Hot air rising

07 Nov 2019


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

NOW that the government has weathered the challenge posed by the maulana and his mob, the quagmire of a slowing economy and a brutal economic adjustment looms once again. And on that front the desperation of the government to deliver some type of good news has grown to the level where they have started to present the growth of the stock market as an indicator of the return of economic health.

One almost feels sorry for those few running things in this government. They are managing a situation they did not create. They are working in a place that has no central decision-maker or decision-making system. There is a prime minister who is not capable of much other than bluster, and for the real decisions, business and the civil service leaderships have been seen going directly to the army chief. A few months ago, people used to ask, even if rhetorically, who’s calling the shots in this setup. Now that question is no longer heard, not even rhetorically.

But now there is no longer the option for them to say ‘we have only just come to power, give us time’. Look at the way their ministers, those capable of it anyway, are trying to roll out some sort of narrative of the economy having improved under their watch, and you’ll realise they are coming under increasing pressure to justify their months in power, all 13 of them. The pressure to show results, real ones and not just rhetorical ones, beyond politics, appears to be mounting.

There is one thing that all governments do whenever they come under this pressure. They start throwing about random data points that show an increase or a decrease (depending on the indicator) as evidence of some sort of improvement. Having seen this happen with three different governments already, there is a sense of weariness at witnessing it all over again.

There is one thing that all governments do when they come under pressure. They start throwing about random data points.

A good example of defending the government with random data points is the case of Minister for Economic Affairs Hammad Azhar, who has lately been doing the rounds trying to build some sort of an economic case for the government. In the past, they used to argue over how bad the inherited situation was, but today the argument is swivelling around to whether the government has done an adequate job of commanding the situation.

Read: Economic indicators show previously ailing economy now on path of growth: Hammad Azhar

So towards this end the minister tweeted, for example, an article which reported that sales of cement have risen in the first four months of the current fiscal year (July to October), with the month of October seeing a sharp rise in cement exports. On the surface this might sound like good news, but a closer look shows nothing all that extraordinary. The bulk of the increase in exports comes from sales of clinker (which is more of a raw material) as well as sales to Afghanistan. Cement sales will mean something only when we see an uptick in construction in the country.

In addition the minister tweeted that the ADB has resumed country lending to Pakistan, that the stock market is rallying, that a primary budget surplus has been recorded, that export volumes show strong growth, and to some mirth, that ‘average inflation’ in the first 13 months of the PTI government is lower than average inflation in the first 13 months of the previous two governments.

Each one of these claims is dodgy. The ADB resumed budget support lending because Pakistan got back on an IMF programme. A primary budget surplus is too technical a point for most people to appreciate, but it basically means that the government is able to make its debt-service payments from its fresh revenue collection. For this to be used as an accomplishment, it needs to be sustained long enough in time and also be accompanied by a fall in the level of debt. ‘Average inflation’ per month is an utterly meaningless way to look at inflation, which can have many causes and also be long in the making. The PPP inherited an inflationary spiral that began before they came into office, while the PML-N was grappling with high oil prices in its early years.

Likewise, export volumes are meaningless. Exports are not measured in kilogrammes but in dollars. When presenting the PML-N’s export figures the minister shows the dollar value as a percentage of GDP but while presenting his own government’s export figures he prefers to use “export volumes”. This is an actively misleading presentation of the facts.

Likewise, he argues that the current account deficit inherited by his government was larger than that left to the PML-N, but presents an absolute dollar amount whereas cross time comparisons of the current account deficit are better done as a percentage of GDP. But size isn’t everything. One could easily argue that the deficit was on its way to being just as high (as a percentage of GDP) back then as it was in 2018 when the PTI came in, but because the PML-N leadership took timely action and launched its stabilisation effort early in its tenure, then used foreign assistance like Saudi deposits to shore up their net international reserves, they were able to control it better.

Whatever the case, the point is not to get bogged down in a battle of data points. Economic numbers rarely make sense on their own, devoid of context or proper comparators. Just because a particular number is going up or down does not mean that the government has done the right thing, or gets the credit or the blame. The context matters, as does the history, particularly when discussing numbers such as in inflation. The fact that the minister is reduced to this is the big story here. The heat is on, and like their predecessors, these guys are also clutching at straws to try and build a case for themselves.

The writer is a member of staff.

Twitter: @khurramhusain

Published in Dawn, November 7th, 2019