THE first thing to note about the meeting last week between a delegation of leading businessmen and the army chief is the fact that it happened at all. What we don’t know is whether the delegates were asked to come for the meeting or whether they asked for it. Wherever the initiative may have come from, the results amount to the same thing.
The delegates were given a very clear message. Pakistan is on the road to stabilisation, particularly economic stabilisation. There is no question of deviating from this path. Everybody must bear the burden that the path brings. Within the constraints imposed by this stabilisation, matters can be discussed and, where possible, some corrective steps can be taken.
This message frames the discussion. For more than one year now, Pakistan has been on a policy course described in the textbooks as ‘macroeconomic stabilisation’. This means that the deficits that have grown in the economy — particularly fiscal and external — have to be narrowed before anything else. This is not the first stabilisation drive that the country has been on. Since 1988, we have seen this happen more than a dozen times.
What our experience has taught us is that business and industry feel the brunt of this set of policy actions.
The deficits are bridged through a familiar set of policy actions. Interest rates are raised to make the cost of borrowing higher. Think of interest rates as the ‘cost of money’, and you’ll realise what they are doing is basically raising the cost of money to arrest the erosion in value of the rupee. At the same time, the exchange rate is depreciated to more accurately reflect the true value of the rupee against the dollar given our inflation and foreign-exchange levels. And then a massive effort is launched to raise revenues and cut spending, so the fiscal deficit can be narrowed.
This is a familiar story by now. What our experience has taught us is that business and industry feel the brunt of this set of policy actions as the cost of borrowing rises, the cost of imported inputs skyrockets, demand for their products drops and the tax authorities show up with renewed vigour as documentation requirements are increased along with tax rates.
Doubtless all this fuels anxiety in the business community, as well as eroding people’s standard of living and promoting unemployment, as production lines are scaled down amid collapsing demand. The business community has been feeling this anxiety in a rising arc for almost a year now. Delegations have been visiting Asad Umar, Imran Khan, Razzak Dawood and Shabbar Zaidi since they came to office. For a while, they were able to get certain, specific ‘incentive packages’.
These entities included drug companies, as well as auto makers — who obtained some revisions in the conditions that prohibited non-filers from purchasing cars. Stockbrokers and Punjab-based textile tycoons got some targeted relief through tax or gas price subsidies back in January.
But then, Asad Umar was replaced by Hafeez Shaikh, who is not from among Imran Khan’s men and all that ended. Now they had to go to Shaikh with their grievances, and upon not being satisfied, they went to Imran Khan directly.
Khan is now famous for being vulnerable to the last argument left in his ears. The businessmen had little trouble getting him to agree to what they were asking for, but after leaving, they would learn that Shaikh had changed his mind all over again. This continued for a while, and then one by one, these businessmen began appearing on the TV screens, in various shows; as anxiety mounted, production lines ground to a halt in some cases.
Almost all of them conveyed the same message in their appearances that began in September and picked up pace all month: ‘The government listens to us, the prime minister agrees with us when we meet with him. The problem is in the implementation.’
What these words sought to convey was that the prime minister himself was not difficult to convince, but the man charged with implementing his decisions, purportedly made on the spur of the moment during the meeting with whatever business delegation the prime minister happened to be sitting with, would not carry out the instructions.
The anxiety of the business community that had been building up for almost a year now, poured out into the national conversation, where it turned into national anxiety. This had political implications, and many others whose interests were being hurt by the turn the national conversation had taken were getting ready to come forward themselves.
That’s when the meeting happened between the army chief and the business delegation. The chief’s message was simple: the adjustment is here to stay, be patient. The businessmen shared a few of their specific complaints regarding how tax refunds are processed, for example, or how the bonds issued against outstanding tax refunds lack a secondary market. Some wanted the return of gas price subsidies promised to Punjab millers last year. Others wanted procedures in land acquisition to be streamlined to facilitate the construction industry. All of them wanted NAB off their back.
They were told, in return, that within the confines of the adjustment, whatever was possible would be pursued. But they were also told to please keep their voice down. Which is why you don’t see them on air very much anymore, and when you do, their message has shifted completely, usually towards NAB, since that is an issue neutral to the ongoing adjustment.
The high interest rates will stay till inflation comes down, they were told. The tax collection effort will continue with no let up. The exchange rate must find its own value. The businessmen “will cooperate in implementation of government reforms” said a press release issued by ISPR shortly after the meeting, “and also play their part by paying taxes and investing in a socially and economically responsible manner”.
And there ended that chapter.
The writer is a member of staff.
Published in Dawn, October 10th, 2019