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October 20, 2019

Confusion

Opinion

October 20, 2019

Confusion is defined as “uncertainty about what is happening, intended or required”. As far as the economy is concerned we know what is ‘happening’. We know that car sales are down 39 percent. We know that the import of petroleum products is down by 46 percent. We know that cement dispatches are down. We know that the rate of interest has gone through the roof. We know that the rate of inflation is sharply up-and that millions are being laid off. This is what is happening.

What is really intended? We are told that the intention is to ‘stabilize’. We are told that the strategy is ‘demand compression’. Our economic managers tell us that they ‘intend’ to attract billions of dollars of ‘hot money’. Good.

Here’s what is missing: what about the millions of Pakistanis who have lost jobs as a consequence of the so-called ‘stabilization’? What about the millions of Pakistanis who have been pushed below the line of poverty as a consequence of ‘demand compression’? Why is it that no one talks about them – neither the IMF nor the World Bank?

What is really required? According to Dr Joseph Stiglitz, the recipient of the Nobel Prize in Economic Sciences, a former senior vice president and chief economist of the World Bank, “these policies protect foreign creditors”. How do our policymakers then plan to protect the millions of Pakistanis who have lost jobs? How do our policymakers then plan to protect the millions of Pakistanis who have fallen below poverty?

More: Pakistan must ‘balance risks’ of slowing economy: Reza Baqir

On October 10, SBP Governor Dr Reza Baqir said that the people should show patience, as they would have to face more shocks of inflation (the following day the SBP refuted the news item). On October 12, Dr Hafeez Sheikh said that the results of the government’s difficult decisions were now showing. He said that the trade deficit was brought down by 35 percent while fiscal deficit was reduced by 36 percent – adding that “these are big steps and their positive results have come forward.”

On October 14, the World Bank said that “Pakistan’s economy is slowing as it faces yet another macroeconomic crisis due to high twin deficits….” Lo and behold, another macroeconomic crisis!

How does one ascertain if an economy is headed in the right direction? Answer: Growth accounting-which is a ‘procedure used in economics to measure the contribution of capital, labour and technology to economic growth’.

What really determines long-term economic growth? Answer: Three things. We need to answer three questions. Are we accumulating capital stock (capital stock is plant and machinery)? Are labour inputs increasing (more labour being employed or more hours being worked)? Are we expecting any technological innovations? What is your answer – are we putting in more plant and machinery? What is your answer – is the unemployment rate going up or down? What is your answer – are you expecting any major technological breakthroughs within Pakistan?

Confusion is bad-both for economics and politics. A scientist was once asked: how will the world be destroyed? His reply: “By accident”.

The writer is a columnist based in Islamabad.

Email: [email protected] Twitter: @saleemfarrukh

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