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Economic management

Prime Minister Imran Khan continues to blame those operating in the private sector for high inflation through engagement in illegal activities – profiteering, smuggling and colluding – a charge that his 50-plus team of ministers/ministers of state/advisors/special assistants faithfully echo – while constantly emphasizing and promoting the role of private sector as an engine of growth.

Holding the private sector responsible for setting prices well above the market rate is a charge that is legitimate and applicable to not only unscrupulous wholesalers and retailers but also industrialists/manufacturers supported by recent inquiry reports including the sugar inquiry report, the wheat inquiry report coupled with numerous reports/actions taken by the Competition Commission of Pakistan (CCP) against several sectors/subsectors for example the cement sector and the automobile sector’s penchant to charge own-money. However to then support privatization and creation of wealth by the private sector, with a reasonable short- to medium-term assumption being that at first existing entrepreneurs would lead the way forward, without formulating and implementing appropriate mitigating policy/legal measures is likely to strengthen not weaken the power of the ínfluentials’ operating in the private sector.

Recently, while performing yet another ground-breaking ceremony, this time of an automobile manufacturing and assembly unit, Prime Minister Khan stated “we have to make business-friendly policies. We have to help our industry that has been previously neglected and have to incentivise it;” and further claimed that since the 1960s his government is the first to support pro-wealth and pro-industry policies. If by pro-wealth and industry policies he is referring to special borrowing rates applicable to specific industries (exporters/small and medium enterprises etc.), refinance schemes, tax concessions/incentives then all previous administrations engaged in such policy measures though there are variations in target sectors as well as the extent of the incentives. If the Prime Minister’s reference was to his pro-privatization stance then too post-Z.A.Bhutto all administrations supported privatization though they were largely unsuccessful due to court challenges, organized workers opposition and/or lack of market interest at the time – elements that remain relevant to this day.

And while the PPP is guilty of using public sector entities as recruitment centres thereby paving the way for massive subsequent losses yet PML-N vociferously opposed this policy. The decision to fire Steel Mill workers and offer voluntary retirement scheme by the Khan administration, a policy that is supported from an economic perspective given that the Mills have been non operational since 2015, is also reminiscent of decisions taken by the PML-N.

In recent weeks two additional impediments have been highlighted by the beneficiaries of the post-pandemic incentives: (i) failure to import RLNG on time accounting for the gas load management programme which has left many an exporter deeply concerned about his capacity to meet the export orders on time – orders that were diverted from India due to the onslaught of Covid19; others maintain that the decision to purchase from the national grid instead of generate their own electricity from captive power plants would almost double their per unit cost which would price them out of the market – be it international or local. Local market is relevant, they further argue because of the element of smuggling across our huge porous borders; and (ii) the recent rise in electricity rates by 1.99 per unit (except life line consumers) as well as increasing the fuel adjustment charges and raising the price of petroleum and products which envisages a raise in petroleum levy budgeted to generate 8 percent of total taxes collected would further raise input costs. In this context it is relevant to note that in calculating the consumer price index Pakistan Bureau of Statistics gives joint weightage to electricity and petroleum of around 6 percent – a weightage that needs a revisit given its significant impact on input costs as well as on the householders’ kitchen budget.

The government is insisting that its timely incentive policies have succeeded by citing the growth of Large Scale Manufacturing sector by over 7 percent July-December 2020 but conveniently ignoring the extremely low base of negative 24.8 percent April-June 2020.

Meanwhile, there are spontaneous protests across the country demanding a raise in salaries ranging from public sector employees including teachers to doctors to householders protesting against gas and electricity load shedding and a raise in tariffs. The government patted itself on the back for not raising public sector salaries in the budget 2020-21 while the private sector workers remain subdued as employment opportunities have not picked up sufficiently after the contraction in employment last year – first due to severely contractionary monetary and fiscal policies July-March 2019-20 and post-March 2020 due to Covid-19. Thus those lucky to be employed in the private sector are not rocking the boat at present. The 11-party Pakistan Democratic Movement (PDM) has so far not been able to mobilize general public discontent against the government’s economic policies; however if inflation continues to rise and a rise in employment opportunities is lower than the rise in the working public, fuelling the ranks of the unemployed, then the government may be forced to take notice of the spontaneous protests.

The Prime Minister has claimed that the wealth generated through industrialization will be used to eradicate poverty through the Ehsaas programme (which mainly consists of Benazir Income Support Programme or cash transfers that began during the Zardari-led government in 2008). The Khan administration has increased the outlay from 120 billion rupees in 2018-19 to a little over 200 billion rupees today and ensured that 820,000 of those ineligible were taken out of 5.4 million BISP beneficiaries (around 15 percent) by end-2019 which must be appreciated; however the sustained domestic erosion of the rupee would compromise the existing beneficiaries capacity to procure the same basket of goods with each passing week; besides there is no mechanism to include the unemployed as beneficiaries though one can assume that some of the unemployed can use the resources available in panahgahs for a limited time.

The Prime Minister’s supporters legitimately argue that since he took oath of office he has had to majorly adjust his economic pledges given: (i) the appalling state of the economy he inherited – a charge with considerable merit however to insist that two and half years down the line the entire blame can be placed on previous administration’s policies has begun to wear extremely thin; and (ii) his economic team leaders, Dr Hafeez Sheikh, Federal Finance Minister and Dr Reza Baqir Governor State Bank of Pakistan, honed their preferred policy matrix during decades-long employment in multilaterals which, as any independent Pakistani economist would be aware after 22 IMF programme loans, insist on a set of standard conditions that have not previously been implemented due to their politically challenging dimensions as well as for not being more tailored to domestic socio-economic conditions.

Jo Stiglitz, a Nobel laureate, criticized the Fund’s standard conditions that include fiscal austerity, high discount rate, and insistence on privatization of state assets – policies that he argues contributed to bringing about the 1997 Asian Financial Crisis, the Argentina crisis and low development in Sub-Saharah Africa. One would hope that the Prime Minister supports a cautious approach by acknowledging that the number of economic theories all seeking to develop nascent social and physical infrastructure sectors in the developing world are many and even those supportive of one theory/policy over another differ in terms of the precise policy measures to resolve issues given the country’s unique economic paradigm – a paradigm which maybe better understood by experts who have been engaged in the country.

To conclude, it is critical for the Prime Minister and the cabinet to acknowledge that there is not only one way to resolve the varied problems that beset our economy and that the measures in place require considerable fine-tuning to ensure the minimum possible disruption to peoples’ lives – measures that must include strengthening those institutions that deal with elements of the private sector engaged in illegal activities. The list must include CCP, the district administration responsible for dealing with profiteers and border force to check smuggling.

Anjum Ibrahim, "Economic management," Business Recorder. 2021-02-01.
Keywords: Economics , Economic growth , Economic management , Mitigating policy , Dr Reza Baqir , Pakistan , PDM , CCP

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