Diehard fans of Pakistan cricket would have noticed that Pakistan lies somewhere near the bottom of Test match rankings, a format that requires a long, hard grind and is considered to be the pinnacle of cricket since it requires real character and skill. Above all, it requires persistence and patience. Pakistan’s ranking is an apt reflection of the lack of these qualities in its players in this format.
Compare this to T-20 cricket, where Pakistan is at the top of rankings. This is cricket’s version of modern day baseball, tailored for modern commercial demands rather than old virtues of technique and character test. It is a few hours of slap and hit cricket, one where strategy, technique and patience goes out of the window.
Pakistan’s economy and economic management fits the T-20 pattern. Its unique feature is that it goes through a periodic, short boom cycle, and then the air goes of its sails. As the bubble pricks, we find ourselves back to square one after a period of three-four years. No wonder that Pakistan’s economic ranking, just like our test rankings, are near the bottom of the ladder.
Pakistan has now entered another T-20 style economic boom, the beginnings of which will become clearer in the coming days and years. For a start, as soon as the $6 billion deal was announced, the free fall of the rupee against the dollar came to a halt, and the stock market’s nosedive also receded. But beware! Short-term gains shouldn’t blind us to the eventual fizzling out of the bubble a few years later. Here’s how things are likely going to play out in the coming years.
First, take stock of the fact that the inflow of $6 billion would create substantial amount of fiscal space for a struggling economy. How much space would be created? At present rate, and after rounding off, it would create an inflow of Rs900 billion, equivalent to a little more than 12 percent of total expenditures at present (Rs7.4 trillion, or 7,400 billion as of last fiscal year). Mind you, this is just IMF support. Evidence suggests that as soon as the nod from the IMF comes, other donors also jump into the fray to give ‘financial support.’ This implies that there are likely going to be more loans. A news item about a month ago suggested that economic managers (Babus of Q and P block in reality) have drawn up plans for $22 billion in loans, majority of which will ultimately be returned as repayments on earlier loans, but also creating more fiscal space if this were to materialise.
Anyway, the incoming loan money would be treated as government income via a bit of statistical jugglery, something that we have become accustomed to. We would be told that bad days are behind us and a new chapter has started, one that would transform us into an Asian Tiger. Pakistanis, especially the business community, would be presented with magical figures that would show a healthy position of government coffers.
As additional fiscal space becomes available, all government departments (civil and military) would descend with their extensive wish lists, most of them wrapped under the attractive title of ‘development’ work. Resultantly, the size of Public Sector Development Program (PSDP) would balloon considerably, given the additional fiscal space and the wish list, and that would be held up as a sign of an economy that is on the rise towards its destiny.
As the growth rate increases on the back of rising public sector expenses, we would witness price inflation in almost every walk of life. There would be additional income generated, and this additional income would fuel an additional consumption binge. There would be, for example, new ‘housing societies’ that would further complement the existing urban sprawl and the demand for consumables like car, ACs and electronics would see a jump. All these would increase the indirect taxation, thus raking in higher tax numbers as the economy experiences higher GDP growth on back of a consumption binge.
By the time this short lived spectre reaches its pinnacle, government expenses would have increased by trillions, with more going to every sphere in which the government is involved (in absolute numbers). Put another way, government’s footprint would be even bigger than it is now.
Alas, at the end of the cycle, we would find the typical story repeated again, that Pakistan’s economic troubles were arbitrarily suppressed for a while but returned, even bigger than before in their magnitude. Here’s what we would likely find at the end of a short-lived festive season: the debt and liabilities of the country would be Rs40 trillion or more (they are Rs33 trillion at the moment). Of this, public debt would be the major component, as has always been the case. Within this, debt to the IMF alone would stand at $11 billion. Of Pakistan’s total expenditures, a major portion would be going to repayments on debt. The percentage spent on repayments (as a total of expenses) would increase or hardly budge from the present percentage.
Government’s non-development expenses, especially liabilities like wage payments and pensions, would increase greatly in magnitude. Most of the development schemes being pursued now would have turned into current, non-development expenses, and a new wave of employees in these schemes would be seeking permanent injunction into government service, thus inflating government wage and salaries bill. By the end of the cycle, the ratio of non-development to development expenses would be stuck at the present 80:20.
In order to fund the additional demands and liabilities, taxes would be squeezed out through traditional methods that we’ve long become accustomed to. We are, for example, seeing one in practice now as petrol and gas prices have sky rocketed. People will be told to bear their miseries for the good of the nation. The elite, of course, would be sheltered from such a predicament as they would find ways to survive the increasing dearness of life, which is reserved for the lower classes. One favourite method is through government-sponsored subsidies that transfer wealth from the lower classes to the wealthier ones (sugar lobby is a good example).
As life becomes dearer under the IMFs new program and conditions, income inequalities would be further exacerbated. This, and other issues like poverty, would provide enough fodder for the donors to continue on their hopeless crusade against these economic ills whose real answer lies in getting the governance right rather than convening useless conferences and studies.
Imports would see a surge with a surge in the GDP numbers. Government would try to cover it up by making excuses like it’s because ‘advanced machinery’ is coming in that would curtail imports in the future and exports would mainly remain a function of largesse of the foreign governments in giving us tariff-free access, with our functionaries covering to them to do just that.
Of course, what would not change is the structure of the Pakistani economy, and it would remain mired in the same issues as it is now. Whoever would be in charge would cry foul (just like the present head of the tabdeeli brigade) that all is due to the corruption and mismanagement of the previous rulers and that he is innocent in all this.
That would be the end of the T-20 cycle, until a new one begins.
The writer is an economist.
Compare this to T-20 cricket, where Pakistan is at the top of rankings. This is cricket’s version of modern day baseball, tailored for modern commercial demands rather than old virtues of technique and character test. It is a few hours of slap and hit cricket, one where strategy, technique and patience goes out of the window.
Pakistan’s economy and economic management fits the T-20 pattern. Its unique feature is that it goes through a periodic, short boom cycle, and then the air goes of its sails. As the bubble pricks, we find ourselves back to square one after a period of three-four years. No wonder that Pakistan’s economic ranking, just like our test rankings, are near the bottom of the ladder.
Pakistan has now entered another T-20 style economic boom, the beginnings of which will become clearer in the coming days and years. For a start, as soon as the $6 billion deal was announced, the free fall of the rupee against the dollar came to a halt, and the stock market’s nosedive also receded. But beware! Short-term gains shouldn’t blind us to the eventual fizzling out of the bubble a few years later. Here’s how things are likely going to play out in the coming years.
First, take stock of the fact that the inflow of $6 billion would create substantial amount of fiscal space for a struggling economy. How much space would be created? At present rate, and after rounding off, it would create an inflow of Rs900 billion, equivalent to a little more than 12 percent of total expenditures at present (Rs7.4 trillion, or 7,400 billion as of last fiscal year). Mind you, this is just IMF support. Evidence suggests that as soon as the nod from the IMF comes, other donors also jump into the fray to give ‘financial support.’ This implies that there are likely going to be more loans. A news item about a month ago suggested that economic managers (Babus of Q and P block in reality) have drawn up plans for $22 billion in loans, majority of which will ultimately be returned as repayments on earlier loans, but also creating more fiscal space if this were to materialise.
Anyway, the incoming loan money would be treated as government income via a bit of statistical jugglery, something that we have become accustomed to. We would be told that bad days are behind us and a new chapter has started, one that would transform us into an Asian Tiger. Pakistanis, especially the business community, would be presented with magical figures that would show a healthy position of government coffers.
As additional fiscal space becomes available, all government departments (civil and military) would descend with their extensive wish lists, most of them wrapped under the attractive title of ‘development’ work. Resultantly, the size of Public Sector Development Program (PSDP) would balloon considerably, given the additional fiscal space and the wish list, and that would be held up as a sign of an economy that is on the rise towards its destiny.
As the growth rate increases on the back of rising public sector expenses, we would witness price inflation in almost every walk of life. There would be additional income generated, and this additional income would fuel an additional consumption binge. There would be, for example, new ‘housing societies’ that would further complement the existing urban sprawl and the demand for consumables like car, ACs and electronics would see a jump. All these would increase the indirect taxation, thus raking in higher tax numbers as the economy experiences higher GDP growth on back of a consumption binge.
By the time this short lived spectre reaches its pinnacle, government expenses would have increased by trillions, with more going to every sphere in which the government is involved (in absolute numbers). Put another way, government’s footprint would be even bigger than it is now.
Alas, at the end of the cycle, we would find the typical story repeated again, that Pakistan’s economic troubles were arbitrarily suppressed for a while but returned, even bigger than before in their magnitude. Here’s what we would likely find at the end of a short-lived festive season: the debt and liabilities of the country would be Rs40 trillion or more (they are Rs33 trillion at the moment). Of this, public debt would be the major component, as has always been the case. Within this, debt to the IMF alone would stand at $11 billion. Of Pakistan’s total expenditures, a major portion would be going to repayments on debt. The percentage spent on repayments (as a total of expenses) would increase or hardly budge from the present percentage.
Government’s non-development expenses, especially liabilities like wage payments and pensions, would increase greatly in magnitude. Most of the development schemes being pursued now would have turned into current, non-development expenses, and a new wave of employees in these schemes would be seeking permanent injunction into government service, thus inflating government wage and salaries bill. By the end of the cycle, the ratio of non-development to development expenses would be stuck at the present 80:20.
In order to fund the additional demands and liabilities, taxes would be squeezed out through traditional methods that we’ve long become accustomed to. We are, for example, seeing one in practice now as petrol and gas prices have sky rocketed. People will be told to bear their miseries for the good of the nation. The elite, of course, would be sheltered from such a predicament as they would find ways to survive the increasing dearness of life, which is reserved for the lower classes. One favourite method is through government-sponsored subsidies that transfer wealth from the lower classes to the wealthier ones (sugar lobby is a good example).
As life becomes dearer under the IMFs new program and conditions, income inequalities would be further exacerbated. This, and other issues like poverty, would provide enough fodder for the donors to continue on their hopeless crusade against these economic ills whose real answer lies in getting the governance right rather than convening useless conferences and studies.
Imports would see a surge with a surge in the GDP numbers. Government would try to cover it up by making excuses like it’s because ‘advanced machinery’ is coming in that would curtail imports in the future and exports would mainly remain a function of largesse of the foreign governments in giving us tariff-free access, with our functionaries covering to them to do just that.
Of course, what would not change is the structure of the Pakistani economy, and it would remain mired in the same issues as it is now. Whoever would be in charge would cry foul (just like the present head of the tabdeeli brigade) that all is due to the corruption and mismanagement of the previous rulers and that he is innocent in all this.
That would be the end of the T-20 cycle, until a new one begins.
The writer is an economist.