Money Matters

Too little, too late

March 12, 2018
By Mehtab Haider.

insight

All the challenges faced by Pakistan from diplomatic to economic fronts are enormous, and the policy response, as described by an important donor representative in Islamabad, fits, “too little, too late” with no impact or benefits by the end of the day.

Our policy makers remain in denial mode until and unless the country plunges into full-fledged crisis. All this while, those who have the capability to visualise the arising challenges, become the last ones to concede the worsening situation in the country. And then, instead of being the first to do something constructive, begin the blame game, shifting the responsibility from shoulder to shoulder.

Despite that the new happenings all around required well-thought and timely responses to come out of the crisis, those in the power corridors continued to ignore the problems arising on the diplomatic as well as economic fronts. They chose to stay in denial, and continued to procrastinate. The strategy should have been to address the problems head-on and devise a mechanism to diffuse the diplomatic tensions and improve the economic conditions.

Pressures on Islamabad are mounting, especially in view of the Financial Action Task Force (FATF) decision to put Pakistan in the grey list, United States President Donald Trump’s tweet in January 2018 accusing Pakistan of harbouring terrorists and deceiving the US while taking billions of dollars in foreign aid, and most importantly, macroeconomic instability. In view of all this, the current government should be sorting matters out on a fast-track basis instead of lauding itself on achievements made in the past four years.

In 2008, Pakistan was in FATF black list of countries. The status had changed, and Pakistan was shifted to the grey list after the former Pakistan Peoples’ Party (PPP) government made commitments to change the situation. However, when the government failed to follow through on its commitments, and did not make the required changes on the legal and administrative front, Pakistan was again put into the black list.

When the Pakistan Muslim League-Nawaz (PML-N) took over from the PPP in 2013 after winning the general elections in May, it gave the FATF assurance on making the required changes in the system. The parliament also passed an amended Anti-Money Laundering (AML) law, making fiscal offence a part of it. Following this law, Islamabad was moved to the white list.

The situation would not have worsened if the law had already graduated from the evaluation mechanism and was being implemented. Before the findings could be finalised, Pakistan was put back into the grey list due to pressure from US and its western allies.

It is worth noting that a week prior to the FATF meeting where it was decided to grey-list Pakistan in June; the cabinet had approved a law to ban the prescribed organisation. Because of the scarcity of time, the president had to issue an ordinance for the ban to be effective.

Western diplomats and the donor’s representative in Islamabad argue that the steps Islamabad took at the last moment were too little and too late, because everyone knows that the Presidential Ordinance would lapse after a few months.

Since the parliament is going to complete its tenure soon, the suggestion has been to introduce the decision in shape of a bill. The bill should get its approval before the PML-N ends its tenure of the National Assembly, which would show the government’s serious commitment.

General consensus is that Pakistan could have avoided being put back in the grey list if the right steps were taking on the right time and the same goes on the economic front.

The PML-N should have focused on stabilising the economy in the long-term instead of only working on temporary or short-term solutions.

Throughout their tenure, ministers of the PML-N kept on living in the past by recalling what they had done when they took over the government reins in 2013. They built a narrative on how they had turned the economy which was sliding into default mode during the PPP’s government; how they restored the security with the help of the armed forces; and how they had increased spending on the social sector and raised the allocation for the Higher Education Commission (HEC).

Sadly, PML-N’s arguments remained focused on an “us versus them” scenario, with minister’s using the PPP’s achievements or lack thereof as the benchmark.

Their rhetoric was that the country’s average growth rate was hovering around just three percent from 2008 to 2013 which increased up to an average of 4.8 percent from 2013 to 2018 under the PML-N led regime.

Agriculture growth had stood at 1.5 percent on average from 2008 to 2013, which increased to 2.4 percent from 2013 to 2018. The industrial growth was in the range of 2.7 percent during the PPP-led regime from 2008 to 2013 which increased to 5.6 percent from 2013 to 2018. The large scale manufacturing (LSM) growth stood at an average of 0.6 percent from 2008 to 2013 which jumped up to 4.7 percent during the PML-N’s tenure between 2013 and 2018.

On infrastructure side, they argued 1,650 kilometre length of motorways were currently under construction, while in India there was just 1,400km of motorways in the whole country. They also claimed that the prices of petroleum products were less than they were during PPP’s time, and deliberately forgot to mention the reduced prices of POL products in the international market, which were much higher in 2008 to 2013.

They continued with such comparative figures.

Credit to private sector went up to Rs748 billion in the last fiscal year 2016-17 which was negative Rs7 billion in 2012-13. The inflation which hovered around 12 percent in 2012-13 had slashed down significantly and remained less than five percent in each year from 2013 to 2018.

The FBR’s revenues stood at Rs1,946 billion in 2012-13 which would now go up to Rs4,013 billion, indicating that tax revenues doubled in the last five years of the PML-N regime.

All this while, as the PML-N spoke of their initiatives on all the fronts to put the country on the path of sustained and long-term growth trajectory, their policy makers did not admit that the country’s economy is heading towards square one. They did not say that to avoid the same old prescription, we need to inject $6 to $10 billion inflows or this growth trajectory would be choked under the strict noose of the International Monitory Fund (IMF).

They did not mention that foreign currency reserves declined by $6 billion in the last 12 to 15 months period. Neither did they discuss that the overall reserves of the country that had touched $25 billion at one point of time had now fallen to $18 billion, of which the reserves held by the State Bank of Pakistan (SBP) were just $12.23 billion.

The little actions that were taken by the PML-N were not appreciated much either, a fact that remains mostly ignored. The lenders did not appreciate the five percent exchange rate adjustment for boosting exports and curtailing imports. They said it had little to no impact.

The lending agency is also alarmed over Pakistan’s weakened capacity to repay foreign loans, as the foreign debt and liabilities peaked to $89 billion and might touch $97 billion by end of this financial year.

The IMF recently also expressed concerns over the current account deficit that ballooned to $9.2 billion in the seven months of the current fiscal year. It reminded the policy makers that they had fixed the target of $10 billion for the whole financial year.

Questions are also being raised over the targeted growth figure of six percent, and as per official data so far the country cannot even get close to six percent.

The PML-N instead of postponing the crisis in the hopes of hoisting it on the caretaker regime must take stock of the situation and tell the truth that the country is sliding towards macroeconomic instability. It needs to admit that we have limited options, and medium to long-term plans were necessary to avoid long-term negative impacts for the country and for its poor masses.

The writer is a staff member