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March 28, 2020

Blame games offer no way out this time


March 28, 2020

LAHORE: When things go wrong in Pakistan, governments look for scapegoats. Sometimes the past governments are blamed and thrown to the National Accountability Bureau (NAB). At other times the global situation is referred to. Never do rulers accept their fault or present themselves for accountability.

This government for instance tried to prop up the foreign exchange reserves through pursuit of hot money. The public was made to believe that Pakistan has become an attractive place for foreign fund investors.

Every sane economist said that increasing foreign exchange reserves by providing foreign funds 13.5 percent interest rates on their dollar invested in treasury bills is suicidal. But the constant increase in forex reserves was touted as a sign of economic stabilisation of the country.

The forex reserves continued ticking up till the central bank reduced the policy rate by 0.75 percent. There was a slight decline, but 12.50 percent was still a lucrative rate. However, when the central bank reduced the policy rate by 1.5 percent, foreign funds started moving out of the Pakistani market rapidly.

This regime and its Financial Advisor blame the previous government for keeping a cap on rupee value that impacted Pakistan’s exports. Instead of keeping the Pakistani currency under control, the new regime first devalued it beyond reason and then allowed foreign funds to invest in treasury bills at high mark-up.

As a result, borrowed money started pouring in and the over-devalued rupee started to decline to its real value. This was touted as the success of the central bank policy.

It is worth noting that prior to the influx of hot money, most of the reserves that Pakistan built under the present regime was because of money borrowed from donor agencies and friendly countries. The additional reserves that were built from hot money were also a type of borrowing.

Every sane person argued to refrain from this risky built up of reserves, as high policy rates stifled economic growth in the country. High interest rates were the one reason that despite much touted economic stabilisation, economic growth was going down.

The first condition for renewal of economic growth was the lowering of interest rates. We were caught between the devil and the deep blue sea. If we lower interest rates, hot money would evaporate quickly and if we do not economic growth would decline.

Much better alternative would have been to let the rupee decline so that our exports became competitive. We were pursuing a flawed policy that caved in at the first sign of global crisis.

Now there is a run on our currency. The rupee would settle at a very low value against the dollar. Unfortunately the time is not ripe for global trade activities. So even if we gain competitive edge over competing economies there are no buyers in the global markets.

Every country is locked down and demand for our export items has waned sharply. There is higher demand instead for commodities and products that we do not produce. There is huge demand for healthcare gadgets, ventilators etc.

Still the rulers are adamant that their policies are in the right direction. They erred on tackling the coronavirus pandemic. Sindh government was much ahead in taking precautionary measures to arrest its spread. They imposed lockdown much earlier than Punjab ruled by PTI.

When the government started issuing daily statistics about the spread of this virus across the country, more than 50 percent of the cases were reported in Sindh, Punjab has fewer cases than Gilgit-Baltistan. Today, the gap between the cases in Sindh and Punjab has narrowed and both the provinces have almost the same number of cases. It is because the spread in Sindh has slowed down due to earlier lockdown and it has accelerated in Punjab.

Who is responsible for this debacle? Will the rulers present themselves for accountability? Is the human life and health not important? Is it still necessary to operate in vindictive mode? Why don’t the rulers concentrate on providing real relief to the people and correct their policies instead of consuming their energies to keep Mir Shakilur Rehman behind bars?

To improve the economy and the lot of the people, the rulers would have to come out of their vindictive shell. The present crisis needs real and sincere and across the board efforts of all political parties. Incompetent in the ruling parties should be shown the door. Those who violated rules and were responsible for the spread of coronavirus in Pakistan should be punished.