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It’s time to change the model

February 18, 2019


RATING and slating election promises of the party in power by the opposition is not unusual in a democratic order. But the defensive stance that the PTI government seems to have adopted should be a cause for concern as consolidation policies start piling pressure on struggling households.

Some observers feel that adjustments within the confines of the current framework, which is already exposed to the danger of bursting at the seams, might not be possible. “We are on the edge again. To me it’s very clear that the status quo will be altered; if not voluntarily than per force,” an independent analyst warned.

“In the federal resource pool spending on debt servicing and the recurring expenditure are a given. The government has already stated its intention to jack up defence spending in the next budget. How will it finance development?

The narrow band of Pakistan’s asset-owning classes can withstand the economic blow that the consolidation phase inflicts without necessarily compromising its lifestyle, but the salaried middle class that lives pay cheque to pay cheque can’t

“During the current year hardly 35 per cent of the chopped PSDP has been released and still the public debt is at a record unsustainable level. It can’t go on like this. Meaningful changes are absolutely necessary to break free of the security state model. I see no other option,” he elaborated.

Not everyone was in agreement. “For prophets of doom it’s always been a make or break situation. Yes, we have problems but they are manageable. The start may be slow but the government is moving in the right direction,” said a business executive.

“The investor community is waiting in the wings for the dust to settle to move forward with their expansionary business plans. The expected International Monetary Fund (IMF) programme will improve the comfort level of development partners and overseas private investors and open new doors. I see Pakistan’s economy bouncing back very quickly with the pro-investment policies in place,” he commented dismissing the alarmists view.

The economic slowdown in Pakistan is starting to pinch ordinary people. The pace of increase in inflation is not frightening as it is still in single digits at around 7pc against 4pc six months back, but the mounting pressure in the job market and wage cuts/freezes have started impacting consumer sentiments which are being reflected in market footfall.

The narrow band of Pakistan’s asset owning class can withstand the economic blow that the consolidation phase inflicts without necessarily compromising its lifestyle but the salaried middle class that lives pay cheque to pay cheque can’t. According to a top executive of a leading consumer goods company this segment, which is said to be huge, is actively budgeting to trim costs.

“A homemaker I met during a routine visit to Faisalabad told me that instead of ordering monthly groceries now she shops for a week to clip wastages and control the kitchen budget,” Shazia Syed, CEO Unilever Pakistan shared her observation during a meeting with Dawn recently in Karachi.

For the poor, higher inflation means less or inferior food intake by the family and fewer children in school.

“If on the one hand the marginal value of every additional rupee is highest for the poor, on the other they suffer the most when the rupee loses value. Political parties promise the moon before the elections but once in power they do not think twice before snatching whatever little people, already living in subhuman conditions, have,” a young economist influenced by the work of Esther Duflo fumed.

Last week Razzak Dawood, a key member of Prime Minister Imran Khan’s economic dream team, tossed trade data in a press conference to show that the efforts of the government at controlling the trade deficit have started bearing fruit.

The data showed a 4pc increase in exports in the first seven months of FY19 to $13.2 billion, and import suppression by 5.1pc to $32.5bn as compared to the same period last year. The trade deficit, therefore, shrank by 9.6pc to $19.2bn in July-Jan 2019 period.

The situation continues to be bleak on the fiscal deficit front. Expenditures clearly outmatch revenue growth to the unsustainable levels, according to most assessments. The external debt of the central government increased by 16.7pc to Rs9.1 trillion in the first half of the current fiscal year, and a net increase of Rs1.3tr largely due to the currency devaluation.

A senior bureaucrat who claimed to have seen sector-wise proposals to fix the economy developed by the Economic Advisory Committee deemed them useless. “There is nothing innovative about them. They are very generic and say nothing of substance. In Pakistan there is no dearth of paperwork. There are all kinds of commission reports gathering dust in every ministry.

“As long as the idea is to tweak the system without breaking or weakening the iron grip of powerful interest groups, the economy can’t be fixed,” he said.

He gave the example of the rural economy: “Who doesn’t know that all kinds of concessions, subsidies or soft credit, failed to deliver in terms of productivity, quality and sustainability. The doled out public money lands in the pockets of a few big landlords who have held the sector hostage,” he added.

Published in Dawn, The Business and Finance Weekly, February 18th, 2019