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Sunday June 16, 2024

Shortistan

By Ammar Habib Khan
March 20, 2023

The journey from plotistan to shortistan in a brief period has been incredible. Unintended consequences of myopic decisions continue to haunt the country’s population while those at the helm quarrel like elementary schoolchildren, with similar levels of intelligence.

The arbitrary decision to restrict imports sometime last year disrupted supply chains across all industries. Policymakers make kneejerk decisions. The industry, and the people live through those decisions in real time. As imports were restricted, businesses started scampering for the ability to import even the most inane of stuff.

Instead of growing their businesses, entrepreneurs started spending an obscene amount of time to get permissions to import, whether that be something as basic as chemicals, to automobile parts and so on. Lobbying with the central bank, currying favours from banks, and even doling out gifts to political leaders – all became fair game.

As the foreign currency liquidity crunch continued, and the policymakers refused to mend course, and actually do something reasonable for a change, the crisis worsened. Earlier it was a crisis of raw material. As raw material was not available, the production of final goods suffered, resulting in contraction of industrial, and agricultural output. Inability to source raw material and intermediate goods required for production of finished goods has led to massive contraction in industrial output and unemployment across the board. Something as basic as animal feed required for production of poultry is in short supply resulting in spiraling prices of poultry, and eggs.

To double down on bad decisions, the government also centralized pricing of medicine at the highest level of policymaking. We have now reached a stage where medicines, or their active pharmaceutical ingredient, can either not be imported or priced correctly despite massive depreciation of the Pak rupee over the last few months. This is bad policymaking taken to a level never seen before.

A mobile phone assembly unit can’t import raw material for production, resulting in a complete shutdown of its facility, which was only recently established. Benefiting from this, the grey market for mobile phones has suddenly boomed as smuggling continues like never before, under the watchful eyes of the guardians of the galaxy.

One of the largest chemical producing units in the country also shut down production, as they cannot import the raw material anymore. A power plant is scampering to import spare parts lest there be a shutdown of critical infrastructure. Each industry has a story, and each story has millions of jobs and households attached to it. A supply chain crisis is an economic crisis, a largely bad policy drive crisis.

Now it is a crisis of stores, and spares, including raw material. Industrial activity is a function of machines installed, and all machines require maintenance, and replacement of spares, etc. As the crisis worsened, it is now getting increasingly difficult to even keep operating machines. Any further delays would lead to a complete breakdown of the already precarious industrial infrastructure of the country.

Critical supplies for power generation equipment have been in short supply. As various businesses scamper to arrange imports, the power infrastructure of the country remains at risk for a complete shutdown, all because of badly designed policy interventions. At this stage of the cycle, critical infrastructure is at risk, and if that goes down, it is only going to get worse from there.

Inflation in Pakistan is at its highest ever level, with the inflation monitored by the Sensitive Price Index hitting the 40 per cent mark recently. This is a leading indicator of how things are going to get even worse. The country has one of the highest levels of inflation in Asia, and this is largely a function of spiraling money supply and supply shortages. Absence of raw material for production of finished goods, as well as the inability of the government to arrange foreign currency has led to a shortage of even the most basic goods. As the shortage compounds, prices increase, further compounding inflation.

This is the perfect storm, and here the ship has no captain, and the crew has bailed. In the absence of any firm policymaking and course correction by the government, compounding shortages will keep pushing up prices. The government can print all the money it wants, but it cannot print edibles, or essential goods.

The inability of the government and its policymakers to understand how supply chains actually work has pushed us to a stage where we are close to a complete breakdown.

The writer is an independent macroeconomist.