Performance check

Begin with the economy, a perpetual and deep pain: so the State Bank raises the interest rate by one percent. This made for a two-and-a-half percent rise in the interest rate since January. It tells of the panic. and entails an attempt at controlling run-away inflation by constraining money supply.

The inflation is threatened by the increase in energy prices; gas already done, petroleum and electricity are on the anvil in significant numbers and are held back for political reasons. Past the upcoming by-polls, the axe will fall deep on every pocket. A depreciating rupee to bolster slow exports is another trigger. We will soon be deluged by inflation – maybe 8, 9 or 10 percent. (your guess is as good as mine). This will force the State Bank to raise the rates even further, constraining money supply even more, and growth will go out the window. Jobs, poverty alleviation, education, health, social support will either cease or be at risk.

The combined losses in electricity and gas are in the order of some 600 billion per year, and crude oil prices are on the increase globally. Hence, the cycle of increase in tariff will continue till the price of crude settles – which still has some distance to go by global estimates. Together, these will impact every facet of the economy and of personal households because of consumption and transportation patterns. The government has chosen the path of minimising or entirely eliminating subsidies as the main plank of controlling expenditure, without realising that it is the lowest strata of society which will be most impacted when the effect of it all begins to take shape. It is not the gas in the burner alone that matters; it is the gas in the mill and the motor which will be impacted more. Politically, it is suicidal. In a welfare state the state is responsible to help subsidise the poor and the deprived. If indeed welfare is the aim, the conception on which these initial steps are based is deficient.

Instead, make luxury and profligacy dearer. For a state like Pakistan, prosperity must be defined in a one-kanal house and a 1500cc car. People should be free to acquire more, buy bigger and drive superior. But every inch and cc beyond what is considered kosher must come at a premium. And a premium not of the 25 and 29 percent kind which is good for income tax, but in tens and hundreds if it touches those levels. Bigger capacity jeeps don’t only deem a ten percent higher tax, but tens of percentage higher.

Live as you please – but pay for it. You have a 1000sq yards house. Sure, but then pay Property Tax 250 percent higher than your neighbour living in a one-kanal property. Till we implement luxury cost with fervour, the state will never be rich enough to balance budgets and subsidise the poor and alleviate poverty and eliminate stunted growth. Collecting taxes and duties comes with it. But you cannot treat the dispossessed the same as those who have it all. The government may have to pay for this omission in the polls. Austerity must be rooted in policy and not just in cosmetics.

Onto how the industry will be treated with these increases in tariff: both the increase and the reduced money supply will be a double whammy for an industry that the government is trying to revive. This will impact its plan to produce jobs. The government talks of targeted subsidies for preferential cost of production but even that is unfair when granted across the board. It should primarily be restricted to the export-oriented industry with verifiable production targets to qualify. A carte blanche to the manufacturing sector is neither helpful nor fruitful for it ends up more a blackmail of the rich against the state. Those who can invest in industry should also be able to carry the burden of a lower subsidy. Small industry is another story and needs all the support and subsistence.

This is a tightrope. Reduced money supply slows down the economy. Growth will reduce, as will production. Consumption will go down as the average pocket will now spend more on utilities and less on food and household. As the market depresses, the supply will be adversely affected. Production will be curtailed, and fewer hours of production will not only make the entire enterprise inefficient but also make it more expensive per the economy of scale.

This is a deprecating strategy. One hopes the new economic czars have had a good look at the consequences. More importantly, it is an absolutely failing political choice which both the PML-N and the PPP will relish as a handed-out political opportunity. It also will negate the PTI’s plans to restore health and growth among stunted children because of lighter pockets. This might invoke greater governmental involvement to support this targeted segment, creating an opportunity for traditional wastage and pilferage related to the public sector.

With a twin deficit, current and fiscal, sitting atop a debt pile higher than what we can manage with given resources, the only way down is an uncontrolled tumble. Dollars can come to us through exports, which have only dwindled as the industry has shut on account of unsustainable cost of production. No one from abroad is willing to invest save some noted exceptions in recent times. Remittances remain routine and are insufficient to make up the gap. Whatever comes in is gorged by the deficits; in lieu any money that the State Bank prints adds to inflation. This is a sickened economy. The earlier we admit the precariousness of it, the better. The IMF will be needed – that is what hospitals are for. As will the support of friends, for crutches; such is the level of debilitation. It is not either or, it is both. Why keep false pretensions.

The previous governments got the Chinese to bring funds under CPEC, at a cost. This government needs to get even more for investment and to revitalise the dead industry, at a cost. No free lunches in both cases. Tweaking the sectors and reorienting investments to what can be relevant and sustainable is what this government can contribute. The SEZs in CPEC are an opportunity to align with global needs if we aim to remain linked to the global supply chain. IT, AI and bio-tech could be such sectors. Let our education systems and vocational training reorient to create the requisite human resource. As should alternate energy technology or parts of it – solar panels for one. This shall keep Pakistan relevant even as economies mutate into newer global determinants. This will need renegotiating the sectors and direction of investment with the Chinese and others who wish to join. In the meanwhile, our staple fundamentals of the economy too should evolve.

It is a whole ambit out there needing an integrated, coherent and targeted plan of implementation as the economy stands at the cusp of transition to the future. The scale of consideration and action though must correspond. Economics 101, you might say? Hope the Economic Advisory Council treats it as such.

Email: shhzdchdhry@yahoo.com