GLOBAL ECONOMIC MELTDOWN – PAKISTAN, AND ITS UNRAVELING ECONOMY
Kiran Omar
Because of the interdependence of different countries in the era of globalization, the current credit crisis in the US has affected every country but Pakistan has not been able to withstand the meltdown due to specific reasons of its own. An important factor for the Pakistani crisis has been the neglect of key sectors of economy by the outgoing Musharraf government.
Any discourse on world affairs today, political or economic, cannot avoid touching on some aspect of one of the hottest topics being debated i.e Globalization. It is a term that has come to symbolize economic growth and prosperity for some, marginalization and increased poverty for others. It is revered and cursed in turn and the jury is still out formulating a universally accepted definition. What is clear and generally accepted, is that Golbalization is all about interconnectedness, linkages and interdependency for better or worst. Loosely speaking, what happens in one region of the world, invariably has a domino effect worldwide.
The present economic meltdown triggered by the credit crisis in the US economy, has created a tsunami that has engulfed world economies and has affected both developed and developing countries. Pakistan, naturally, has not been able to withstand this tidal wave, and it has caught the country at a particularly vulnerable juncture. To date the present government of the Pakistan People’s Party (PPP) has been unable to come to terms with the multiple issues and crisis facing the country. There is much blame-game being played out in Islamabad, and the economic woes inherited are being parked at the door of the previous Musharraf/Aziz government. A quick review of broad economic landscape of that government and its economic policies may put today’s crisis in context.
The previous government of President Musharraf and his banker-turned-deputy Mr. Shaukat Aziz, made severe misjudgments and miscalculations with regards to the economy. According to Dr. Qaiser Bengali, eminent Pakistani economist and other notable economists, several key sectors like energy, infrastructure, agriculture, small and medium scale manufacturing were deliberately neglected. The main thrust of their policies centered around the service sector, mainly banking and this sector registered a record growth rate of 29% in 2003. The Musharraf/Aziz government ushered in a credit economy on a large scale, hitherto unknown in Pakistan. Similarly, leading from this, the automobile sector recorded a high growth rate, a whopping 45% in 2003. The consumer financing system that evolved, provided easy credit for consumers to obtain cars, homes, and luxury goods, on favorable terms. At the same time the consumer was not educated about the implications of indiscriminate borrowing.
The growth figures in selected sectors led to seriously distortions in the overall economic picture. When growth rates in some sectors jumped, the overall average was understandably high, portraying the economy as being more robust than it actually was. In Dr. Bengali’s words, “…..it was basically a one-legged growth and the one leg was consumer financing. You remove that leg, and everything else collapses……” (Qaiser Bengali, interview with The News on Sunday January, 2008).
A bubble, so to speak, was created cosmetically, with no firm foundations in key sectors like agriculture, industry, epecially large industry and manufacturing, and long-term economic planning or investment towards it, was absent. As is the nature of bubbles, it was destined to burst and the fall-out was widespread. This was already an economy groaning under huge national debts incurred by past military and inept civilian governments. As is the nature of military juntas, their own nests were feathered, at crippling expenses to the public. The Zia regime onwards, Pakistan’s subsequent governments were preoccupied in servicing those debts, restricting the utilization of resources towards other sectors like health, education, infrastructure, etc.
The access of easy credit also created a huge demand for imported, luxury goods. Indigenous medium and small scale industries were neglected, were not able to maintain the level of exports, and hence a huge trade imbalance resulted. The consumer financing flooded the economy with cash and pushed up inflation and consumer prices soared. Miscalculations in food production estimates resulted in exporting and smuggling of essential food crops at lower than international prices and created a shortfall at home.
The exit of the Musharraf/Aziz government coincided with the world food crisis followed on its heels by the global critical global credit crunch. Admittedly, the Zardari/Gilani/Sharif democratically elected coalition government inherited, in February 2008, an economy already in the doldrums. The further fragmentation and chaos within the coalition itself, preoccupied the power brokers with their political wheeling/dealing. To date, the now predominately PPP government is still grappling with the economy and its daily worsening situation. Today Pakistan stands on the brink of bankruptcy and is poised, in almost days, to apply for an IMF bailout, and agreeing to its accompanying restrictions and conditions. It is seen by many, as a last ditch effort to save the country for ruin.
While there is a very gloomy scenario that is unfolding, many believe, myself included, that this situation could be perceived as a much needed ‘wake-up” call. It could be, with careful husbanding and intelligent economic monitoring and planning, be turned into a opportunity to move towards greater self-reliance. Many a bitter pill will have to be swallowed, and serious sacrifices be made both by the government and the public at large. It will push the nation, perhaps more decisively, towards true nationhood and real democracy. There would be a need for ‘belt-tightening’ across the board and a small, leaner government in the future. There is a serious need for introspection on parts of all parties involved, and a hard look at the focus of resource allocations. There is an urgent need to divert resources from sectors that suck the life-blood of the economy primarily defense, and for a genuine shift in national priorities.
The government must take the public into confidence to collectively draw upon national resources and strengths to reduce excessive external reliance in the future. One immediate confidence building measure suggested by a prominent Pakistani journalist Ms.Anjum Niaz, is for President Zardari and those sharing power with him, to invest in Pakistan’s economy themselves. To bring in their investments parked in overseas banks and businesses and put them to use in Pakistan.
…….”Let’s end this thieves and robbers statecraft. Our present leaders should cut out the long lectures and instead put their mouth where their money is. They need to set an example for the rest to follow. Begin by being honest, sincere and transparent. Let Raja Pervaiz Ashraf, minister of water and power, suffer the load shedding as all others in Islamabad do. No exceptions please. Let his street in F-8 be in darkness and his home without electricity when our homes and streets are unlit. Let the president and prime minister show the awam that they too are burning the midnight oil looking for solutions to get back electricity in our homes and industries. Zardari deserves praise for getting a promise from the Chinese to build two more nuclear power plants, but in the meanwhile, he must pump up the public’s confidence by investing his overseas wealth in the local banks. He and his cronies must jump-start our economy by ruthlessly husbanding expenses. ” (Anjum Niaz, op-ed the Daily News, October 2008)
Other measure would be paring-down of an archaic and inefficient bureaucracy. A sincere effort towards decentralizing Federal responsibilities in sectors like health, education , etc. will not only transfer ownership to the provinces but also will result in a smoother, more efficient functioning, with fewer bureaucratic impediments and red-tape. It would reduce wastage and overlapping caused by duality in the chain of command and provide an incentive to the provinces to exercise prudence in expenditures and budget utilization.
Democratically elected governments can make choices that military junta are unable to, they can mobilize public goodwill and support. This is a situation where the Zardari government must win the people’s trust and dispel the pall of suspicion and mistrust that dogs his government and renders it almost paralyzed.
In conclusion, one is impelled to point out, and repeatedly stress, that without the supremacy of the Rule of Law, none of these efforts can bear fruit. Most everyone agrees that without this happening, economic progress will continue to elude Pakistan. It does not mean that establishing supremacy of the Law will eliminate economic hardships completely, however it will give investors confidence and foster trust. It will allow transparencies in transactions and provide recourse to the public and provide the checks and balances that are essential to foster healthy and robust economic environment. It creates an atmosphere of trust and encourages responsible governance.
These are dire and stressful times indeed, but if the nation and its leaders pull together and exercise prudence, wisdom, restraint and practice thrift diligently, it may be that these times may hone Pakistanis into a vibrant and vital nation it was intended to be by its founders.
(Kiran Omar can be reached at: kiran.omar@gmail.com)