Economic meltdown and prescriptions

During his press conference, Pakistan People's Party Co-Chairman, Asif Ali Zardari, referred to an 'economic meltdown'. This is perhaps the first time Zardari has commented on the state of the economy.
Many would see it as a confirmation of repeated accusations against the Shaukat Aziz government by the former Finance Minister, Ishaq Dar, as well as his dire warnings for the future if corrective actions are not taken in a timely fashion; yet Zardari was quick to add that Ishaq Dar did not agree with this assessment.
Distancing himself from Dar's views, while insisting that the PPP would not allow Nawaz to leave the Treasury benches, may be attributed to political posturing; however, it may also reflect a slight change from the prescriptions that were being favoured by Dar.
The consensus approach where all political parties are taken on board has been the hallmark of Zardari's rhetoric so far. That this is critical given the state of the economy is fairly well acknowledged. One hopes that the present dispensation has learnt a lesson well, that when there are no checks and balances on executive power an economy that is perceived to be doing fairly well can take a sudden downturn.
This happened last year as the spectre of the forthcoming elections, under pressure from foreign governments, and the possibility of a loss at the polls haunted the government from the President down to the provincial assemblies. This, in turn, led the executive to take decisions unilaterally, for example refusing to raise the domestic price of oil at that time - a decision whose price the country is paying today.
Parliament, as Zardari has said repeatedly, must be supreme and by this reasoning all economic decisions which will have far reaching consequences must be debated in parliament. The government must also ensure that the parliamentary committees are allowed to play their due role of oversight and checks and balances.
'Economic meltdown' is a term that few would object to, for after all the severe energy crisis, the wheat supply challenges, and the rising price of food have compromised the ability of even middle income earners to make ends meet. There is a need to urgently deal with these issues, and with the budget expected in the first to second week of June a strategy needs to be formulated that is specifically designed to deal with these issues on an emergency basis as well as to draft a long term strategy to ensure that these problems are dealt with for all time.
Zardari stated that the government had already formulated the strategies that would deal with these issues. Details of these strategies were confirmed during the Cabinet meeting the same day and released to the Press.
The Cabinet decided on a two-pronged strategy to deal with the energy crisis on an emergency basis: while a three-year investment will be required to meet the supply shortfall, yet immediate measures would include conservation, through adopting daylight saving time, promoting energy saver bulbs and shutting all shops by 9.00 pm, and offering power generation to the private sector for 1000 MW in an open auction.
Public sector production was not on the cards, a policy that was also supported by the former government. It maybe noted that while Dar may not have opposed the emergency measures proposed, yet for the medium to the long term he, together with his party leader Nawaz Sharif, would have strongly supported the building of expensive dams with a long gestation period. The Cabinet decisions do not preclude the building of dams; however, one would have hoped that a long-term strategy would be discussed in parliament.
In terms of inflationary pressures, the PPP government has at all the times that it formed a government reacted typically like Old Labour, or the pre-Tony Blair Labour: raise salaries and or provide direct subsidies. In basic economic theory, such relief measures are inflationary because they inject money into the economy that is not backed by increased productivity, at least in the short term in any case.
There were reports that suggested that Dar was proposing a food subsidy for the very poor, the very poor to be identified through accessing data from NADRA. This too would have been inflationary but its impact would have been slightly more limited.
It is not yet clear what the dispensation at the Ministry of Finance will decide but it is evident that targeted subsidies maybe less inflationary than an across the broad pay-rise. Zardari also promised a speedy resolution of the wheat crisis and with the planned import of wheat it is hoped that this issue will be resolved soon as well.
A good start has been made and one would hope that the response of the private sector to energy production and that of the general public to conservation remains positive. The issues are major and are unlikely to be resolved any time soon. However the benefits that would accrue from taking everyone on board while ensuring that no single individual determines policy are numerous and parliament remains the best forum to ensure it.