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May 15, 2019

Statistics and home truths


May 15, 2019

Old habits die hard. If you are addicted to living on borrowed money, there is every chance of a relapse no matter the finance wizard’s claim of negotiating the ‘last’ bailout package with the IMF. Think of Bill Clinton, president of the United States from 1993 to 2000. He left the White House after fulfilling his promise of turning the federal budget deficit into surplus. To no avail really because he was followed by Bush Jr and the neocons who wanted to reconquer the world. They invaded Afghanistan and Iraq and were making war plans for Iran when their rule came to an end. In the process, they burnt the budget surplus and America returned to its old ways of living on debt.

Pakistan too has made it a habit to live on borrowed money. After coming to power in 2008, the PPP almost doubled the wages and launched an income support programme for the widows. Sure enough, the treasury did not have enough money for these measures. Five years later, in came the PML-N, with its mega projects like super highways, fancy metro buses and a fancier orange train. Five more years of massive borrowing. The result: Pakistan is overwhelmed by internal and external debt. And since the urgent takes precedence over the important in governance, the PTI government had to arrange payments for a colossal foreign debt of $90 billion.

All that is about the formal economy. While the economic managers may be having sleepless nights while negotiating details of the IMF package, nothing stops the Pakistanis from having a party, thanks to a growing informal economy. As guests poured into a high-profile iftar cum dinner, the hotel’s general manager remarked to one of them, “this is big business”. The wedding extravaganza is on hold but the big hotels and restaurants are raking in huge earnings from iftar events. Once Ramazan is over, the wedding season will come back in its full glory and continue for several months with short breaks. That is the growth sector of Pakistan’s economy, galloping on its own without much help from the state, which nonetheless craves for its cut in the shape of taxes.

Every few years, the government gate crashes the party, asking for a cut to legalize undeclared assets. Just as well because 2018-19 is turning out to be a nightmare for the national economy, with growth rate projection of around three percent. A major part of the economy remains out of the tax net. Exports are stagnant and bears rule the stock exchange.

For record, a bird’s eye view of the statistics is in order before returning to home truths. Large-scale manufacturing is down by two percent, with losses in textiles, food, beverages, tobacco, coke and petroleum products, chemicals, pharmaceuticals, automobiles, iron and steel, mineral products and so on. However, there are industries showing positive growth notably electronics, engineering products, wood products, electric power and gas.

Agriculture that represents nearly one-fifth of the economy grew only at 0.85 percent with most crops except wheat showing negative growth. However, livestock registered growth of 4 percent while forestry grew at 6.47 percent. The transport sector showed high growth of nearly 39 percent for railways while air and road transport improved between three and four percent. Finance, banking and insurance progressed as well.

Construction was hard hit due to multiple factors and registered 7.5 percent negative growth. Some economists claim that the slower growth rate has resulted in one million jobless. A rise in international oil prices and hike in sales tax on POL is bound to fuel inflation, requiring a major tightening of belts by the people.

To complicate matters, Pakistan is hit hard by globalization and the consequent international division of labour. Countries like Bangladesh and Vietnam have worked hard and benefited from the low cost of labour and other inputs. Both the Pakistani state and the private sector have failed to work out a coherent strategy to make necessary changes in the industrial policy.

The major home truth is that the traditional manufacturing sector is losing jobs. It is unlikely to recover because of the fierce competition from other suppliers. The services sector is emerging as a leader in absorbing some of the millions entering the job market. The large-scale retail sector, shopping malls, food chains and the catering sector in general are the growth sectors and vocational training should be geared to produce the required skills.

Automobiles and the transport sector along telecommunications are other potential areas of growth. Unkind though it may sound, our potential for exports is rather limited. In negotiations with the Chinese to grant greater market access to Pakistan, the Chinese side has emphasized the need to develop Pakistan’s manufacturing capacity. China and Japan are relocating some of their manufacturing units abroad but they are not impressed by our business environment or facilitation system. In contrast, countries like Vietnam, Laos and Cambodia are offering them every facility to relocate.

All this cannot be achieved without a change of the mindset where the state, read bureaucracy, controls the industry. The incoming civil servants too need to be suitably trained to drop the remnants of a 'what’s in it for me' attitude and become proactive in facilitating business and industry. Failing that, Pakistan’s official economy may receive further setbacks, forcing us to go on living on charity and bailouts.

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