Five long years

I have been writing on economic issues for almost four years. In each article, the growing weaknesses of Pakistan’s economy and policy inaction have been identified and suggestions made to arrest the declining trend in the economy. Unfortunately, no one, be it the government in power, the opposition parties, print and electronic media, civil society etc have paid any attention.

With focus on the government completing its full five-year constitutional term, there was little protest when the economy continued to slide. The previous regime indeed completed its constitutional term, and therefore we must celebrate this accomplishment. Indeed, Mr William Milam, a former US ambassador to Pakistan commented that “this was the only achievement of that government” but in the process it made Pakistan “an increasingly dysfunctional, fragmented, very troubled state”.

He also warned that “the west as well as Pakistan’s regional neighbours should be thinking about the political and strategic implications of an accelerated decline towards state failure in this key, nuclear armed country”. (IHT, April 5)

Michael Krepon, co-founder of the Stimson Centre, a think tank, while discussing the nuclear armed race between India and Pakistan wrote that “in Pakistan, the situation is starkly different. Economic growth is hobbled, foreign reserves are dwindling and the country is plagued by bloodletting. A nuclear arsenal built on weak economic foundations is inherently unstable” (IHT, April 5).

Why are these commentators so negative about what is occurring in Pakistan? This is because for five years we allowed our economy to be destroyed. It is nothing but shameful and very disappointing for us to see the economy crumbling before our own eyes. We have become silent spectators and partners in crime.

Why does the economy matter for a country? It matters because it affects the lives of the people of the country. A strong economy ensures political and social stability, which, in turn, makes the economy even stronger. A strong economy also ensures strong defence. According to historian Paul Kennedy, “a nation’s military strength rests on its economic strength”. Former US Secretary of State Robert McNamara adds that “security means development and without development there is no security”. No nation can sustain strong defence and nuclear arsenal without a strong economy. This is the message Michael Krepon wanted to convey to all of us.

My consistent position has been that the economy remained out of focus of the ruling elites. It is still out of focus even during the caretaker regime. The prime minister himself is holding the portfolio of the finance ministry when the country is fast moving towards a debt repayment crisis. Foreign exchange reserves are dwindling with no sign of respectable inflows in the horizon. The country has lost $733 million in the month of March alone, $3.675 billion since the beginning of the ongoing fiscal year (July 2012), and over $7.6 billion in the last 21 months (since July 2011).

The central bank’s reserves stood at $7.1 billion on March 29, 2013. It has bought $2.3 billion from commercial banks in the forward market. After adjusting this purchase, the central bank reserves stood at $4.8 billion. During April 1 and June 30, 2013, Pakistan will have to repay $905 million to the IMF alone. Assuming little or no inflow during the caretaker regime, the central banks’ reserves would decline to $3.9 billion by June 30 – more than sufficient to trigger the crisis of confidence and flight of capital.

What is surprising is that no one is bothered. Either people have failed to comprehend the challenges or perhaps they want to taste the pain and suffering which the people of Greece have recently experienced as a result of their economic woes.

Difficult times lie ahead. If everything goes well, general elections will be held on May 11. The general consensus is that no single party will get a simple majority; therefore, a coalition government will be in place after the elections. How long will it take to form a government? It took one and a half month to form the government after the February 18, 2008 elections. Given the politically charged atmosphere and the emergence of a new political force (the PTI) there are chances that it may take even longer to form a government this time. The longer it takes, the longer will be the duration of policy inaction and more damaging the consequences for the economy.

How stable will be the new government? The larger the number of political parties forming the coalition government, the less stable the government. Will this government be able to take difficult decisions to prevent a global default? Will the new government be ready to implement wide ranging structural reforms including tax and expenditure reforms at the back of British lawmakers demand that Pakistan must tax its own rich and powerful before seeking assistance from the international community?

One shudders even to visualise the tough times lying ahead. Unfortunately, the next government will face many difficulties. The ground reality is that Pakistan’s economy has never been in such a bad shape since its existence. Five years of misgovernance has made the country dysfunctional and fragmented. The economy has been destroyed to the core. The country’s institutions have been destroyed too, be these PIA, Pakistan Steel, the Railways, utilities company, the central bank, or the ministry of finance and planning commission.

The previous regime has proven that the country can be run without an effective finance minister, deputy chairman, planning commission and the central bank governor albeit with disastrous short- and long-term consequences.

In the last five years, we have destroyed the economy. We all are responsible for this destruction; some as active players (the economic team) and some as silent spectators. Difficult times are ahead of us. May God give us the strength to face the challenge.

The writer is principal and dean at NUST Business School (NBS) Islamabad.

Email: ahkhan@nbs.edu.pk