The Pussycat ain’t Purring yet

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Despite Pakistan’s economic travails and the battering it has taken with respect to fudging of statistics, the State Bank of Pakistan (SBP) survives in international financial perceptions as a credible institution, this reputation derived from being blessed with good leaders. While disagreeing with Dr Yaqub on some issues, among them the freezing of foreign currency accounts which made his inclusion in the military regime’s initial National Security Council incongruous, he ran a very taut ship in detiorating economic circumstances, balancing the economy on a fail-safe line between the penchant of two successive political governments alternating in taking us down the slippery road to economic apocalypse by contradictory self-serving economic policies. Instead of abandoning ship under fire, Dr Yaqub remained on the burning deck to try and limit damage to the economic fabric of the nation, together with the than Finance Ministers holding off IMF-savaging of our poverty-stricken masses, during this period almost the whole of the lower middle class, mostly salaried persons, slid below the poverty line. Inheriting an exceptionally horrific economic situation but Dr Ishrat Hussain’s no-nonsense performance-oriented abilities have been complemented by the singular authority of a military regime, the perfect recipe prescribed for economic recovery, provided sound policies are conceived and implemented by those who are supposed to do so.

The priority in such adverse circumstances is to stem the economic rot, simultaneously laying the foundations for economic revival is a plus point, that is the thrust of the latest SBP Quarterly Report. Acknowledging that economic growth may fall just below 4% from the estimated 4.5%, the Report lists adverse factors beyond the country’s control as (1) paucity of water (2) the inordinate rise in petroleum prices and (3) the looming US recession, as contributing to stunting economic recovery. The net decline in agriculture production in a primarily agri-economy will have far-reaching effect on diverse production in all sectors. With 55% of Pakistan’s labour employed in agriculture, the reduced acreage of rice and sugar under cultivation because of lack of irrigation water will drastically reduce revenue projections and trigger off a fresh wave of migration of farm hands from rural to the urban areas. Industry has performed indifferently with no addition in employment opportunities. A combination of debt re-scheduling and IMF tranches has got the government some relief upto September this year, thereafter debt repayments will re-appear to haunt us again. We have become official beggars with the government requesting for debt forgiveness, many years ago those of us who recommended this route were shunted aside contemptuously by the IMF/World Bank job-seeking mafia in our bureaucracy as being ignorant financial hicks. This country badly needs such relief for an extended 2-3 years period so as to deliver on poverty reduction and growth facilitation programs. Our national savings rate stays at an abysmal 13% but a looming problem is the next budget (and revenue collection thereof). We have to address viz (1) the size of the budget deficit (2) systemize balance of payments (3) effect mobilization of own resources and (4) increase expatriate home remittances by at least US$ 2-2.5 billion annually. While Pakistan had put a freeze on defence expenditures, India has made our task harder by increasing theirs by 13.8%, this rise being more than our total defence outlays.

Given the silt accumulating in the Dams (the de-silting of Tarbela Dam alone will cost billions of dollars) we need to come to terms with optimum conservation and judicious distribution of water resources. The two great absorbers of economic shocks are (1) the agriculture sector and (2) the unorganized non-documented sector. We need to rapidly invest in dairy farming, production of fruits and vegetables, poultry, livestock farming, etc to go with Corporate farming. Many people do not know (because it is not fashionable) that livestock contributes more to Pakistan’s economy than the whole manufacturing sector. The Finance Ministry gives priority lip-service to (1) planning (2) balance of payments (3) fiscal policy and (4) production but has no real policy (or time) for the Services Sector, the only one presently producing jobs, and that also at low capital cost. There is a need for the self-employed, among them doctors, engineers, shopkeepers etc to pay their taxes. But an attack on “unemployment” is not on anyone’s agenda, there is little (if any) realization of the implications of unemployment on Pakistan’s economic balance sheet. Unemployment could lead to social unrest with political implications. Private security sector is a major job-producer today, a mainstream bank for khaki-collar workers. In total contempt of facts as they are, the bureaucracy is hell-bent on destroying this services sub-sector. Jobless retired personnel can be lethal if the unemployment bomb ever goes off, if they cannot feed their families will you cut off their hands? But is anybody listening? On for that matter, even have the foggiest notion of what I am talking about? Those in uniform usually believe they will never retire, except for an elite handful the majority of ex-servicemen are treated worse than dirt. An environment of internal peace is a must, despite its stance on CTBT, Japan is willing to give extended economic help if the law and order situation improves.

The Nationalized Commercial Banks (NCBs) continue to perform reasonably well. Amar Zafar of UBL requesting the CE for an injection of Rs 21 billion liquidity from SBP would give a wrong impression of quite a hole in the balance sheet, a non-starter for privatization. The amount requested was meant to cover those delinquent payments that government agencies and semi-government corporations owe for various reasons, to cover the time lag between bills and government disbursements thereof. If UBL was facing any liquidity crunch, why was SBP rating it as most successful of the NCBs in raising new deposits in the last quarter? In the market perception is that Habib Bank and UBL are both viable proposition for investors, provided immediate re-structuring is followed by early privatization, the sooner the better. As things stand Allied Bank may be first on that route. One opines, in a “physician, heal thyself” policy, Governor SBP would also opt for opt for re-structuring of SBP. Speedy privatization of the NCBs would be a triple strike for the better, viz (1) removing a burden while (3) generating much needed liquidity, with most of it going to (3) debt retirement. With respect to the remaining NCB, National Bank of Pakistan (NBP) President-slot was kept open for several months for Ali Raza so that he could get his “golden handshake” from Bank of America, the expected Ali Raza-miracle has yet to materialize in NBP. Bank of America faced US Senate-music in offering private banking for Pakistanis (and others), brother Salim Raza (serving another bank) was “mentioned in dispatches” (page 23 of the 48 page US Senate Report on Private Banking and Money-Laundering). Crime not only pays, given the right connections it thrives!

Government functionaries universally bad-mouth the print media for mis-representing every successive government’s “wonderful” performance. Technocrats are past masters of painting a rosy picture, small wonder that the CE seems frustrated at the different views of the “free press”. The first military regime in history to allow absolute press freedom gave the military government credibility domestically, more importantly it gave acceptability to an authoritarian regime in a “democratically inclined” world not ready to do so. A free press is the main reason India’s media offensive to isolate us failed at the altar of world opinion. Rather than being irrationally nasty, the Pakistani Press has generally kept the national interest paramount, only hinting gently about mistakes and aberrations.

Inheriting an awful economic situation, the CE told a business group he initiated necessary policies which are the cause of immediate pain, the long-term benefits would be apparent in 2-3 years time. Is this possible when things are not in the regime’s control, viz (1) nature and the acute shortage of water, of increased world petroleum prices and/or the US economic slowdown? An economic resurgence may be in the distant future, we are better positioned now to absorb economic shocks than we were two years ago, that is the essence of what the SBP is also saying. The country’s media managers have their own individual priorities and have failed miserably in getting the message across. The heads of families among the masses suffering the present pain worry about the survival of their families till they can savour the promised goodies, not only ver much in the bush but quite some distance in the future. The masses need convincing that the promises are not a mirage. One hopes “you ain’t seen nothing yet!” would be for the better and not for the worse. Beyond the horizon there could well be a tiger in the tank, at this time the economy is a pussycat that ain’t purring yet.

Mr. Ikram Sehgal is Publisher and Managing Editor of Defence Journal (Pakistan). He was Chairman APSAA for the year 2000, now acting in adhoc capacity pending elections for the year 2001.

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