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Eying economy’s future

August 18, 2014

Email

A country facing the twin challenges of economic slowdown and militancy can hardly afford to overlook the possible impact of political instability.

Studies across the world show that political instability in a country is negatively related with its economic performance: it scares away capital, slows growth, pushes unemployment and increases poverty.

More importantly, it takes the government’s focus away from the real issues that need to be addressed to fix the economy to more populist policies for short-term political gains. That, in turn, creates uncertainty about economic policies.

Pakistan’s long spell of political uncertainty refuses to go away even after a smooth transition of power from an elected civilian setup to another, the first in the country’s history. Like its predecessor, the Nawaz Sharif government also appears to be lurching from one crisis to another. As if rising militancy and growing energy crisis weren’t enough, the recent protests by Imran Khan’s Pakistan Tehrik-i-Insaaf and Tahirul Qadri’s Pakistan Awami Tehrik is taking a heavy toll on the economy, particularly in Punjab. Exporters claim to have lost millions of dollars as the Punjab government moved to lock down the entire province to bar the supporters of the two parties from reaching Lahore to participate in their planned protest marches on Islamabad on the Independence Day.


“Whether the protestors succeed in forcing the government out or not, the impact of the recent events on the economy is going to be lasting,” argues Shahid Zia, a financial analyst


The lockdown of the province not only affected Punjab’s foreign trade but also disrupted the food supply chain as intercity and intracity movement in many cities was blocked.

“There has hardly been any movement of import and export cargo from and to upcountry since Eid holidays,” says Aftab Vohra, a leasing Lahore-based customs clearing agent. “The cargo movement came to a complete halt during the week preceding the planned protests on August 14 as the Punjab government impounded all shipping containers from the dry ports and intercepted those on the highways to block off the roads in Lahore and elsewhere in the province,” he notes.

Many manufacturers, especially the smaller ones, told Dawn that they had run out of raw materials to continue their operations. Others said their workers couldn’t reach the work because of the lockdown. Exporters insisted that they had to suffer substantial losses as they couldn’t ship their goods on time because of the shortage of shipping containers and the blockade of the highways.

“Four of my containers coming from Karachi were intercepted on their way to my factory in Lahore five days ahead of the opposition’s protests. I don’t know if I will be able to ship my goods on time,” said a major knitwear exporter from Lahore.

Punjab Industrial Estates Development and Management Company (Piedmc) chairman S.M. Tanvir says the “turmoil and disturbance in Punjab has lead to significant losses in industrial production, adversely affecting the nation economy”.

He regrets that Pakistan is one of the top countries losing productive man hours unnecessarily, which the economy can ill afford and advises the political parties to settle their disputes through dialogue rather than stymie the economy through street protests.

There is a wider consensus amongst businessmen and analysts that the new political crisis will weaken the government’s focus on the restructuring of the economy. “Whether the protestors succeed in forcing the government out or not, the impact of the recent events on the economy is going to be lasting,” argues Shahid Zia, a financial analyst.

“The crisis is going to shift the government in a survival mode, disrupting the implementation of its long-term policies to turn the economy around. No matter however unfortunate it is but the government’s focus will shift to policies that will be short-term but important to win over the people and the economy will continue to suffer,” he insists.

He points out that the political challenges that faced the previous government had kept it from implementing many crucial reforms and its failure to execute the promises it had made with the International Monetary Fund also led to premature discontinuation of the $11.3 billion loan programme. “What our economy is suffering from today is more a consequence of persistent political instability and uncertainty in the county. The challenges facing us demand that our politicians reach some sort of consensus on bringing the economy out of its troubles,” he concludes.

Ijaz Khokhar, a sportswear exporter and Pakistan Readymade Garments Manufacturers and Exporters Associ­ation chief patron, says political instability, if persists, will drive capital out of the country and frighten foreign buyers.

“Our image had suffered a lot around the world in the past. No one is prepared to come here because we are considered a lawless and violent country thanks primarily to the militancy and insurgency in parts of the county. Any political upheaval will further hurt our image as a reliable supplier and buyers will be forced to reduce their dependence on us as reliable source. Many top global brands and stores have already shifted to other destinations for sourcing their needs; the rest will leave us if we don’t change ourselves.”

A leading auto vendor says nobody will gain from deterioration of the economy. Now is time that we set aside our differences and work jointly for economic uplift.

Published in Dawn, Economic & Business, August 18th, 2014