Monday November 29, 2021

Speculative governance

October 21, 2021

LAHORE: Economy of the country cannot be run on speculations or exemptions. There has to be solid ground for pursuing each policy with a contingency plan in case the policy fails to deliver.

The present government started its tenure with promises eliminating corruption, bringing in foreign investment, and taking the economy to new heights. The objectives were good, but its economic managers lacked the expertise to deliver.

The economy was in tailspin within the first 100 days of this government’s tenure. It was followed with the idea of striking huge oil reserves through offshore drilling. Impression was created that this hidden treasure was being exploited for the first time, though two previous attempts taken in earnest by previous governments had failed too.

A leading global oil company partnered with two government-owned oil companies to explore the hidden oil in the sea. Impression was given that the foreign company would bear all the exploration expenses of approximately $300 million.

However, when the project was folded up after failure to find oil it was revealed that only one third of the expenses were borne by that foreign investor and 2/3rd by the two government owned companies. Speculative hopes of financial independence through this discovery were shattered.

Then a new governor was inducted at the State Bank of Pakistan (SBP), who was serving at the International Monetary Fund (IMF). The governor brought the concept of bringing in foreign investment via investment of foreign funds in the treasury bond of the country.

The proposition was extremely attractive for foreigners as they could invest millions of dollars in 3- or 6-month bonds at the high interest rates prevailing at that time.

They could then take back their investment in dollars with interest. This hot money evaporated as soon as the pandemic hit the world and interest rates almost halved as a result.

The prime minister then came up with the idea of eradicating rural poverty by providing rural households with poultry. He conveniently ignored the fact that poultry farming is feasible only for the big farmers who protect their stocks from all diseases in closed sheds that are aerated 24/7 through electric fans.

The chickens reared in the open always remain vulnerable to deadly viral diseases. Moreover, the cost of rearing small chicken stocks was very high.

This experiment miserably failed.

The SBP is now offering the overseas Pakistanis many times higher global interest on dollar accounts opened in Pakistan. The deposits have exceeded $2.4 billion.

We are paying around $168 million as interest on these accounts when global offering on this amount is around $24-48 million.

The deposits are not consumed as per normal banking laws, but go to the treasury. These deposits would evaporate due to pressure on our economy.

We are pursuing a dual policy as far as the IMF is concerned. We are committed to eliminating subsidies under the IMF programme, but the subsidies have in fact increased in the past three years.

There are numerous subsidised schemes for youth, poor or students. The government is operating free meal outlets and shelter homes around the country.

In order to appease the IMF, the state has increased the power and gas rates. Many lower middle-class families are demoting to poor status as a result of these increases.

Economic mess always censures the currency of the country. The rupee is now trading at Rs173 against the US dollar.

A person earning Rs50,000 in 2018 was earning $390.6 (at the then dollar value of Rs128). Now the same amount of Rs50,000 is equivalent to $289).

A family in that income bracket was in the lower middle-income segment in 2018, but now that family is bracketed with the poor. The inconsistent economic policies have played havoc with the common man in Pakistan and baring 10 percent rich and upper middle-class all are classified among commoners.

The state has lost its writ. There is no control on prices. Adulteration of commodities has increased.

Theft of power and gas is on the rise. Corruption has reached its peak in government departments. Law and order have deteriorated as never before.

The documented sector has shrunken further. The percentage of educated unemployed is three times higher than that of those with lower education levels.

The prices of all edibles have crossed all previous records. The prices of medicines are out of reach of most patients. Deaths due to malnutrition and inability to buy medicines are on the rise.

Foreign investment has almost evaporated; local investors are hesitant to come forward.

All this happened because the state policies failed to deliver as promised by the government.