It does not take a genius to figure out that if the central bank of a country keeps on pumping or printing money, inflation will surge beyond control at some point
After 9/11 this is the first time that the World Bank’s/IMF’s thinly disguised warnings about the future of Pakistan’s economy are resurfacing. But one wonders where these organisations were when Ishrat Hussain and Shaukat Aziz were setting up the policies that were destined to fail and impoverish a large chunk of the Pakistani population.
Is it that international experts have gained new insights or simply that the Pakistani government’s move to sign peace deals with the extremists of the tribal areas are prompting these warnings?
It is a known fact that just over a year ago, World Bank and IMF officials used to fall over each other to receive Pakistan’s economic managers. Then, none of the know-all experts were issuing warnings of emerging energy shortages, inflation, the probable currency crisis or the deteriorating economic conditions of the common citizen of Pakistan.
The World Bank may rebut by saying that it warned the Musharraf government about the energy crisis etc. Even so, why was it so muted, discreet or powerless to put it on public record? Why is it not using the same discretion now as it did after 9/11 when Pakistan started facilitating the war against Taliban and Al Qaeda.
As far as the revered policies of the Musharraf government are concerned, any average person who has taken a few elementary courses in economics could tell where Pakistan was heading. It does not take a genius to figure out that if the central bank of a country keeps on pumping or printing money, inflation will surge beyond control at some point.
But, since the mystifying figure of the Gross Domestic Product (GDP) could be shown as rising rapidly, every economic sin was apparently atoned for. No one bothered to see what was behind the so-called growth of GDP.
And then of course, if the GDP is growing due to the rise of certain consumer goods (cars, refrigerators, air conditioners etc) more fuel and electricity will be required. It needed only common sense to see that in the absence of new sources there will be acute shortages at some point.
Everyone knew that the government was not adding enough new plants to produce more electricity and it was also not increasing its exports to meet the rising energy bill. It is true that rising prices of oil and other commodities have worsened the situation but the conditions of Pakistan’s economy were deteriorating much before that.
A few years back when the price of basic necessities started creeping up, the economic mangers, looking for a quick fix, pressured the government to allow imports of agricultural and dairy products from across the Wagah border. The facilitation of such imports had little to do with improving relations with India: it was quickly adopted as a stopgap economic measure to relieve inflationary pressure. It worked for a while to some extent but it was too little to absorb the flood of money that came gushing from the State Bank and its partners, the commercial banks.
The only viable way to absorb the slush of money was to increase the productivity of and enhance production in key sectors of the economy. However, production cannot be accelerated if most of the inputs are scarce or too costly. In Pakistan’s case the basic inputs required in agricultural or industrial sector were either not there or out of reach of the producers.
Most of all, electricity was/is the most important input in every production process. It truly is mind boggling that during the entire Musharraf era no one paid any attention to it. No new sizeable electricity generating project was undertaken. Further electricity rates were raised to such a high level that a common citizen could not afford even a few light bulbs. How could the agricultural sector or small industries—that provide livelihood to most of the urban population—enhance production?
Many Pakistanis are mystified as to why per hectare yield is higher in East Punjab than its Pakistani counterpart. The answer is simple: the government provides absolutely free electricity to East Punjabi farmers. They can water their crops as much as they want free of cost. On the contrary, the farmers in Pakistan will go bankrupt if they use a similar quantity of electricity to pump water.
In short, the Musharraf government was creating a deadly combination of running the State Bank press overtime and squeezing the local production by making key inputs scarce and/or too costly. Naturally, the gap had to be filled through imports which have resulted in an unsustainable trade deficit, the devaluation of currency and, hence, the acceleration of unstoppable inflation.
Where were all the international donor agencies and their experts while this was going on? Was their job to watch over the economy or to pamper the ego of Washington’s ally in the war against terrorism?
These organistions had a similar disposition towards previous military dictators as well. However, when a civilian government takes over and starts showing some independence, international organisations change their role from ego-boosters to economists. What they are claiming now should have been said much earlier, it being a case of “a murder foretold.”
The writer can be reached at email@example.com
Source: Daily Times, 11/6/2008