ARTICLE: To say that economic growth has been the most vexing problem for our national leadership for the last three decades or even more may not be very incorrect. And the fact that we assuredly would top any ranking of nations with the most frequent, unique, complex and potentially fatal challenges on any given day undoubtedly evidences the urgency and criticality of the problem even more.
The dilemma is not that there aren't any solutions for this problem, rather quite the opposite: there are seemingly a whole bundle of them. So many brilliant minds roam around trumpeting multiple solutions for economic stability and growth, that it boggles the mind; next time when you go to the market, ask the chap sitting behind the counter on what ails the economy and you will be surprised. It is, therefore, all the more troubling why those at the helm of affairs appear to be so clueless and so helpless that they can't even get fuel prices right - when everyone else knows what to do!
On the other hand, when you look at the dishes that the professionals, at the minimum, continue to serve, your first reaction is - been there done that!
For example, the prevalent thought today amongst the pundits for economic growth, astonishingly, continues to be reduction in tariffs, which according to them would make exports more competitive and Pakistan will become the next China. However, when it is pointed out that the last time we experimented with lowering tariffs it did not bring the desired results - there wasn't massive investment in manufacturing, all that happened was that the entire nation partied on debt - the response is "Do more". So let's do it again, and let's do it right - let's completely eliminate tariffs and let's facilitate all kinds of imports: let's die trying. Albeit, before you do that, let me caution in simple English: any domestic entrepreneur, in a situation where finished goods can be imported cheaply and easily, rather than invest in manufacturing in the hope of some day improving efficiency, innovativeness and competitiveness sufficiently to take on Multinational Corporations, would simply start trading. That day when lower tariffs results in increase in domestic private investment will never come - investing in a ticket for a holiday on the Moon might be a less risky venture!
Then there is the matter of interest rates, which have been debated to no end by everybody and anybody in this country, so much so that I am waiting for a theory which correlates locust's swarms with the lowering of interest rates. And, not only have we endlessly and needlessly debated, we have experimented with interest rates to no end for the last two decades at least, if not more. The jury is still out amongst the pundits and various other intelligentsias on whether or not there is a correlation or causation between interest rates and inflation or debt repayment or hot money or exchange rates or moon sightings, but one thing is absolutely clear: interest rates have apparently nothing to do with capital investment. Low or high, for the last two decades, the domestic investor is just not interested in borrowing for industrialization. And please, some of us are puking with the crowding out arguments.
Privatisation is another confusing debate. The very pundits who have been all along been highlighting and criticizing the losses of State-Owned Enterprises (SOEs) are the very ones now cheering the State in its drive against the capitalists - the wheat barons, the sugar moguls, the power czars, and the fuel magnates. When they talk about elite capture, have they forgotten the 22 families' narrative from the past, and how that particular history chapter ended? If anyone believes that anything but greed motivates a capitalist, foreign or domestic, than they are living in a fool's paradise. And, foreign investors are not from Mars, they are equally greedy and, worse, lack patriotism, which perhaps at the minimum irritates the domestic investors conscience some of the times. But seriously, people, take a decision - except, irrespective of whether the budget is burdened by losses of SOEs or the private sector fleeces the general public, neither situation seemingly is a catalyst for capital investment or economic growth.
Obviously, reducing fiscal deficit, increasing tax to GDP ratio, reduction in development expenditure is never expected to contribute to capital investment - not that we have a shining record of picking out development projects in the first place.
With due respect to some of my friends: the economy of a nation is too close to the real world to be left to Economists living in Lalaland.
A small clarification for explaining my obsession with capital investment and industrialization as the sole criteria for economic growth: simply, it is an accountant's bias. Having mostly dealt with absolute numbers - compared with ratios and percentages derived from guesstimates, and/or future scenarios based on debatable assumptions - it is very difficult to conceive increase in consumption as growth. And the accounting theory of economics is pretty simple, in summary: the right amount of debt is not some percentage of revenues/GDP; it is what your cash flows allow. If you are already struggling with a debt trap the size of the deficit is not the worry; and what the fish is a primary deficit, a devil by another name! If you don't print dollars, any amount of trade deficit is a loss. Investing in logistics is required, but after you have setup your production facilities.
Surely the last Para irked a few egos!
Hopefully, we will continue next week to look for the right key for economic growth, in the midst of so many keys!
(The writer is a chartered accountant based in Islamabad. Email: [email protected]. The views expressed in this article are personal. The views are not necessarily those of the newspaper)
Copyright Business Recorder, 2020
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