The market is not clear on the direction of the government’s economic team. It is tough to make business decisions in such an environment. The direction, philosophy and future policies can be gauged from the behaviour of the key decision makers. It is becoming crystal clear that Asad and Razzaq are relying on a bunch of experts from the private sector to become the implicit advisors, as they are not giving any heed to the rest. And the policy is to have import substitution, and to not privatize the PSEs.
The reliance is on private sector top management - mainly PBC, be it for general economic management or running the SPL board. The finance and planning ministries lack relevant secretaries, this implies that they probably do not want to rely on the civil bureaucracy and decision making has to emanate from their own close advisors. The litmus test will be the appointment of the finance secretary, when the current one retires.
The risk of having too much reliance on one group is policy capture. It reminds of the days in 60s when PIDC was formed and a few industrialists were supported by the then government. That was considered the golden period of Pakistan’s industrialization while in 70s Bhutto thought these few families were making too much money and there was nationalization.
Rest is all history. The fear is that what if the wealth creation exercise, eyed to be done by incumbents, does not trickle down to lower level, the rent seeking may continue as it had happened in past many decades. Few even fear that this might be a case of reinitiating the licensing raj regime. The concern is based on the fact the current exporters are not getting export bond, DTRE or similar facilities as they used to enjoy in past few years. The experts, not being consulted, are of the opinion that now SROs will be issued company wise, to allow imports of even key raw material for processing and re-exporting. The decisions would not be market based, but would depend on the companies to the liking of the policymakers.
The policy is to rely on big manufacturers and let them grow under the support of government with intention to invest in import substitution businesses and exporting sectors. Yes, there are risks of policy capture by a few, but this can work too.
Any kind of policy set can work, but the government is working at an uncomfortable speed. The slow pace and lack of consultation with the ‘usual suspects’ is creating resentment which is brewing negativity amongst investors. The indecisiveness is a problem - time is running and deficits - fiscal and energy, are growing to make to be reform process more painful.
Many policies are at standstill. Industrial policy progress is slow, export policy is expiring and STPF is yet to incorporate changes. The medium term macroeconomic framework which was supposed to be presented in Oct18 is still to be seen. The Finance minister is not keen to listen to advice of those who are usually around. He may have some other ideas which he is keeping too close to his heart, or there may well be a trust deficit.
The inaction can be seen from the growing fiscal deficit. One policy that is being implemented religiously is of import compression which is yielding results, and in months to come, imports may further come down but it would be at expense of more jobs. The government may take more tough decisions under the IMF - such as revision of gas and electricity prices. What if energy consumption from the grid falls with further increase in prices and results in even higher capacity charge per unit? There is nothing done on deregulating energy market and it is nowhere on the radar as government seems to have no plan of privatizing Discos.
On the other hand, the ‘usual suspects’ are becoming close to the PM, and those who do not have access to the FM’s ears, are approaching the PM. That is not a good omen. The economic team has to take the lead and should consult experts, till an in-house team is build. Stalemate is not an option. Perhaps, the IMF may come and dictate fiscal and energy related policies and those will be tough. Do not expect economic growth to revive in the coming quarters.
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