One year down the line, the economy’s performance under Khan and his team is even more depressing than when he took over. The bubble that began with the ascent of him as the PM has now burst, and the economy has entered yet another challenging phase. For me, though, what is most disconcerting is that despite tall claims, Khan’s team had no program and no comprehensive plan at all for tackling the most difficult economic issues at hand. To put the icing on the cake, economy’s growth has slowed down considerably, per capita income growth has either stalled or declined, manufacturing and other sectors are facing contraction, and business confidence is at an all-time low.
What happened? Where did Imran Khan and his economic team go wrong? The following lines are dedicated to a brief diagnosis of the policies, followed by a few suggestions for course correction.
What began as irrational exuberance has now turned into a burst bubble of unrealistic expectations
By the time PTI assumed power, the growth momentum of Ishaq Dar’s era had fizzled out. Most of that momentum was built upon CPEC-related inflows, infrastructure spending spurt (a hallmark of Nawaz Sharif’s three terms), good luck (oil prices remained suppressed, plus the first phase of CPEC meant money is coming in rather than going out), borrowings (especially in foreign currency) that defied any logic, and a needlessly overvalued Pakistani rupee that led to a record current account deficit. One would have thought, given the big talk heard from PTIs economic czars, that they would have been aware of these realities. Unfortunately, it turned out that they were least prepared and understood little.
One of the first things that the new economic team should have done was to contract an IMF bailout package since all signs pointed to troubles in foreign payment obligations. Instead, there was a long wait, whereby recourse was taken to an alternative rout: foreign exchange from ‘friendly countries.’ History should have been a guide to Khan and his team that no friendly country is ever going to give you an amount so substantial that it will cure a country’s large payment obligations. However, after running from Beijing to Arab capitals and getting little in return, they finally had to knock IMFs door to avert an even bigger crisis. This should have been done from the very beginning, yet so much time was wasted in the vain hope that some friendly country would come to rescue.
The price of that indecision occurred primarily in the form of heightened uncertainty over Pakistan’s capacity in terms of repayments, abetted by low foreign exchange reserves.
At the domestic level, PTI’s economic team took recourse to imported ideas rather than coming up with home grown solutions to address the gaping economic wounds. I’ll back my assertion with two examples: the chicken and egg idea, and the Malaysian ‘Khazana’ model to turn around Pakistan’s Public Sector Entities (PSEs). The chicken and egg idea for addressing poverty is the brainchild of Bill Gates, who has devoted a considerable sum towards this goal. It was quite a sight to see the PM beaming with confidence while launching the scheme, telling us that this will take care of poverty to a large extent. The problem is that on-ground realities tell a different story, and nowhere does the chicken and egg idea fit into the narrative of poverty alleviation (it looks more logical in terms of curing nutritional deficiencies). Readers should take stock of the fact that since announcing the idea, nobody has ever heard of it again. Whatever happened to it?
Similarly, the former finance minister was so enamoured by the Malaysian khazana model of managing PSEs that he jumped into it blindly without understanding the forces that have propelled these entities towards decline. A new company, Sarmaya-e-Pakistan, was incorporated in a hurry and a board was constituted. Months down the line, the board and the company exist just on paper, the PSEs are continuously draining the exchequer (their combined debt is now above Rs1.5 trillion), and Asad Umar is gone. The ground realities, if Asad Umar or the PTI had cared to understand, tell us that the PSEs have been so hopelessly and mercilessly played around with that turning around them is almost impossible now. They serve as dumping grounds for manpower for political governments, and are cesspools of corruption and non-productive work environment. It is beyond the power of any board or company to turn them around. The only option was to privatise them and get rid of them. By now, the privatisation program has also been put on the back burner.
Other than the infatuation with imported ideas, some major domestic economic policies are also hard to understand. Take the EHSAAS program as an example, launched ostensibly as an initiative for poverty alleviation. As I have written before in these pages, there is little logic to starting yet another poverty alleviation program when we already have a huge portfolio of public and private initiatives devoted to this issue. BISP is a premier example, something about which I have also written. After spending Rs600 billion over a decade under this initiative, what is the result? Not much to talk about! Therefore, adding billions under EHSAAS is hard to understand. The only thing that these programs tend to achieve is more public sector employment and added pressure on public finances.
In short, one year of the PTI government’s economic policies can overall be marked as a failure. What began as irrational exuberance has now turned into a burst bubble of unrealistic expectations. Perhaps no other event reflects this aptly than the resignation of Khan’s economic czar, Asad Umar, the man who was supposed to deliver us from our economic predicament. His departure saw Pakistan’s economic management fall into IMFs lap, as an imported finance minister and SBP governor are now offering Pakistanis sugar-coated lollipops to ameliorate heightened anxieties and added financial difficulties of us hapless people.
A few suggestions for the future, if Khan really is serious about change. First, get rid of your present economic team, especially a few characters sitting in Block-Q. Second, sift through the expenditures and see which ones are most productive and which ones are not, rather than trumpeting austerity. Third, seriously consider the government’s footprint in economic affairs, and how it is hurting the economy. Fourth, take stock of last year’s policies and performance under your government, and be daring enough to back out from initiatives that make little sense. Fifth, instead of delving upon the same trite issues, your economic team should focus on new idea and new issues. For example, how can self-governing cities promote overall economic growth and transformation?
In the end, I’d like to assert that Pakistan cannot afford any more slipups. More than that, its economy needs new ideas and a new economic management team.
The writer is an economist