The hype and the fury

22 Aug 2019


The writer is a member of staff.
The writer is a member of staff.

RARELY has a year felt as long, yet gone by so fast. It seems like yesterday when the PTI government was sworn in, assumed office, and the newly minted prime minister asked everyone to wait at least 90 days before beginning to expect any results. Let’s emphasise this again: by results one does not mean all problems solved, but at least a working start towards getting a handle on the problems at hand.

Ninety days came and went, and today, a year into their term, as the honeymoon period ends, the government is presiding over one of the sharpest slowdowns in the economy, skyrocketing inflation, an impending large-scale boom in unemployment with firms struggling to stay afloat as markets dry up and costs continue to climb. Devaluation, inflation, high interest rates and all the medicine the doctor ordered are now in full swing.

Of course, there was little choice but to undertake this adjustment. The sad part is that reality was evident to most people except those coming to power. In his first televised address to the nation, the newly minted prime minister who had promised to change everything once he came into power simply by the force of his will and the purity of his purpose, said the biggest challenge facing the country was child malnutrition. Remember that? When he held up two MRI images of a brain and said one was that of a stunted child and the other a normal one? It was refreshing to see such a critical issue taken up at the top levels of government. After all, what can be more important than the health and well-being of our children?

Sadly, that was the last we heard him talk about this critical issue. Soon thereabouts, the then finance minister Asad Umar told us that Pakistan has no choice but to approach the IMF for emergency support because the foreign exchange reserves have fallen to critical levels and the current account deficit — which measures the inflows and outflows of foreign exchange in the country — was so high that we were losing up to $2 billion per month.

Devaluation, inflation, high interest rates and all the medicine the doctor ordered are now in full swing.

This was an existential issue for the country, we were told. The language in which Khan’s minions in and around government continue to talk about their inheritance evokes a near end-of-days emergency. It was the ‘worst economic crisis in Pakistan’s history’ we were told at one point. Never before, we were told, had the current account deficit been so large (this was a misleading presentation of the facts, by the way, because in terms of percentage of GDP, the current account deficit in 2008 was larger than what the PTI inherited), but let’s not change the subject.

So as the country prepared to approach the IMF, and we had another televised address to the nation by the newly minted prime minister. And there in the middle of it all, as the country prepared to go to the economic equivalent of the ICU, as we struggled with the ‘worst economic crisis in Pakistan’s history’, he appeared before the country and asked people to step forward and contribute to the dam fund (remember that?).

Suddenly, there was another ‘most important issue in the country’. Now we were being told that water was the most important issue, “all other issues in their place, water in its own” he said in that extempore style of his. Then came the months of floundering, as the finance minister struggled with the terms of the adjustment the IMF demanded while the prime minister lived in a parallel universe where bailouts for stockbrokers could be arranged and tax breaks doled out to industries depending on who managed to get an audience with the newly minted prime minister, who was now famous for being ‘weak in the ear’, meaning vulnerable to the last argument left echoing in his head.

The business community figured it out very quickly. The newly minted prime minister was easily softened up with praise. They went to him with practised lines. After the praise came the plaint. This is how two mini budgets that were supposed to be all about revenue measures turned instead into packages of ‘incentives’ for industry. The second of these mini budgets, the one in January, was supposed to be all about new revenue measures, born of the talks with the IMF. On the eve of the announcement, the IMF resident representative official said “our understanding is that the forthcoming mini budget will be focused on revenues”.

Instead, what was announced was a package of policies that carried a revenue loss of Rs6.8bn. This was not a mini budget, then finance minister Asad Umar announced in parliament. Instead, it was “a package of investment and export-promotion measures for industrial revival”. It included, among other things, hefty tax breaks for stockbrokers.

The curtain dropped on that scene by May 2019, as revenue collection tanked to historic levels, with the continued spectre of devaluation, while net reserves kept falling, from negative $11bn in December 2018 to beyond negative $16bn by May 2019 despite more than $7bn of short-term borrowing from friendly countries in between.

With Asad Umar’s departure from the finance ministry also departed any and all illusions of running the country on hope and emotion. No more televised appeals for donations, no more talk of ‘industry revival’ and certainly no further talk of stunted children or mega dams. What took the place of that turbulent hype is an equally coldblooded and ruthless economic rationality. We now have one person from the IMF sitting in the State Bank whose only concern is to plug the current account deficit, another individual from the World Bank sitting in the finance ministry, whose only concern is to plug the fiscal deficit.

That’s how long the hype and the fury lasted. Now we’re running on fumes, waiting to see how far the prime minister, who is no longer newly minted, can endure the doctor’s medicine.

The writer is a member of staff.

Twitter: @khurramhusain

Published in Dawn, August 22nd, 2019