By DR FAISAL BARI
The stock market has lost more than a fourth of its value in the last few weeks, the rupee has lost about a fifth of its value in the last few months, petroleum prices have been increased 3-4 times in the last 6 months, energy prices, in general, have increased substantially and are likely to continue to increase for some time, food prices are, admittedly, out of the control of the government, inflation has seldom been this higher historically, our foreign reserves are falling, trade deficit is at an all time high, exports are stagnant, fiscal deficit is barely under control and foreign investment has all but dried up. And even the larger cities and centres of trade, commerce and manufacturing are living through hours of load-shedding everyday. We can say that the economy is in deep trouble.
What is more disturbing, if the above was not enough, is the fact that we do not see, on the horizon, what will work to bring the economy out of the present hole. What is going to give us growth in our exports that will reduce the trade deficit, balance the external account, and reduce the pressure on the rupee? Which sector will give us jobs and incomes for people so that inflation can be coped with and/or brought under control. Traditionally agriculture and later, to an extent, textile sector did that job for us. In the last decade it was capital inflows, fiscal space from debt rescheduling and generous help from interested parties that helped. There was some help from service sector, consumer goods industries and to an extent construction sector as well. What is it going to be now?
There does not seem to be a sector or area that is picking up. Textile sector is in doldrums while agriculture, though it still has lots of potential, has its own problems. Even if we start doing miracles in the dairy and livestock sector right away it will be years before nationwide and large enough results will come through. As for other sectors which were beginning to show signs of growth have been stymied by the problems mentioned above, in particular inflation. So, how do we get out of the mess that seems to be getting messier by the week?
What is disheartening is that the government in power does not seem to be taking the issues mentioned seriously enough as well. It is true that Islamabad has been able to negotiate or beg for deferred payments on oil imports from Saudi Arabia, but that is not a strategy for recovery. At best it can be a bandage for a gaping wound that can keep infection at bay for a few months. Where is the strategy for coping with the issues?
The government is still mired in the restoration of judges issue of course. This has meant that the PML-N has been sitting out of the federal cabinet. So the finance ministry has been with Naveed Qamar for the last some months, in addition to the privatisation ministry. He could not have been prepared for taking over the ministry, and with the preparation of the budget and so on, he must surely be too overwhelmed to develop any medium term or longer term strategy. And it is surely too much to ask of one person anyway. But where is the economic team of the government.
Even after 3-4 odd months in power, it is not clear who the economic gurus of the new government are. Secretaries are still being shuttled around, the prime minister has special assistants but they have not coalesced into a team as yet, there are no advisors that one hears about and no “experts” have been brought in as yet.
The government announced the formation of a council of economic advisors but then made sure that there was not a single economist on that council. The people of the council might be experienced bankers, ministers and so on, but they are not economists and finance experts, and they are not strategists. Where is the strategy going to come from?
The government has, now and then, announced working groups and task forces for specific areas, on labour related issues and food price/availability issue, but it is not clear if these task forces have started work or not and what has been their output so far. One always heard of the Peoples Party having various informal groups working for them. The Peoples Party election manifesto had certain thought to it. People can agree or disagree with it, they might even think that the promises made in the manifesto are unrealistic, but one can see a connection between the manifesto and PPP politics as well as its history. Hence the current lack of direction, and action, seems even more perplexing.
Could it be a reflection of the struggle that is going on within the party? The party clearly, initially at least, had a different candidate marked for the position of the prime minister. There was talk of some other people becoming ministers as well. Even party stalwarts have pointed out that Mr Zardari has been sidelining certain older party leaders and has been bringing in people with whom he has more of an understanding. Where this might be understandable from Mr Zardari’s point of view, the cost for the country, if it takes a long time for the party to get organised under the new leader, will be staggering.
Even the 2008-09 budget was not the greatest of budgets that could have been put together. It lacked the incisiveness and decisiveness that was needed. It did not clearly state what the government was thinking about in terms of a stability and/or recovery plan, and despite the talk of Benazir Card and so on it did not point out, in detail, how it was planning to help people cope with the crisis that we knew, by then, we were in. It was a hurriedly put together jumble of the economic realities and some attempts at squaring these realities with the promises that the PPP had made in its election manifesto.
But the budget had been made under difficult circumstances. The government has taken over recently, and, more importantly, PML-N ministers had left their cabinet posts literally weeks before the budget had to be announced. It must have been hard for the remaining economic team to put something coherent in this time frame. To ask for more, is probably being too ambitious.
But even after the announcement of the budget the government has not been able to come up with a more comprehensive plan for tackling the brewing economic storm. The prime minister’s recent address included, the statements from the government have been piecemeal about inflation, food prices, fuel prices, load-shedding, stock market, exchange rate and so on-the crisis of the day-rather than being part of a larger strategy.
The judicial crisis is continuing, with the new “deadline” being August 15. This means that the players involved in the crisis do not see a resolution before then, and given the revealed preferences of the PPP, it is likely that the crisis will continue to linger on even after that. It does not appear that the PML-N is going to be able to come back into the federal cabinet as long as the judicial crisis remains unresolved. So, for the foreseeable future, PPP is going to have the run of the federal government – and they will be taking the flak for policy failures also. They might as well then buckle down, resolve their internal issues, and get to work on creating a viable strategy for dealing with the economic crisis. For if they do not, and soon, the economy could go into a complete tailspin and then the recovery will not only take much longer but it will also be much more painful.
We need to figure out, very seriously and very quickly, how we are going to get economic growth back and how we are going to help people live with the consequences of the inflation and slowdown that we are faced with currently. The PPP government and the ruling coalition are not giving the economic issues the importance they deserve. The nation is going to pay a heavy price for this lack of attention. The storm we are faced with has already gathered significant momentum, and further delay is only going to turn it into a hurricane.
The writer is an associate professor at LUMS and an economic analyst
The Nation, 28/7/2008