IN case you haven’t noticed, the government is now taking strong fire on the airwaves. Night after night, highly rated TV anchors, many of whom were equally vociferous supporters of the government about a year ago, are taking to the air to pummel the regime on its governance and economic management track record.
So what’s going on? One take that naturally starts doing the rounds in times like these is that there has been some sort of a ‘falling out’ in critical quarters between the government and its powerful backers. Another take is that the economic pain has now risen to a level that it has become impossible to ignore, and TV anchors, being a fickle lot, have picked up on the pain and have decided to jump the barricades.
In any case, what is significant to note now is that the politics of the adjustment are in full gear, and Imran Khan is struggling to find his footing.
Read: Economy, one year on
Every time any country undertakes a macroeconomic adjustment of the sort that comes with an IMF programme, it has to navigate extremely challenging political waters. The reason is simple: adjustments of this sort place a heavy burden on the populace, weaken the government’s ties with powerful constituents within their own society, and force extremely difficult choices over deciding winners and losers. There are always winners and losers in these times, and the government in power has to preside over these choices. Billions of rupees will be made and lost by various groups as a result, and as these choices are made, shockwaves travel through the polity.
The government is making some unusual moves that reek of panic.
For the moment, the high interest rates have placed a mammoth burden on industry. The documentation drive and the exchange rate depreciation has hit the traders and associated services industries very hard, disrupting supply chains and rocking their cash flows violently.
Meanwhile, large segments of the financial sector are making hay. Auctions of government debt have attracted close to Rs5.5 trillion since mid-July, after the debt markets sat practically dormant for almost one and half years. Even foreign investors have started to participate given the returns, and more than $100 million have been invested by funds from outside Pakistan, no doubt in response to the high rates on offer against government paper compared to many other emerging markets where central banks have actually been slashing rates. Much of this Rs5.5tr figure is rollover of maturing debt, so this does not mean there is fresh borrowing of this magnitude!
This is the flip side of the interest rate hikes: industry loses and bankers win. Likewise, within manufacturing, it is worth seeing which of the big industries are bearing the brunt of the ‘demand contraction’ currently being administered to rectify the economy’s deficits. Who among textiles, sugar, cement, autos, flour milling and power generation (to name a few) are bearing the greatest brunt of the contraction under way? The answer will provide clues as to how the government is going about distributing the burden, which, in turn, will reveal who has how much voice within the setup and who does not.
In response to the rising temperature, both politically and economically, the government is making some unusual moves that reek of panic. For example, earlier this month they decided, at the cabinet level apparently, that a ‘media monitoring cell’ will be established in the finance ministry “to monitor economy-related news in the media for immediate rejoinders/ rebuttals/ clarifications”. The cell will consist of three people, a special secretary finance who will act as the spokesman, an ‘adviser’ and a director general, media. The people named to these posts are Omar Hamid Khan, Dr Imtiaz Ahmad and Hamid Raza Khan, respectively.
The question now is of capacity. Do these three gentlemen have the capacity to work at the speed of news? Moreover, clarifications, especially in the matter of economic news, can be tricky business. Let me give one example to illustrate the point.
Back in March, the same finance ministry sent a ‘clarification’ to this newspaper in response to an article I had written in which the State Bank was quoted as saying that the rise in private-sector credit offtake reflected rising inflation. Firms were borrowing more to meet their operating costs and working capital requirements, and this was driving up the volume of their borrowing. This ran contrary to what the finance minister at the time had been telling the country, that the rising appetite for credit in the private sector was a sign of underlying dynamism and health returning to the economy.
In response, the finance ministry sent a ‘clarification’, which Dawn published, in which they first ignored the fact that the claim they sought to clarify had actually been made by the State Bank, and only quoted by the writer. They called the argument that inflation can lead to an increase in the borrowing needs of firms “bizarre”.
“Any student of economics can enlighten the author that a rise in private sector credit is seen as a leading indicator of greater economic activity and growing business confidence” said the clarification.
So the gentlemen of the newly minted ‘media monitoring cell’ can perhaps start their jobs by answering this simple question. What would the student of economics tell us now that private sector credit offtake has gone negative Rs86bn in the period July 1 to Sept 6? What does this figure say about the state of economic activity and underlying business confidence in the country?
It is important, when taking stock of economic developments, that one does not run away with the number of the week. That is the tricky thing about data: it changes as times moves forward. Let’s hope Messrs Khan, Ahmad and Khan of the ‘media monitoring cell’ can discharge their responsibilities without making the government look any more foolish than it already does.
The writer is a member of staff.
Published in Dawn, September 19th, 2019