On last Friday, this PPP government presented its fifth budget (highest number by a Pakistani government during a single tenure), which it appears was a balancing act to maintain the status quo or business as usual, not causing too many ripples - thereby, tabling numbers that with some luck will allow the economy to muddle through till the upcoming elections. At the cost of appearing guilty of giving too much credit to his forecasting skills, one almost felt as if when preparing the budget the Finance Minister took a calculated gamble on how the global economic events are likely to unfold in the coming months. Based on his projections, he has placed his bets accordingly to tackle some of the key economic challenges currently staring Pakistan in its face.
Moreover, with a reduced cost of the main raw material (meaning oil), not only can the government make a neat profit on domestic sales of petroleum products to the ordinary consumers (meaning of diesel, petrol, kerosene, etc, which at present are benchmarked with oil prices based on around the $100 mark), but the cost of its thermal power generation will also come down dramatically, opening options for enhanced capacity utilisation (currently only about 50 percent of the installed capacity on thermo oil power generation is being utilised) and reducing the prevailing electricity loadshedding duration.
Reduction in loadshedding as we know will unleash its own dynamics vis-à-vis stimulating the economy and job creation. In addition, the lowering international commodity prices are likely to marginalise the external inflation drivers and help tame domestic inflation, especially in food items. A reduction in inflation can then help open up options for interest rate reduction by the central bank, in turn, providing the much needed additional stimulus to the industry and investment per se. So really, if the ‘invisible hand’ does indeed decide to turn kind, the government’s gamble may just pull off providing it with an ideally timed boost before the elections!
“Inaction is the worst managerial action” - Schumpeter. And this is what this government has been guilty of all through its term - a case of one step forward and two backwards or a complete absence of any meaningful vision on how to take the country ahead. Energy policy has so far focused only on short-term fixes through shady deals on rental power and imprudent circular debt management, and the sheer resolve to undertake load management/prioritisation based on national interests-cum-economically judicious formulas has been sadly missing. Bangladesh is a good example to study on how to maximise productive output from limited energy and power resources.
Fiscal deficit is another crucial area where the government’s performance can only be described as ‘unfortunate’. The self-proclaimed saviours of democracy (a system we are told to be best for us regardless of bottom line results) continue to squander the national treasury by supporting lavish governance styles, running public sector enterprises to ground through mismanagement and total disregard for merit, putting the once robust financial sector of the country into grave danger by callously borrowing from it to meet its excessive expenditures. More alarmingly this displays an unparalleled level of management incompetence that seems to have created a kind of inter and intra institutional disconnect, which in itself probably represents the greatest existential threat facing the country today.
In a complete crowding out of the private sector, the national debt has been doubled over the last four years by monopolising nearly 75 to 80 percent of the lending capacity of the local commercial banks. The banks have obliged under the premise that sovereign debt is safe, does not require corresponding provisioning/capitalisations and can be accommodated on a relatively thin deposits/savings base. This myth (post-2008) as we all know stands broken.
The European Union has recently introduced new banking laws that formally assign a risk factor to all government debt instruments and require the banks to also make provision for capital adequacy even on lending to the government. However, for the Pakistani government to rein in its domestic borrowing in the coming year will continue to pose a challenge, especially in the wake of drying up of foreign fund inflows and an estranged IMF (International Monetary Fund). The fiscal deficit targeted at around 5 percent looks more of an eyewash, since not only is it likely to end up being much higher in what is being termed as a possible election year, but also the present base of fiscal deficit as released in the economic survey is grossly understated since it does not duly account for petroleum subsidies and deficit financing of the public sector enterprises. India also resorts to domestic borrowing for nearly 80 percent of its financing requirements, but then it boasts of a very high national savings rate and its state-owned banks still control the majority market share in its domestic financial market place, Whereas, in Pakistan, it is the reverse that is true in both cases and this is precisely why we need to be extra careful with our domestic borrowing model, which simply cannot be based on that of our economically strong regional neighbours like India and China.
During my recent visit to India, I was quite taken aback to learn that how openly the Indian intellectuals and leaders take pride in linking their economic success to their mastering the art of ‘managing’ the US. From being a Russian crony in not too distant a past, India today can easily be billed as the darling of both the US and Europe, while still maintaining its vital links with Russia and its former allies. We, on the other hand, seem hell bent on heading into an isolation mode. What we forget is that market access, concession packages, cross investments and strategic corporate partnerships in the financial world emerge from mutual win-win equations and not through muscle.
Sovereignty and respect are earned and cannot be demanded. Economic success requires engagement and linkages with economic successes and this is something that we still have to learn and that too quickly. Sadly, any such vision was yet again missing from this budget. In any management concept, the idea is not to hold on to mummies, but to preserve the soul. It may not be the tradition, but I firmly believe that instead of just presenting a set of lifeless numbers, the budgetary exercise should focus on unleashing strategies and mindset on how the government views national institutions and its economic policies.
Message and perception in attaining economic success are extremely important. The acts of the Dutch Prime Minister and Finance Minister cycling to their offices or an Indian Minister commuting in a beaten down Ambassador without an entourage of security personnel surrounding him or a provincial Chief Minister travelling in public transport and camping without electricity at Minar-i-Pakistan, may in themselves not turn around the economies, but they do send out important signals to the general public that their leaders do care and are serious about trying to change their lives for the better!
n The writer is an entrepreneur and economic analyst.