ARTICLE: Over the years, I distinctly recall that, at a minimum, twice have my columns flirted with "What if" concepts of an alternate history. Marvel Comics was how I got introduced to alternate scenarios, based on the happening or not happening of some event in history - for instance, in our case, what if a political leader or a dictator had not been assassinated?
The problem with "what if" analyses is that, depending on the assumptions made, the alternate scenario can verge on pure conjecture - consider the assumption that right after the failed assassination we ended up blaming the eastern neighbor, resulting in war and everything blowing up: this might be a great movie plot, but really serves no other purpose.
Contrarily, what is and what might have been analyses are a different ball game.
For instance, as at 31 March 2020 (SBP has still not uploaded the numbers for June 2020), Pakistan's external debt and liabilities stood at US$ 110 billion; on 31st March 2010 external debt and liabilities were US$ 60 billion. Keep politics out of the equation - we have on the average borrowed US$ 5 billion annually for the last 10 years - this is "what is". To arrive at what might have been, we need to ask some pertinent questions: most importantly, why did we need to borrow this amount?
Only after the "why" is answered can we isolate the causation of external debt exploding, and thereafter block strategies and policies directed towards facilitating the cause in the historic data to arrive at what might have been. This is financial modeling, yes, but since it is not predictive, it may be absolutely accurate.
On 31 March 2010, US$ last day weighted avg. exchange rate was Rupees 84.2. On 31st March 2020 this was Rupees 166.40. Right after the instinctive "What the Fish" retort, we need to ask the more pertinent question of why the rupee value collapsed over the last 10 years. Again, keep politics out of this debate - the objective is to identify and isolate the causative bad decisions; who took them, and why, is perhaps a debate for some other quarters.
Over the past ten years, external debt increased by 83.33% and the Rupee depreciated by 97.6% - in comparison, our exports for the year ended 30th June 2010 were US$ 19.7 billion, and for the year ended 30th June 2020 were an embarrassing US$ 22.5 billion. An increase of 14.2% in 10 years.
Why?
Embarrassing, because this is after all the incentives that successive Governments have been giving to exporters, with textile and information technology getting most of the candies.
The question that must be asked here is why have the incentives not worked? Why have exports been, by and large, stagnant for the last 10 years, despite the rupee depreciating by 100%? When we answer the why, we can finally get to what might have been and can then get to what can be.
Data is good, but if you don't ask the right questions to figure out the causes, and simply work with correlation, then we are never getting out of this mess. Why do I believe this? Well, 10 years down, doing all that they said, the mess keeps growing.
They said allow free movement of currency, and we complied; they said enforce copyright, and we did; they said reduce tariffs, and we did; they said privatize, and we did; they said increase interest rates, and we did; they said adopt free markets, and we did. They kept saying, and we kept doing - without ever asking why, which is perhaps the reason why, today, we are fished. And they still say, "Do more".
Reduce tariffs more, privatize more, facilitate imports more - do more to what end? And why?
We can't seem to get rid of overlords who keep repeating do more!
How much more evidence is needed to convince these ninnies that the impossible has been proven - their policies do not work.
My guess is they already know, but deny and/or confuse the issue only because we have not been able to categorically identify and prove to them, or even to ourselves, that our current economic crisis is because of their numbskull policy recipes - like the tobacco industry clouding the fact that smoking does cause lung cancer for almost 6 decades.
We definitively need to identify which policies were the ball that broke the economic window, and get proof to send them to jail. Well, in a manner of speaking.
Whilst the task is not impossible, since this is a Sherlock Holmes type expedition to look for clues and thereafter develop an idea of what might have been, after locking away the culprits - but it will still require serious technical and qualified human resource.
Nonetheless, my recommendation would be to task a special team to sift the data intelligently, ask the right questions, and beyond doubt identify the policy actions or inactions that caused the increase in external debt, the increase in inflation, the increase in total national debt, stagnant exports, a battered Rupee, lack of capital investment, and decelerating industrialization, for starters.
Let us only "do more" after we have proof that they are right - which, for my money, is unlikely.
And, by the way, this is not a task for a JIT!
Frankly, if we don't make an effort to explain what is, we will never know what might have been!
(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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