Last week, I was passed over yet another (fourth so far) ‘Political Party Economic Manifesto’; this time of Pakistan Muslim League (Nawaz), or the PML-N, titled “National Agenda for Change, Manifesto, 2013”, for review and comments. Since it was given to me by someone I tremendously respect and cannot refuse, I promised to read it carefully and give my objective feedback on essentially the first two chapters, “Economic Revival” and “Energy Security: Continuous Availability and Affordability”.
Having accepted it, I remained sceptical about my own sense of objectivity in evaluating such documents, primarily because having gone through quite a few such manifestos, I have come to believe that,
a) They represent a typical election time rhetoric and the substance is almost never truly reflected upon in the ensuing five years; and
b) Instead of containing practical solutions, the contents invariably read like a collection of good economic principles available in any text book.
The cover, however, of the booklet got me going. A nice, well printed and an all-encompassing design, depicting just the kind of things our economic managers need to focus on: PIA representing the public sector enterprises in their cry for help, wind power panels pointing towards the seriousness of the energy situation, and various other such symbols signifying the need to regenerate growth momentum and create employment through a combination of prudent economic measures.
On reading the chapters the content inside came out even better. Both chapters have been extremely well researched with a lot of deep thinking going in highlighting the problems that confront our economy, followed by a very professional effort to evaluate them from all possible facets.
The document presents a comprehensive analysis of the areas that need to be fixed on priority, especially the energy sector, which is having a strangulating effect on the economic and social fabrics of the country.
Also, the proposed endeavours to fix these economic problems and especially the energy policy appear to be quite sound and all-encompassing.
All in all, in my opinion by far the best understanding displayed by any political party on the economic challenges facing our economy. But then, this is not going to be enough, since, by now, we all know the various economic challenges confronting our economy and which sectors need to be fixed urgently.
The real test lies in not being aware of them, but in devising innovative management solutions, because it is not in policy identification but in management where their predecessors failed – regrettably, in their recent governance stint in Punjab, the PML-N’s own record vis-à-vis ‘management’ does not inspire much confidence.
Further, given the state of the economy, the wish list for resurrection needs to be prudent and cleverly targeted. Regardless of what policy measures we adopt, there will be certain tradeoffs like growth vs. inflation, state support vs. deficit financing, infrastructure development vs. borrowing, tax collection drives vs. corruption, investment vs. incentives/subsidies, and the metal of governance will, in fact, be tested in these very domains, i.e. in finding the right mix-cum-balance between the footprint of the state and the market economy or private sector.
For example, it may appear to be very tempting to sell off public sector companies and get rid of the annual recurring burden of nearly Rs 450 billion in one stroke, but the challenge lies in harnessing their potential and in using their sheer size to provide key services at home and to expand Pakistan’s global corporate footprint.
The reality is that emerging economies do not possess private sector corporations large enough to compete with their Western counterparts and till such time that their domestic private corporations are strengthened, they use the combined muscle of their large state enterprise and state’s resource to compete in the international area. The Chinese, Indian, Brazilian, Turkish, South African and Russian examples are there for us to learn from.
Moreover, public sector enterprises, if managed professionally, not only tend to be revenue contributors, but also play an important role in maintaining economic equilibrium through stoking nationalism and keeping the nation gelled together, controlling prices and, in turn, taming inflation, helping in checking anti-trust activities, servicing sensitive and necessary national areas and sectors that would otherwise remain un-serviced by the private sector, undertaking research and development, developing human resource and, last but not least, providing employment.
The privatisation of two banks, as mentioned in the manifesto, can surely be defended from the perspective of implementing second-tier financial reforms and on the basis of the turnaround of these privatised financial institutions. But in doing so, the disregard in maintaining the ‘conflict of interest’ element when approving the new respective ownerships may have done more harm than good to the national economic interest over the long term.
The dilution of the state’s control on the financial markets brings us to two key areas – inflation and external account or reserves – the new government will have to grapple with. The lessons from the post-2008 financial crisis are clear that markets cannot be left completely unregulated.
The State Bank of Pakistan (SBP) in recent years has chosen to focus (nearly obsessively) on mainly one key economic element: inflation. Setting aside any exceptional year or a certain brief period in the history of Pakistan, inflation rates in the country have never consistently been in the single-digit range. Yet, the SBP looks at taming inflation (in Pakistan’s context) to levels that are neither realistic, nor keeping in line with our past trends.
To make matters worse, the SBP has had at best partial success in combating inflation due to its poor management in another key area: the external sector. In the early years from when Pakistan adopted the flexible exchange rates, SBP’s practice was to intervene in the foreign exchange market to smoothen out short-run fluctuations, while leaning against excessive appreciation of the Pak Rupee in the longer term. That policy stance provided short-run exchange-rate stability, while allowing the SBP to build up somewhat reasonable levels of foreign exchange reserves.
However, every time a political dispensation has taken place (the last one being no exception), their actions have thrown caution to the wind and generally adopted a kind of hands-off exchange-rate policy that sadly led to huge devaluations in the Pak Rupee’s parity against the global currencies and a regular erosion of our dollar war chest from where it will now be difficult to recover. Sadly, when the last PML-N government was dismissed back in 1999, the figure of our foreign currency reserves they left behind did not make a healthy read.
If the next government is to succeed in resusitating the economy, it will need to select economic managers, who are visionary and not merely savvy with accounting practices. They will need to have leadership abilities to instil management practices that inspire and extract optimal efficiency from all institutions. It may be fashionable to malign our armed forces, but for any economic recovery, a stable environment, discipline and security are pre-requisites. No wonder, economic results under army tenures have been better than under civilian rules.
While the tax to GDP ratio needs to be enhanced, it requires clear thinking and a prudent strategy. Wrong push in the wrong areas can instead be counterproductive; whereas, intelligent endeavours can bring quick returns.
Transparency, reciprocity and rewards of being a taxpayer need to be focused upon. The Planning Commission is like a fuel pump that is required to maintain an equitable flow of funds across all cylinders. If the economic fuel pump of policy formation fails, the economic engine stutters regardless of how sound its composition is. There is a close relationship between inequity and poverty, and between poverty and development. It is usually equity, and not inequity, that is combined with development.
Finally, it is of paramount importance that the new leaders are convinced on connecting the Pakistani economy with the mainstream global economy, and especially with the in-lead emerging Asian economies. Intangible and low capital cost initiatives on perception and direction can yield huge short-term dividends.
For example, just by effectively managing labour-management relations, a country can open many doors to foreign investment – Europe and the USA have learned this the hard way and are now going back again to the basic drawing board.
What we need to understand is that today there is an economic opportunity out there in the global economy and with sound economic management at home, Pakistan has a chance to capitalise on it.
This opportunity has arisen due to the steep increase in wages and a sheer shortage of available workforce in three big global supply houses – China, South Korea and Brazil. While in Pakistan and India, the corporate results are good, but the economies are struggling. Meaning, that in these two countries, whereas, the industrial productivity may have gone up, the wages in accordance have not; and hence, higher profits. Both Pakistan and India can be the largest beneficiaries of this ‘new opportunity’ provided they can keep their own houses in order and cooperate with each other.
Reforming is about balancing the governmental power and striking the right market-regulation mix. It is about a self-imposed revolution that requires vision, leading by example, real sacrifice and is painful.
The writer is an entrepreneur and economic analyst. Email: [email protected]
Source: The Nation
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