Priorities, Mr Prime Minister

There is no doubt that the situation that Pakistan’s economy finds itself in is tough. What really bothers one though – on analysing the performance of the current government – is the sheer incompetence and negligence in running our economy into ruins.

As individuals, some people’s affluence and wealth may have gone up. That may be partly because of the sphere of their work (sector and influence) or the opportunities that arise when there is a situation of turmoil. However, the state of affairs for the middle- and lower-income population of Pakistan has become more and more difficult. The number of people wanting and waiting to be given free meals at roadside dhabas has visibly increased. So much so that such restaurants have acquired additional seating space to accommodate the needy. The rise in prices has been so sharp that it has now become extremely difficult for people to make both ends meet.

As opposition to the federal government, we have raised our voice on a number of occasions on the various issues that emanate from the top: hounding of businesses by NAB, unavailability of natural gas to industry, ill-planning for LNG supplies, indecision on support prices for staple crops, relations with the central bank and overall focus on one sector of the economy: real estate. As all the indicators of the economy are on a downward slope, the focus of the government has been to excessively tax goods, which is being done to counter the current account deficit.

With the biggest contributor to our imports being oil and related products, which are 27 percent of the total imports and have doubled to $9.8 billion in the July-December 2021 period, the inability of arranging for LNG supplies for the longer run is running havoc with the current account deficit (CAD) and will continue to do so in the coming times. The only answer the federal government has is that ‘inflation is a global phenomenon’, and then there’s their support base making videos showing how things are expensive in other countries.

How investors look at Pakistan can be seen by two points: in January 2017, the KSE-100 index had touched the 50,000 barrier. In five years, it is 10 percent lower while on a USD basis, market capitalisation has come down by 54 percent. That’s how much the market has lost value. Of course, rationale will always be given. But ask any business owner or investor and they’ll tell you that excessive regulatory checks, NAB hounding and the volatility in interest rates and foreign currency have made doing business very difficult.

A recent example of incompetence can be seen in how the issuance of the sukuk by the government took place in the international market. The government had a maturity of $1 billion in October 2021. Like any prudent financial manager, they should have been looking to refinance the sukuk on or before maturity. Instead, the finance ministry started the process as late as December to raise the funds. They eventually raised the $1 billion – but at a higher cost. The government is going to pay 7.95 percent per annum on this sukuk whereas had they raised the funds in October, the price to be paid would have easily been 115-125 bps less. Also: since October, the PKR Pakistani rupee has depreciated by nearly five percent. That is what one calls double jeopardy.

You ask any investor, and they will simply say that where there is no stable management – meaning finance ministers and finance secretaries are being changed regularly, and the State Bank and the finance ministry are at loggerheads on the way the economy is to be run – this is what is going to happen.

While the federal government keeps harping on how Pakistan has record exports, it fails to address the issue of the highest ever imports. It’s just not a question of importing oil; we are now unfortunately importing essential items like wheat, cotton and sugar which adversely affects our import bill. Just to give an example, the total production of cotton in the year 2020-21 was only 7.1 million bales as compared to 13.03 million bales in the year 2012-2013. The shortfall or deficiency we have addressed by importing cotton to feed our textile industry. Effectively, we used foreign exchange (which we could have easily saved) to earn foreign exchange.

We are an agrarian economy and any prudent government would give incentives to its farmers so that they are encouraged to have higher yields or we introduce technology which gives us higher yields. Imagine the social and economic change that will be introduced into our society, since 65 percent of our economy is based on agriculture. However, we are happy to give higher returns to farmers of foreign countries when we import these commodities at much higher prices than what we are willing to give our local farmers.

The apathy or myopic mindset of the federal government is visible from the fact that it knows we don’t have sufficient domestic gas and the only option is timely import of LNG. However, this simple thing it is unable to do. A timely decision-making process would not only mean certainty of gas supply for industries but also perhaps at cheaper rates, if prudence is used as a preferred mechanism.

To make things worse, instead of addressing the aforementioned issues, the federal government continues to spend its entire energies in charging opponents on corruption. Only recently they fired their accountability head for being soft. On the one hand, everyone – be it politician, bureaucrat or business owner – is complaining about how difficult it has become to work, while on the other hand, the prime minister who lives in his own fantasy world wants to make it tougher for everyone by insisting on a system which is based on persecution. In my view, the state is supposed to play the role of an enabler or a facilitator to make it easier for investors to invest and government functionaries to make effective and efficient decisions.

Incompetence breeds incompetence in a race to the bottom. Countries that don’t learn from mistakes are never able to rise. It is time for us to set an economic agenda for the future, prioritise agriculture, attract investment by having business-friendly policies, and ensure that the regular citizen gets the trickle-down benefit of those commercial activities. Harassment and persecution has not taken our nation forward but rather stifled our progress and prosperity. Moment to ponder, Mr Prime Minister.

The writer is adviser to CM Sindh, and Administrator Karachi.