need to balance ‘growth’ and ‘responsibility’. Leaders from 203 economies of the world were present and 103 in-depth reports and plans were read out/presented vis-à-vis finding innovative ways to achieve ‘sustainable’ options in agriculture, manufacturing and services, albeit without compromising on respective national aspirations on growth and development. Needless to say that Pakistan’s performance and presentation were both disappointing and embarrassing.
These days, green initiatives or ‘sustainable’ operations (as they are referred to) and business profitability are no longer mutually exclusive. Thinking governments have already begun to partner with their private sectors to set doable goals that encourage self-cleansing drives to promote ‘sustainable’ operations all the way down to the grassroots grower — a win-win in the long-term from the farmer all the way up to the end consumer. But then who in Pakistan will bother to even understand all this; remember, we only got an environment minister three days before the summit.
The sheer shoddiness in handling of our economic affairs presents a rather scary picture. Business and finance have a lot to do with perception which can only be built through sustained results. Unless our economic leadership quickly changes its style and assembles a competent team, it will continue to lose trust and credibility. Every political party dreams of winning the next elections once its term ends, but what it must remember is that a term in essence is defined by the success of its partnership with the real stakeholders: people and institutions. And if they lose confidence to partner it for another five years, clever electioneering will take its leaders nowhere.