Remarkably, this is one of those rare times, the column sticks to its commitment and continues from where it left off last week, the Problem Statement. Last week, while highlighting the importance of a concise and precise problem statement, necessary for formulating solutions, the focus was mostly on the national airline, and the fact that even after 15 years, all the kings men and all the kings horses couldn't put humpty together again. And perhaps Humpty also has a lot of siblings and cousins who need to be put together again as well.
Take the case of the Pakistan Steel Mills (PSM). The Mill was last profitable in 2007-8, and to reemphasize, it is a steel mill and steel, last time I heard, is still a necessary ingredient of construction. And if nothing else, what does any developing country have a lot off? Construction activity! And it is not as if private steel businesses are not making money in Pakistan; contrarily, and rather extraordinarily PSM is not even in production for a very long time. 12 years down we still have no idea what is the problem with PSM, and we only crib about how the then Chief Justice should not have scuttled its privatisation.
Privatise it, baich dey, seems to be our only solution for the entire Dumpty family, which is a pretty dumb approach, in my opinion at least. Why I am against selling national assets is a debate for another day; albeit, as a hint, in my columns I have repeatedly admitted that I am allergic to free markets.
But looking beyond the Dumpty family, at the bigger picture, do we even know what the problem with our economy is?
The reason this question is pertinent is because each and every government which has come to power during the last two decades, started with hyperventilating over the terrible state of the economy which they inherited, and thereafter proceeded to vehemently assert that the economy has been turned around and was now stable. We really love the circle.
Incredibly, if you peruse the Economic Surveys of these very last twenty years, it would be an absolutely befuddling experience. Perhaps one or two editions might speak about challenges, but by and large the broader message is, all quiet on the western front. The thing about economic indicators is that you can pick and choose from a huge bouquet of percentages and ratios relating to everything to prove anything, which is a great blessing for the authors of such publication, in fact for many economic publications. Frankly whoever writes these is apparently fiercely positive, and a genuine, to the core, optimist.
That being the case, if everybody stabilised the economy, and some, one or the other, economic indicator is readily available to support that they did, then what exactly went wrong? What is the problem? Seriously, do we even have a problem?
Even whilst writing this column today, one is not aware of any analysis identifying what went wrong in the past; more to the point what decisions were wrong, if at all anything was wrong. There is always a possibility that we did everything right and the current mess is just a case of bad karma. Irrespective, if you don't learn from history, you are bound to repeat the same mistakes. Or be unprepared when bad karma strikes again.
Curiously, the problem statement as per IMF today is similar to the one in 2013, and while one has not researched prior programs, most likely, according to them our problems have not materially changed from the past; accordingly their solution are broadly cut and paste from the past, expect for the exchange rate.
Today everyone agrees that managing the Rupee is a "No-No"; except back then when the Rupee was kept strong via borrowed dollars, the strategy probably had the tacit approval of the IMF; back then we were also under an EFF program with periodic reviews all through 2013-16 and it could not be that this practice was not visible. Still we have learnt from history, no more managing the rupee; great.
But have we, with the help of IMF, in reality now isolated the problem and its causes?
Pakistan's external debt and liabilities, as per SBP, kept increasing during 2013 to 2018, and stood at a worrying US$ 95.2 billion at 30th June 2018. As per IMF projections attached with IMF Country Report No. 19/212, Pakistan' external debt will reach to a colossal US$ 133 billion by 30th June 2024; and that too, if workers' remittances increase to US$ 27 billion and Pakistan is able to attract direct investment of US$ 5 billion, in that year.
For the record, if workers' remittances do not keep increasing, and if direct investment does not keep flowing in, and if oil prices go for a six, all bets are off! Again, for the record, IMF's review reports repeatedly pointed out that drastic decrease in oil prices was a lucky break during their last program; if oil prices had not collapsed, external debt would probably be much higher at 30th June 2018, and the economic disaster way far bigger!
Notwithstanding, if we have actually understood the problem, should not the debt be coming down henceforth? Debt growing at a slower pace is not exactly good, in absolute term debt is still growing!
And what exactly is the plan to pay this debt?
Let there be no doubt whatsoever, the only way to pay foreign denominated debt is through exports; the only other way is if we get waivers and grants of US$ 133 billion or we are allowed to print dollars for some unfathomable reason. And while it is easy to blurt out that Pakistan needs to increase its exports, it's easier said than done. As least I have not come across any pundit elaborating upon the how! Dear Readers, do the math yourself to figure out how much would exports need to increase for Pakistan to start generating a trade surplus, at which point we can perhaps start paying our external debts.
Unfortunately, once again we have run out of space at a critical juncture; perhaps Part III next week concludes. But let me be abundantly clear, I am not trying to frame the fabled Problem Statement through this column, my humble objective is only to highlight that such a statement is a prerequisite to arrive at the right solutions for the economy. Perhaps those who matter may agree, or they may not; in any case for my money they still have to first figure out, what is the problem.
(The writer is a chartered accountant based in Islamabad. Email: [email protected])
Copyright Business Recorder, 2019
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