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Economic Woes – No Quick Fix

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Economic Woes – No Quick Fix

Popular (read most unpopular) governments in their own estimation, feed the populous with concocted and imagined figures of economic growth. The statistics are fudged to suit political expediency. We have been caught on the wrong foot several times by the international institutions, be it the multilateral institutions or the international credit agencies.

If we were to believe each successive government of their perceived economic success, we would have by now put to shame the combined economic growth of Korea and China, together. No single government has admitted its economic incompetence nor their corruption-laden business practices. However, every single incoming government has accused the outgoing government of emptying the coffers of the national exchequer. Even the governments who have ruled for over 30 years, on a musical chair basis, cumulatively, blame past governments for the economic mess. They do not take any responsibility for their contributions to the economic havoc unleashed upon the country. It is always the mantra, “they did it, I am cleaning up”. How convenient.

There has never been in our almost 75 years of history, either political or economic stability; the very few brief periods where we had both, were during the interregnum of military and semi political dispensation. What does that prove? Incapacity of the political governments to give any sense of political direction to this poor nation.

Every government promises to make this land, of pure, a place where honey and milk would flow in an unstoppable speed. Hot air balloons are floated and hoisted upon the desperate populace. This raises a question, are our people generally stupid? Do they lack discerning abilities to judge between the fact and fiction? This scribe take on this fundamental issue is that we are as a nation, no less intelligent then our neighbourhood. The lack of political clout available to the multitude be numbs them. We have excellent Human Resources (these only need to be expeditiously re-tooled for better and enhanced productivity).

Unfortunately, what has by design done is to muzzle ad pulverise the “voice of talent and reason”. In the most developed countries, this ‘voice’ resides within the middle class of the society. The middle class are the major constituents for creating an environment of checks and balances. The middle class in our country has no voice. Over the last many decades, the middle class worth its size has been on the squeeze from both sides. We have a resilient population. Largely docile and well behaved (not many agree), but just looking at their behaviour and patience in this era of extraordinary price hike, substantially endorses the opinion.

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MQM, initially only and later PTI represented the middle class as sound political parties. The former has committed political suicide. The latter has been placed on the platform. Personally, both have potential to rise like a phoenix from the ashes, only if the former would amend its political ideology of ethnicity to a more federal appeal; the other can swing back in no time if they can test themselves for popularity in a “free and fair” election. The catchword here is ‘Fair’. All parties are capitalist by their behaviour, even though have a manifesto of socialist thought. The disparity between behaviour and thought; therefore, is so glaring.

It; therefore, induces the thought that those who are feudalistic (ownership of land is not the only determining factor for that sort of mindset); hence, many compatriots are feudal in their attitudes and have actively played a significant role in the last so many decades to stunt the growth of the middle class. The growth of the middle class is dependent upon the level of literacy in the society and that is the most important factor. What and how every government has literally plundered, pillaged, ransacked, fleeced and destroyed the education system is all before us. We have university graduates who cannot piece together a single line of thought. The subjugation of education over decades by the feudal mindset has ensured the squeezing of the middle class. Germany’s growth is a model of success, emerging out of the expansion of a formidable middle class. There are so many other examples.

Economy is too serious a business to be left in the hands of the politicians alone. Of late, they have been screaming for a “charter (chatter) of economy”. Essentially meaning that any semblance towards giving an economic foresight for till say year 2047 (yes, that’s how countries plan their futures), will be done to death through collectivism or more appropriately through, coalition.

In most drawing rooms and, of course, in the umpteen talk shows the word ‘default’ is mentioned. Will the country default? Default on what? …In my estimation, default is not known to many. A country that is faced with the twin deficits, the current account and fiscal deficit can survive with fiscal imbalances but it would face financial havoc, if the country was to default (not pay on time) in meeting its external obligations and liabilities. To prevent that we need to have foreign exchange resources. The major foreign exchange earners for any country are exports, inward remittances and receipts from tourism. The other sources are borrowings. For many decades we have confused borrowings with earnings; consequently we rejoice in leading a life of deception where we spend not what we earn but what we borrow! Hence, the deficits of all sorts, financial, moral and social.

We have an economy, whose energy needs are dependent on oil and gas (LNG and LPG). We don’t have enough oil and gas reserves. We import. For these imports we have to pay in foreign exchange. Is it “only oil and gas that we import?” Nay, we import large quantities of consumer goods; by nature they are consumptive and not productive materials.

Our composition of imports presents a very dismal economic planning. Last year (2020/21), we imported iron and steel ($4.6 billion), pharmaceuticals ($3.8 billion), vehicles ($3.3 billion), palm oil ($1.8 billion), and phone systems ($2.7 billion), of which cellphones constituted ($1.2 billion). Our total import bill was $56.8 billion. This was matched by exports of $25.3 billion, 18.3 per cent higher against the previous years of negative growth alongside inward remittances of $30 billion in comparison to $23 billion in the previous year, resulting in the net deficit of almost $2 billion. On accumulative business, our deficit exceeds $13.4 billion. Since the import bill has to be settled, we borrow. The country has not been able to break this shackle of borrowing, so the malaise of dependency on multilateral and international financial institutions continues… unabatedly.

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China is a classic example of export-led economic growth. A country that had a huge population and was in the backwaters of economic growth during the decades of the 50’s, 60’s and almost the entire decade of the 70’s emerged on the global economic scene with its attending tenacity for achieving economic success. In the 80’s and 90’s, it successfully developed the special economic zone model as a means of spurring economic growth. The size of the Chinese economy today is staggeringly astronomical. Record keeping of trade data started in China in 1950. Between that year and today China has progressed to become one of the largest trading nations of the world. During the period 2021, China’s trade surplus exceeded $676 billion, the highest-ever increase and in comparison to 2020 a neat 20 per cent growth. The special economic zones in China gave a very enabling environment and served as great inducement to foreigners to enter the market and make direct investment into the industries that had concessions for reasons that their productivity was to be exported. The exports grew dramatically.

Vietnam and Cambodia followed by Laos, also copied the Chinese model of export-led strategy to improve their economic conditions. It has emerged as the new or another Asian miracle as cited by the Economist of London. Both the countries embarked on trade liberalization, which again meant making available an environment where there was facilitation from the part of the government to engage in production of goods that would be used primarily for the export markets. The concessions were meant to export goods not for local consumption. Today, Vietnam has export earnings of $337 billion and an import bill of $332 billion. It is a growing economy. Cambodia’s total exports, which were dismally low till about two decades ago are now at $14.8 billion.

Our governments have attempted halfheartedly to promote exports. There has been a lack of attention in the development of new export markets for our goods and services. This is an era of economic diplomacy and regrettably our Foreign Office alongside the Ministry of Commerce appears to be still oblivious of its significance. The unscrupulous elements of the export sector have misused the concessionary finance offered by the state. There has been massive ‘conversion’ of credit facility, where instead of up-scaling the textile value chain, a lot of money was diverted into the real estate, both locally and overseas.

In the upscale and posh area of Karachi, I walked more out of curiosity than need into a supermarket that was frequented by my son and daughter. I asked for cereal, I was led to the shelf that had cereals from Switzerland, France, The Netherlands, etc. I asked the attendant, is there no cereal of Pakistan origin or brand? He looked at me, aghast at my impudence to ask for a local product. He had gleaming pride in his eyes in saying, that in our store, only imported goods are sold. That’s one way of responding to the economic crisis! The haves are unaware of the plights of the have-nots.

This scribe for the last so many years has been lamenting through columns (which obviously are not meant to be read) that the countries’ economic shift and drift must be towards becoming a fiercely export -oriented economy. We must develop exportable surpluses. We must explore and expand new overseas markets. In conversation with some finance ministers over the years, I pleaded the case of en masse ban on consumer imports; allow only imports of industrial raw materials or technology inputs that will facilitate in the creation of exportable surpluses. Most agreed that it needs to be done. But none did it. Political governments yield to the pressure of ensuring success in next elections. Hence, they take no formidable, long-lasting, painful decisions, this could also be for reasons of comprehension or to place it more bluntly due to incompetence.

As a starter, it would be best to stop all non-essential imports into the country, ban is the solution; not enhanced Customs duty. Sacrifice must take place.

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The special economic zones, which are dying of neglect, must be activated. The foreign direct investment can happen only in an enabling environment. A quick solution and a major one is to start with the spirit of ‘sacrifice’. Luxury has to be earned, and not borrowed.

(The writer is a senior banker and a freelance contributor)

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