While there is dangerous confusion on the political front due to a protracted confrontation between the Executive and the Judiciary and which way the traditional arbitrator – the Army – will side, but the economic agents (businesses and investors), who have lost their emotional moorings, are now filled with more agonising anxiety to spend a thought on confusion that besets the economy of Pakistan.Who should provide answers to their questions? Obviously, Federal Finance Minister Dr Hafeez Sheikh should provide wise answers to their and many other gnawing questions in relation to country’s state of economy. Indeed, the task before Dr Sheikh is a daunting one.The question which irks everyone’s mind is whether the political leadership – President Zardari is the co-chairman PPP and Prime Minister Yousuf Raza Gilani as the Chief Executive – are backing Dr Sheikh’s game-plan to arrest the economic downslide. If you listen to former Prime Minister Shaukat Aziz, former Advisor on Finance Dr Salman Shah or the then Economic Advisor, Dr Ashfaq Hasan Khan, they stubbornly gloss over even some major problems of the so-called economic boom period under the then President, Pervez Musharraf, to avoid talking about something unpleasant and embarrassing by not dealing with it in detail. They, however, fail to speak out about the economic slide that commenced from mid-2006 to early 2008 when the present government took over. This slide is clearly apparent in the failure to improve tax collection not in absolute terms, but as a percentage of tax-to-GDP ratio from a high of 13 percent in 2005 to a single digit low.
As integral part and parcel of a government, which was faced with election of a President who was at war with civil society, media and the higher judiciary the trio cannot absolve itself of forcing the central bank to lend through both note printing and aggressive bank borrowing for budgetary support. The then Governor, Dr Shamshad Akhtar, worked behind the scenes for better sense to prevail. However, her agitational efforts failed as President Musharraf wanted PML(Q) to win at the hustings. And, kept on delaying the passing of oil price hike as well as electricity tariff. As a result, not only did forex reserves diminish, government subsidy from the budget sky-rocketed.The PPP government brought in seasoned banker Shaukat Tarin in 2008 with a view to effecting a positive change in country’s macroeconomic indicators. The situation was so bad that even inflation had rocketed to 25 percent in August of that year. Left with no viable option, Pakistan had to go to the International Monetary Fund with a view to stabilising currency and replenishing fast depleting reserves. There were very few options left. Pakistan had to borrow from IMF, adjust rupee-dollar parity (which was kept artificially stable) and reduce the element of subsidy and grants as there was very little fiscal space. Macroeconomic stability, however modest, became apparent as inflation began to show a downward trend while forex reserves appreciably improved.
Tarin’s game-plan (his famous Nine Points) worked at least in the sense that it was quickly embraced by the Federal Cabinet. It achieved no real success because its implementation was opposed tooth and nail. In comes Dr Sheikh as Tarin’s successor. He too called upon the elite of the Pakistani society to pay taxes and asked the government to replace across the board subsidies with targeted subsidies. He also sought to restructure the public sector entities to stop non-stop haemorrhaging of the budget. Unfortunately, however, both Tarin and Sheikh were out of tune with the core economic philosophy of the PPP.Restructuring of eight PSEs or white elephant identified by the Finance Minister involves replacing cronies of the ministers on eight autonomous boards of directors with full powers to rescue these entities from closing down. Having full powers involve placement of competent and experienced management and independent directors free from ministerial interference working for the eight companies they are entrusted to run. There is no understanding at the top that perpetual excessive borrowing by the federal government for subsidies as well as to finance the loss making PSEs, on a sustained basis, are the real cause of deep and dangerous internal inflation. These PSEs may be answerable to the Parliament through the Public Accounts Committee. However, these are in firm control of the executive branch and are being used to plunder the national wealth.
President Zardari can continue presiding over meetings and giving directions. No effective or meaningful change can take place as populist measures will not work. There is no money left in the kitty. Unless the top political leadership puts its faith in the expertise of technocrats in their team and take ownership of the economic game-plan put forth by them, there can be no meaningful progress. The energies expended in battling the political leaders working with them leaves them tired and exhausted. PPP leadership can keep on changing its economic managers with careless abandon.Solutions to be placed before them will be the same as the options are limited. Stop dithering and get on with it as a state of not being able to decide what you should do will only compound the problems further. Unless there is a change in their mindset, the country’s economy will continue to lack direction with the technocrats pushing one way and the political leadership holding them back. In Hindi philosophy the life force is known as prana. Our country’s economy looks very ill. Its life force or prana – expertise of technocrats – seems to have drained away. The government is, therefore, required to experience full measure of their expertise without any further loss of time – Drecorder