It's not even wrong

""It's not even wrong" is just about as damning a comment for scholarly effort as one might imagine," Dani Rodrik.
If you think about it, being not even wrong is a horrible comment for most any effort, and after my most recent visit to the State Bank of Pakistan (SBP) website, I opine that perhaps it is also a rather appropriate phrase to describe the Pakistan economy at this juncture. Interestingly, SBP's website, which has been my usual haunt for economic data on Pakistan for past many years, is becoming less and less user friendly; I first noticed this change when the story given by their data started diverging more and more from the Government narrative of all is well at the economic front.
Nonetheless, as at 30th November 2017, net foreign exchange reserves with SBP had fallen to US$ 12.66 billion down from US$ 18.37 billion just a year ago; for those who are not good at mental maths that is a decline of US$ 5.71 billion in less than a year. I am also pleased to report that Moody's was wrong when it predicted in May 2017 that Pakistan's external debt will grow to US$ 79 billion by June 2017; according to the SBP the country's external debt and liabilities stood at US$ 82.98 billion at 30 June 2017. On the other hand, maybe Moody's was limiting its prediction to external debt only, exclusive of liabilities.
Fortunately, in the best interest of the weak hearted, who also passionately follow economic trends in the country, the SBP, apparently, has unilaterally decided not to update the country's deft profile henceforth. Imagination therefore is the only tool to determine where we are today, with total external debt, except that, for sure, it can only have grown significantly over the last six months. After all it is no secret that we have been borrowing more.
So if you think about it, the situation is more than alarming at the economic front. We have less and less money in our bank account but our bank borrowings keep on rising despite the fact that our GDP is growing at over 5%, and we have addressed the menace of load shedding and CPEC is going full steam ahead. It's not even wrong!
I have forever disagreed with mainstream economic thought over GDP growth being the key indicator for determining economic prosperity; as repeatedly stated in my articles over the years, for me the only economic indicator that needs to be carefully monitored and kept in the black, was, is and shall be the net trade balance. And we are doing horribly on that account; with a continuing negative trade deficit, a GDP growth, hypothetically, of even 10% will not alleviate our economic woes; I kid you not.
Higher tariff, or regulatory duty, was the first necessary step to halt the runway deficit, but the key question remains, how does a country increase its exports? The short answer is, invest in export-oriented manufacturing.
Worryingly, despite repeated attempts at various kinds of incentives, including complete tax holidays, subsidies, relief packages, and budgetary schemes, for over more than a decade by successive governments, the rate of capital investment is on a decline; the domestic investor is just not interested in investing in manufacturing projects in Pakistan.
Again, note that I focus on domestic entrepreneurs and not everybody's favourite Foreign Direct Investment (FDI); I have for a very long time held that beyond technology projects, FDI is a Trojan horse. And, rationally speaking, if our own entrepreneurs are not willing to invest in the country, any foreign interest invariably should arouse suspicions. Essentially, answering the "why" in relation to lack of domestic interest should be the biggest challenge for decision makers, while contemplating economic policy, today.
The gentleman quoted at the beginning is of the view that if institutional quality is the concern, efforts should be focused towards property rights and contract enforcement; "When entrepreneurs are deterred by corruption, for example, the primary concern will be whether they can retain the returns on their investments" - If the taxman keeps freezing, and emptying, everyone's bank accounts to meet his budget, obviously not. Perhaps the solution is to treble the number of judges in the country, currently under 4000 for a population of 207 million, or set up economic zones where the taxman is denied any kind of access, to information or even physical.
Perhaps, the answer lies in the parameters tested while ranking country's on ease of doing business. Or perhaps businessmen are just afraid of being nabbed. Perhaps the regulators are overly enthusiastic about their responsibilities. Maybe the government needs to consider investing jointly with the private sector or maybe the government needs to practise protectionism is earnest. Perhaps the investor wants a bigger VIP motorcade to accompany them, which may even be a rational demand considering that his taxes pay public sector salaries.
In short, whatever the hurdle, the government needs to find the answer quickly, and engage Pakistani Tycoons to get them to start investing in manufacturing in Pakistan again. Just relying on CPEC to solve all our economic problems, is not even wrong!
(The writer is a chartered accountant based in Islamabad. Email: [email protected])