My long association with Business Recorder began not because of my interest in economics, though that certainly was a factor given that after half a century after independence it remains the only business daily in the country, nor because I was looking for a job or indeed more money (though again if truth be told these remain factors in career decisions); but because I met and was inspired by the founder of the paper M A Zuberi.
The place we met was Davos, Switzerland, the time end-January early-December the event the World Economic Forum. My association with the paper's founder did not begin with a passionate discussion on economics or politics or indeed the impact of one discipline on the other. Our first conversation began with our mutual amusement at over hearing the insistence of the then Prime Minister Nawaz Sharif that he wanted to go skiing with one officious official saying that "he would strongly advise against it as in the event that you break your leg, an unfortunate occurrence that can happen to even experienced skiers leave alone first time skiers, Pakistan would be leaderless." I mumbled that a broken leg may compromise mobility or a foreign visit but is unlikely to be an impediment to prime ministerial work requiring reading files and taking decisions, which was over heard by Zuberi sahib, who smiled. He had known at the time, unlike me, that Mian sahib does not like to read files and relies exclusively on his loyalists to inform him of what is happening under his watch.
At the time Mian sahib agreed, albeit visibly, with poor grace, and instead focused on his mantra that has survived into his third term as the country's chief executive: luring foreign investment as an overarching foreign visit objective. It is indeed rather sad that more than a decade down the line Nawaz Sharif has neither learned how to ski, though I am not sure whether he abandoned this objective after making an attempt as it is more of a challenge for some relative to others, nor indeed has he been able to attract direct foreign investment (though his family stands accused of engaging in direct foreign investment in Saudi Arabia and the UK).
The PPP-led coalition government (2008-13) regarded by analysts and economists as one of the most corrupt and mismanaged governments ever in our history, managed to attract foreign direct investment inflows of 314.2 million dollars with an outflow of 61.3 million dollars. Granted that this performance is appallingly poor, yet the Nawaz Sharif administration has gone one step worse with total inflows by December 2013 at 201 million dollars while outflows were 111.4 million dollars. The Finance Minister, Ishaq Dar, would no doubt wax eloquent on this decline and argue that he was engaged in fire fighting during the first six to seven months of the PML-N government and hence more time than six months was needed to turn the tide. The tide has indeed turned thirteen months later but the other way round: in December 2014 inflows declined further to 195.6 million dollars. And this is the party that was brought into power on what was widely believed to be greater experience in running government (as opposed to Zardari sahib) and the party's stated pro-business policies designed to fuel growth as well as attract direct foreign investment.
So how is the PML-N government performing third time around? Growth has been fuelled not by higher economic activity but by manipulating data, common enough practice by Pakistani governments' - civilian and military - spanning decades. Some federal ministers were clever about data manipulation for example Hafeez Sheikh changed the weightage given to various components of Consumer Price Index (CPI) to show a decline, while others changed the final statistic leaving supporting data unchanged, an example being the inflation and CPI cited by Shaukat Aziz. Ishaq Dar for all his rhetorical antipathy towards Shaukat Aziz, sourced to Aziz's accusations of data fudging during the second stint of the PML-N government, falls into the same category as his nemesis. The proof of the pudding: to ensure that he could claim a higher rate than in any of the five years of Zardari-led government Dar lowered the growth data not of 2012-13, which he could have legitimately done as it was the last year of PPP led coalition government with three months of the caretakers thrown in, but the year 2011-12 when growth registered 4.4 percent to 3.8 percent.
Dar has also engaged in some innovative though obviously flawed claims. First, he has claimed that the government procured foreign loans at around 5 percent and retired domestic debt procured at 12 percent. His sleight of accounts, hardly disguised from either a qualified accountant or economist, is evident from the following data in his budget documents: (i) interest on domestic debt rose from the budgeted 926 billion rupees in 2013-14 to 1.02 trillion rupees in the revised estimates with 1.153 billion rupees projected for the current year. The reason: heavy reliance on short term borrowing from the commercial banking sector (due to the IMF condition not to borrow from the State Bank) not only raising indebtedness but also crowding out private sector activity; (ii) Eurobonds budgeted at 49,500 million rupees were over-subscribed to 205 billion rupees. Ten year Eurobonds had an applicable interest of 8.5 percent and 7.5 percent for the five year bonds with sukuk issued at 6.5 per cent - well above the 5 percent rate for the issuance of bonds by heavily indebted Greece. The Eurobonds and sukuk issues are in foreign currency and have to be repaid in foreign currency and sadly no analysis has been undertaken to determine whether a yearly conservative rupee depreciation of 5 percent would make this 'capital transaction' a very expensive proposition; and (iii) Dar's budgeted grants figure of 108,982 million rupees was a gross over estimation and only 38,786 was given as grants from external sources. This year Dar has budgeted 244,803 million rupees as grants and this appears to be even more of an over estimation than last year.
Budgeted external loans for 2013-14 of 467,437 million rupees escalated to 675,326 million rupees in the revised estimates though it is unclear whether the placement is correct under an escalation in programme (budgetary) support of 139,111 billion rupees.
Secondly, Dar placed Gas Infrastructure Development cess under other tax revenue though it should legitimately have been placed under non tax revenue thereby showing a rise in the tax to GDP ratio. Privatization proceeds have been placed at 198 million rupees under external grants (up from 79 million last year which was not realized given the state of the domestic economy and law and order situation as well as Eurozone recession). Would he succeed this year? He reckons so and has informed the IMF that the country would sell 43 percent government shares in HBL in two transactions while privatization of 3 distribution companies would take place before the end of the current calendar year. However the global environment remains far from conducive to these sales including the decline in revenues of oil rich countries, the Ukraine crisis as well as the Greek crisis.
Thirdly, Dar continues the flawed tax regimen by raising taxes on existing tax payers while he named and shamed the parliamentarians for the little tax they paid through a publication, an IMF condition incidentally, but which has not led to any appreciable increase in tax paid by parliamentarians. Laws that would impact on those who bank abroad (reference to avoidance of double taxation) or who launder money by sending money abroad and remitting it as white money (a practice that continues to this day) continue to be untaxed.
The Sharif administration has used up most of its political capital during the first twenty months of power by holding its predecessors responsible for flawed policies. Khawaja Asif won the case against the Zardari government for making flawed senior appointments with a much hailed verdict that identified a transparent process of appointments. The irony is, that the very same party when in power appealed the verdict by claiming that it is the federal government's prerogative to appoint whoever it deems appropriate at key autonomous posts. The power sector crisis continues to this day and the circular debt is once again close to what was inherited by this government with inefficiencies and theft and corruption continuing. The Baloch imbroglio remains unresolved and the government has held no talks with the disgruntled Baloch leadership.
Law and order remains an issue and while the military courts are generally welcomed by all after the horrendous Peshawar attack, yet there appears to be no movement towards building capacity within the civilian judicial system as well as the investigative and prosecution branch to ensure that two years' down the line the civilian institutions can take over the task.
The government's focus remains on attacking political adversaries, an approach that appears to be more representative of the 1990s politics, though the adversaries have changed, rather than on focusing on the many challenges that face it today - economic as well as political. The consensus that has evolved is that there has been a soft coup with PML-N ceding control of all major portfolios to the establishment mainly because it has been unable to take decisions on time or to hold its own badly performing ministers accountable. Others maintain that this is not due to a conspiracy against the government as the conspiracy comes from within its own ranks - a conspiracy that is redefined as internal party backbenchers' discontent, cabinet's appallingly poor performance and last but not least Mian sahib's reluctance to fire cabinet members on the grounds that it would further weaken him.
Two institutions need to be granted autonomy in letter and spirit on an emergent basis: the State Bank of Pakistan, though with Dar in the Finance Ministry, it is unlikely that he would allow this though he is being compelled to grant autonomy in letter by the IMF, and Pakistan Bureau of Statistics to enable it to present credible and realistic data to guarantee policy making based on reality; again not possible under Dar.
So what can be done differently to improve the lot of the common man? Sharif maybe dismissing the PPP performance in 2013 elections as the peoples' rejection of Zardari politics/policies or a rejection of jiyalas of Zardari as Benazir Bhutto's political heir or indeed his own charisma or rising popularity but surely he must also acknowledge that part of the problem was the poor performance in 2008-13. He must accept that he and his ministers are operating in a time warp, 1999, and that the economy, the media, civil society as well as the general public present a markedly different picture from that era.
But most importantly of all the Prime Minister needs to begin to read files and make his own evaluation of the performance of his ministers. Irrespective of what yardstick the Prime Minister employs to determine his cabinet members' loyalty, the fact remains that in a democracy elections are not won or lost on a show of strength by resisting cabinet reshuffle when performance is poor or with data manipulation but on public perception of performance. That remains poor and in this respect to put it facetiously the PML-N appears to be vying with the PPP of 2008-13.
The government's focus remains on attacking political adversaries, an approach that appears to be more representative of the 1990s politics.
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