Cycle of borrowing

May 23, 2019

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The writer is a former civil servant.
The writer is a former civil servant.

THE PTI government is caught between the devil and the deep blue sea. When they procrastinated on signing up with the International Monetary Fund, there was unanimous condemnation, and their star finance minister was sent home. Now that they have signed up to the programme, there is widespread condemnation of having sold out to the IMF that has also been dubbed by some as the ‘new East India Company’.

Politics in this country, assisted by the media, seems to have become a game of pulling everyone and everything down, without putting forward any solution. There is unabated government bashing, which is likely to culminate in the demand to send the current set of rulers packing. The replacements for the post of finance minister, the State Bank governor, and the chairman of the Federal Board of Revenue are all being presented as demons and agents of the West and the IMF.

Why is it escaping the critics that this is not the first time that we are begging from the IMF? In fact, it is reportedly the 21st time. Why is it escaping them that this is not the first time that we have imported finance ministers and governors of the State Bank? Going to the IMF and having Shaukat Aziz, Moeen Qureshi, Shamshad Akhtar and their ilk is quite routine. Prime Minister Imran Khan was trying to be different by having a ‘local’ finance minister and getting help from friends such as Saudi Arabia, the UAE and China to avoid going to the IMF. But he was hounded several times a day for eight months, until he finally succumbed.

With all this howling going on, no one wants to point out the elephant in the room: the fact that we as a nation and as individuals are living beyond our means. If you have been to a government office in Pakistan (including the offices of military officials), is it in any way less opulent than a government office in the West? At the top level, while the chancellor of Germany will herself get her visiting counterpart a cup of coffee, liveried waiters will do that for our visitors in Islamabad.

No one wants to point out that we as a nation are living beyond our means.

Our governments have led us to a situation where we have been earning $22 billion to $23bn on exports and spending $60bn on imports for the last so many years (only recently down to $55bn). So while we are now having to sell, amongst other things, our self-respect and independence for six billion dollars from the IMF, our financial wizards have been showing us how to continue to live beyond our means through gimmicks, mainly by borrowing from all and sundry.

We as a nation are proud to have one of the best motorway systems in the world with millions of luxury vehicles in the hands of the elite — but without finding the money to make literate 40 per cent of the population, or to find the will to send 23 million children to schools.

Can anyone going around the DHAs, Gulbergs and Model Towns of our cities, with residents’ luxury cars parked in their porches, ever imagine this is a country which is on the verge of international default?

In this country, a household with an income of Rs30,000 per month is used to smartphones, a bike, a TV, a couple of fans — all imported, except perhaps the fans, with low import duties to facilitate general consumption.

Since the last 25 years or so, we have had a very WTO-compliant trade policy of equal treatment for all countries, by lowering our customs duties, with the mantra that importing from the cheapest source is best for the economy. Our markets continue to be flooded by cheap imports, where even those with a low-paying job will wear clothes made in China or Thailand. The cause and effect: our small and medium industries have all closed down.

The result of this policy of cheap imports and the practice of living for the present has been, (and our commerce ministry cannot quite comprehend it), the reason that our exports refuse to go up. There is no manufacturing left in the country. Anyone who has money to invest will buy a ‘file’ of a well-run housing society and put it in his drawer. Even until the early 1990s, he would have aspired to become an ‘industrialist’ by putting his money, with some borrowed capital in some small manufacturing unit, creating a few jobs, in addition to replacing imports.

What the PTI government needs to do is to recover their wits, not be fixated on the IMF, and launch a big initiative for encouraging local manufacturing — even if it leads to a few bad loans. Anything which reduces imports and increases exports based on local raw material should be the priority. This economy will only take off on a sustainable basis if we learn to live within our means: the main indicator being a balancing of our trade deficit, and a significant reduction in our government expenditure.

The writer is a former civil servant.

Published in Dawn, May 23rd, 2019