Where are we heading?

by Dr. Ashfaque H. Khan

In my article of July 17, 2012, I wrote “finally the bad news from the IMF which conceded that its $11.3 billion standby arrangement with Pakistan had failed to achieve the desired results owing to the lack of political support to honor its obligation.  For any future program with the IMF, political commitment at the highest level will be required to implement reforms as well as vigorous consultation with stakeholders.

My analysis was authenticated by a news item appearing in an English daily on August 9, 2012 stating that the “IMF now want Pakistan’s president to endorse any new bailout program” and that an IMF team which visited Pakistan recently met several stakeholders including the representatives of the major political parties of Pakistan and other “important personalities”.

Raising the level of endorsement from finance minister to the president of Pakistan for any future program with the IMF is a serious development. This is an insult to the country and to the office of the President. It is also an expression of no confidence in the Finance Minister and his team. Who is to be blamed for demeaning the state and the office of the President? Should IMF be criticized for raising the level of endorsement?

Let me answer the second question first. IMF released $8 billion in 18 months to protect Pakistan’s balance of payments. They would ensure that Pakistan returned this money to the IMF for which major economic reforms were needed to build its debt repayment capacity. The Finance Minister and the Governor SBP were co-signatories to the IMF program, but they failed to honor the commitment, which they had made with the IMF. It was but natural on the part of the IMF to raise the level of endorsement to the presidential level for any further program. After all, they want their money back and back in time.

It is the finance minister and his team who are responsible for degrading the state and the office of the president. In so doing, they have also lost the confidence of the IMF and other development financial institutions. The minister and his team failed miserably in building the debt carrying capacity of the country during the program period. Money continued to pour in for 18 months from the IMF, and the political leadership and their economic team continued to enjoy their perks and protocol.

In the words of Meekal Ahmed, “when there is heat in the kitchen, you get out of the kitchen.” When the economic team knew that they would not be able to deliver on the commitment, why would then they remain inside the heated kitchen? Barring Shahid Kardar, the former governor of the SBP, every member of the economic team preferred to remain inside the heated kitchen. They must accept the responsibility for degrading the country and demeaning the office of the President.

How have we descended to such a low? Firstly, the economy has never been on the radar screen of the government. Secondly, weak and frivolous economic teams were appointed on regular intervals. The teams lacked capacity, knowledge and understanding of Pakistan’s economy. Thirdly, the team consisted of ‘stranger in town’ and as such failed to gain the confidence of the private sector. The Prime Minister of Pakistan put the final nail in the coffin of the economic team when he stated that “the country was going through the worst financial crisis and the economic condition had worsened to the extent that it had become hard for the government to make both ends meet.” This was a total indictment of the economic team by no less a person than the Prime Minister. Will the economic team still like to stay in the heated kitchen?

It is a fact Pakistan’s economy is currently passing through the most difficult phase of its economic history. There is general consensus within and outside the country that the economy of Pakistan has never been in a state such as this until now. This fact is now acknowledged by the Prime Minister, though belatedly. Lack of vision, direction, commitment, knowledge and flawed understanding of the Pakistan’s economy as well as the laid back and lethargic attitude of the economic team have been responsible for the destruction of the economy within such a short period of time.

The country, during the last five years, has seen its economic growth slowing, investment declining to the lowest level in the last 60 years and savings dipping to the lowest levels in the country’s history. The dismal economic scenario in Pakistan has seen foreign investment evaporating, the economy failing to create adequate employment opportunities thus consigning more to the pool of the unemployed, millions slipping below the poverty line, the education and health system deteriorating, country’s infrastructure crumbling, industrialists relocating their industries abroad, power crisis worsening, inflation persisting at double digit level, business environment deteriorating, exchange rate depreciating, PSEs bleeding profusely, and relations with IFIs including the IMF deteriorating.

It is equally true that fiscal discipline has never been in such a worst shape in the country’s history with the budget deficit touching close to 9 percent of GDP in 2011-12. Resultantly, the public debt has more than doubled in the last five years as compared with the accumulation of public debt in 60 years. What is surprising is that there is no realization on the part of the political leadership and their economic team about the state of the economy.

Pakistan’s economy has been destroyed in the last 5 years. Every institution including the government and its economic team has played its role in this destruction. Some were involved directly, and some remained silent spectators and allowed the economy to be destroyed. Isn’t this a collective suicide? Where are we heading? May God save the country and its economy.

The author is Principal and Dean, NUST Business School (NBS), Islamabad. E-mail: ahkhan@nbs.edu.pk

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