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A self-sufficient economic model

It is time to strike a strategic balance between public and economic health for the maximum economic good of masses at large, especially the have-nots. As such, while extreme physical austerity needs to be observed in social interactions, we do need a non-austerity plan for kick-starting those sectors of economy that can be run with controlled clusters of labour working from safe social distances.

The Punjab government seems to have already started taking the necessary steps to revive economic activities in the province as according to a notification issued by home department’s internal security wing on April 3, it has allowed opening of 36 kinds of businesses related to the textile industry, 10 of sports goods, seven of surgical goods, three of auto parts, 25 of pharmaceutical, 22 of leather and leather garments, seven of fruits and vegetables and eight of meat and meat products/industry.

“All activities related to these industries/companies/factories and its supply chain bearing minimum staff ensuring all precautionary measures against Covid-19 as per the SOPs issued by the industries, commerce, investment and skills development department are exempted from restrictions imposed vide order of section 144 of March 23 throughout the province of Punjab,” reads the notification.

And Sindh Chief Minister Syed Murad Ali Shah on Sunday constituted a committee of health experts, labour and industries secretaries and representatives of the police and Rangers to prepare a standard operating procedure (SOP) for factories so that they could be allowed to resume operations.

Therefore, considering the anticipated recession that is bound to follow in the wake of the Covid-19-impacted national economy we need first to get the IMF to let us abandon Fund’s $6b 3-year economic austerity plan.

Next, we need to try to spend our way out of the on-coming recessionary phase by prioritizing as many labor intensive projects as possible in physical (constructing labour colonies, bridges, roads and railway tracks) and social infrastructure sectors (universally affordable health and education facilities). It is in this context that one perceives some merit in the proposed special incentive package for construction industry announced by Prime Minister Imran Khan the other day.

The policy is right but it is wrong to hand over its implementation to the private sector. And it is doubly wrong to offer ‘no-questions asked’ investment facility to this sector which has proven more than once that it is no more than a crass rent seeker to the core. And it is also wrong to offer so many tax concessions to builder mafia which is well known for its financial malpractices including tax evasion and money laundering. This will only promote corruption on the double. And perhaps FATF would also find the decision unacceptable.

Of course, there is a huge demand for houses in the country but, in view of the anticipated recession in the wake of the economic devastation being caused by Covid-19 this demand, especially in the private sector is likely to be too lukewarm for at least the next couple of years. And though currently we are surplus in electricity, gas and water, however, have become dearer constraining supplies for new houses to be constructed. Adequate water supplies could be ensured for the Naya Pakistan Housing Project by providing water re-cycling facility in each constructed cluster of NPHP flats.

Since construction is being accorded the status of industry, thereby making documentation of its activities essential under law, the unscrupulous builder mafia would not find it profitable any more to invest in construction activity, even if it is no-questions asked mode of investment. Also it would be an anathema for the builder mafia to comply with industry-related labour laws.

Trade union leaders have already asked Prime Minister Imran Khan to provide the workers of the construction sector the same facilities that the industrial workers have, including their registration under various labor laws and provision of social security facilities. They said labour laws should be mandatorily implemented in the construction industry.

Because of the compulsions of complying with labour laws and documenting the business after it has been accorded the status of industry, the builder mafia, more likely than not, would find the construction business not too profitable. Therefore, instead of depending on the not so dependable private sector for kick-starting construction activities, this industry including Naya Pakistan Housing Project should be brought under the public sector domain.

A country-wide mega physical infrastructure development programme, including construction of roads, highways, bridges and railway tracks, should be launched in the public sector along with the NPHP.

Since it is a full-fledged war that we are engaged in currently it would only be fitting if logistics of these public sector construction projects are assigned to the National Logistics Cell (NLC) and the construction job to Frontier Works Organization (FWO).

Of course, our chronic resource constraints do not permit taking in hand in the public sector such massive projects. However, in view of the desperate circumstances obtaining currently a desperate way out of this dilemma could be resorted to by printing currency notes.

Since in the process a lot of spending money would enter circulation triggering demand, unlocking the closed down manufacturing capacities unblocking supply-lines, prices across the board including electricity and gas bills would decline significantly. At the same time the domestic oil and diesel prices are expected to decline to reasonable levels in response to the world oil price collapse thus sending the domestic rate of inflation racing down to perhaps 5-6%, creating the needed space for the State Bank of Pakistan to reduce the interest rate by as much. This in turn, would start turning the wheels of national economy at a faster pace expanding in the process the GDP at an estimated rate of 5-6% which in turn would hopefully enhance manifold the government’s revenue income.

With the increase in revenue incomes the government would perhaps be in a much better position to allocate a larger budget for the Benazir Income Support Programme (BISP) to take care of at least three times the population that is now being covered by the programme which certainly would considerably improve the lot of the 25% of the most destitute in the population.

The professional economists would certainly call this, seemingly cavalier approach aimed at kick-starting the economic activity as absurd.

But consider: Pakistan is a market of over 200 million. This market can sustain on its own if products to be manufactured are selected keeping in view local availability of raw materials, manpower having the required skills and available manufacturing capabilities and capacities. A strict watch also would need to be kept on the supply and demand equation to minimize wastages. This way Pakistan can become to a large extent self-sufficient in many manufactured products.

However, it would take at least about six months for the construction industry to start generating the jobs for the labour class. The decision was to, meanwhile, provide daily ration at the doorsteps of those who have lost their sources of income because of the lockdown. But the government is still at the planning stage as to how to implement the decision. And for the last 15 days the NGOs and other private philanthropic organizations have been taking care of the daily wage earners, vendors, hawkers, khokha operators, small shop owners, hair-dressers and the like. But the result has remained mostly patchy.

Therefore, one hopes that the National Command and Operation Centre (NCOC) would realize before it is too late and the destitute start dying of hunger that none other than the armed forces have the capacity and capability to perform this task efficiently and effectively. And why not? It is a war for survival. Therefore, it is only logical to expect the armed forces to take to the front lines.

Meanwhile, according to one estimate, if the government were to reduce petrol prices by Rs 30 and diesel by Rs 40, it would be passing a bail-out package of Rs 700 billion to the people at large without the government losing any oil-related revenues.

Add to this the savings in interest payment due to massive reduction in the interest rates. This would total up the bailout amount to over Rs 1.5 trillion.

The IMF is already contemplating making available one trillion dollars for member countries facing the threat of the Covid-19. Pakistan is aiming to get a slice of $ 1.4 billion from this allocation. And according to an official statement, the World Bank would provide $238 million and the ADB $350 million to Pakistan in support to the Covid-19 emergency response.

The US has also announced an initial aid of $1 million to Pakistan in order to help the country in combating coronavirus outbreak.

The IMF has also assured Pakistan that any additional budget allocation for meeting the threat of Covid-19 would not be counted as part of fiscal deficit

M Ziauddin, "A self-sufficient economic model," Business Recorder. 2020-04-08.
Keywords: Economics , Economic affairs , Economic reforms , Economic health , Punjab government , Economic activities , Textile industry , National economy , Labour colonies , NPHP , NLC , FWO

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