"We came to power for the welfare of the poor. We have no right to continue staying in power if we don't care about them," Prime Minister Imran Khan said the other day while presiding over a meeting to review the rising prices of essential commodities.
Clearly, Imran Khan, a cricketer-turned social worker, is neither a politician nor an economist. He is, however, criticising the government of Prime Minister Imran Khan. Imran, the social worker, seems instinctively to have distanced himself from the premier's free market economic model and gone back to the comfort zone of the container from where it had all looked so easy to him. From the container you yell at the government it has no right to be in the government if it cannot do what you think a government should be doing and, get away with.
The Party did promise in its election manifesto that it would work for the welfare of the poor. It also talked of Riyasat-i-Madina model without, of course, explaining the idea in concrete details as how it would go about establishing such a state strictly adhering to the conditions of an Islamic sharia-compliant economy in this age of fourth industrial revolution.
But suddenly without warning there was a confounding change not only at the finance ministry but also at the State Bank of Pakistan (SBP). In April 2019, only about seven months in the government, the PM had Asad Umar shunted out of finance portfolio replacing him with Dr. Hafiz Sheikh. And an IMF man, Dr Reza Baqir was brought in from Egypt to head the SBP. There was no official explanation why such a drastic change had been made at such crucial positions. None of the two had anything to do with the PTI. But the successful negotiations in May, 2019 with the IMF for a front-loaded three-year $6 billion Extended Fund Facility (EFF) said it all.
Also, by then the PM had started publicly speaking more and more about creating the right environment for the private sector to produce wealth. Though he was at the same time promoting the Rs 190 billion Ehsaas project and had also opened up a number of Panahgahs (Soup Kitchens) to cater to those agonizing below the poverty line - almost 40 per cent of the total population. It was hardly a drop in the expanding sea of poverty.
It was seemingly a policy travel from one extreme to another - that is, from a social worker's idea of welfare state (left-of-center) to the extreme right. From a socialist looking model to one entirely based on free, unregulated market economy. A model in which greed is considered to be good and a small government is regarded as beautiful.
But in the wake of marked increases in prices of all essentials and non-essentials across the board, the scandalous wheat flour and sugar crises and the rising rates of poverty and unemployment, it was time for reality check.
"We will do whatever it takes to provide relief to the poor," the PM added, directing his economic team to take every step possible to bring down the prices of flour, cooking oil, pulses, sugar and rice among other essential edibles.
One sincerely hopes that the Prime Minister's wishes are carried out in letter and spirit. But how can you control prices in a policy environment that is essentially founded on free, unregulated market economy and that too while complying with the strict structural adjustment prescriptions by the IMF?
Naomi Klein in her book 'The shock doctrine' on page 163 says that 'Washington Consensus' officially unveiled in 1989was a list of economic policies which both World Bank and IMF considered the bare minimum for economic health.
"These policies masquerading as technical and uncontentious, included such bald ideological claims as all 'state enterprises should be privatized' and 'barriers impeding the entry of foreign firms should be abolished.' When the list was complete, it made up nothing less than (Milton) Friedman's neoliberal triumvirate of privatization, deregulation/free trade and drastic cuts in government spending. Joseph Stiglitz, former chief economist of the World Bank and one of the last holdouts against the new orthodoxy, wrote that 'Keynes would be rolling over in his grave were he to see what has happened to his child'."
And the official economic data tell us that no matter how much you try there is no way you can establish a welfare state by following the IMF prescriptions. Already the current year's GDP is being projected at around 2.5 to 3%. The large-scale manufacturing is showing a negative growth rate of nearly 7%. Production of our main cash crop, cotton, has declined to about 8 million bales from 15 million in 2014-15.
Exports are not picking up. Foreign exchange earnings, therefore, are dipping. Imports are being compressed. Revenue income, therefore, is not picking up. But of course, current account deficit (CAD) has, in the meanwhile, simply collapsed, saving at least about $6 to 7 billion dollars by now during the current fiscal.
On the other hand, in pursuit of attaining IMF-prescribed macroeconomic stability, the cost- plus rates of utilities such as energy are skyrocketing and in the process pushing up headline inflation rate to a record 14.6%, highest in 12 years. And this in turn has forced the monetary policymakers to maintain policy rate at 13.25%. Thankfully, this in turn has attracted as much as nearly $3 billion of the so-called 'hot money', enhancing in the process our foreign exchange reserves to a respectable$12 billion. But because of the high rates of interest, investment rate is in an extended phase of stagnation.
In the meanwhile, Pakistan's total debt and liabilities (TDL) continued to increase consistently and at a very rapid pace. Debt and liabilities of the country that stood at Rs 29.879 trillion at the end of fiscal year 2018 had crossed Rs 41.489 trillion by the end of September, 2019, showing a massive increase of 39 percent. These liabilities which were 86.3 percent of GDP in fiscal year 2018 had risen to 94 percent of GDP by end June, 2019. Total public debt increased by Rs 7.7 trillion during 2018-19, out of which Rs 3.6 trillion was borrowed for meeting the federal budget deficit, Rs 3 trillion was due to currency depreciation.
Revenue collection is expected to remain well short of the revised target of Rs 5.270 trillion. The shortfall for the first six months of the year is estimated at 116 billion. The annual target is 37 per cent higher than the actual revenue collected last year. With collection failing to meet the revised target the overall budget is likely to experience deficit financing to the tune of over 7.5%. Debt servicing is already consuming almost half of the tax receipts mobilized by the FBR.
And finally to quote renowned international economist, Atif Mian, to redesign its economy, the country's leaders must take on the moneyed elite and religious extremism (How to fix Pakistan's crashing economy - New York Times, Dec. 10, 2019).
"Prime Minister Khan promised change and 'naya' or new Pakistan to his people, but change is proving far more difficult than imagined. The fundamental challenge in bringing change is that those who are benefiting the most from the dysfunctional economy stand to lose the most from change would fight every attempt at reform and attack the people trying to ensure reform."
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