Sunday, December 24, 2006
EDITORIAL: Planning for the future
The International Monetary Fund (IMF) and the World Bank are supposed to have told Islamabad that Pakistan will be starved of energy in the coming years and that this shortage might attain critically dangerous proportions if certain steps are not taken right now. Pakistan extracts only 50,000 barrels of oil per day from domestic sources but needs seven times more oil daily to survive. Needless to say, it imports the additional oil required and that is the biggest drain on its balance of payments. Pakistanââ¬â¢s current account deficit is alarming and even good growth in exports is not able to keep pace with the growth in imports, which is mainly because of the growth in demand (the economy is growing at over 6 percent) which accounts for growth in the demand for oil whose international price has shot up dramatically in the last few years, with the likelihood that this trend is not about to reverse itself soon.
This is not a good or sustainable position. The American invasion of Iraq has made things worse in the oil sector. But if Iran cops air strikes because of Mr Ahmadinejadââ¬â¢s antics or Mr Bushââ¬â¢s desperation, oil prices will rise further and simply throttle Pakistan. The IMF and the World Bank say energy reforms in Pakistan are not keeping pace with the changing outlook. Pakistan has never moved up from 50,000 barrels a day for the last 20 years, despite rumours of fabulous strikes that often push the stock market up to roof-busting heights only to come crashing down the following week. The world bodies think Pakistanââ¬â¢s declared aim of getting oil production up to 100,000 per day by 2010 is not likely to be realised.
The so-called ââ¬Ëreformsââ¬â¢ in the energy sector have not gotten anywhere while growth rates warn that more energy will be needed to prevent the country going haywire sociologically with yawning gaps developing between the classes. Look at the way Pakistanââ¬â¢s demand for oil has sky-rocketed during the last couple of decades: it has risen from approximately 160,000 barrels per day in 1986 to over 350,000 barrels per day in 2006. All this goes into the import bill, sending the country into the dark alley of devaluation that has never seemed to work for Pakistan, except that stagflation chokes the lifeââ¬â¢s breath of the long-suffering masses.
The future has never looked terribly good in Pakistan. Most expert predictions have always been gloomy and at times ominously threatening. There was a time when the economists used to blithely give out red signals, but they were proved wrong so many times that they no longer do that sort of thing now. The reason is not that they had got their economics wrong but that Pakistan invariably hit a patch of good luck right at the spot where it was supposed to go belly-up. After the Bhutto interregnum the famous state coffers were empty after adventures in nationalisation. Pakistan was unpopular after what it had done in East Pakistan and it was not doing all the right things to exploit the Cold War bonanza.
Then General Zia-ul Haq hit the jackpot with the Afghan jihad and was able to run the country with huge US grants and other less transparent handouts from his Arab friends who sold us their hardline Islam. Thus, despite an economy in listless mode, Pakistan still managed to get its debts rescheduled and borrowed more to pay salaries, there being little development. In fact there was no development for so many years that when the funds became available the country didnââ¬â¢t know how to spend them! Then President Reaganââ¬â¢s ââ¬Ëpackagesââ¬â¢ came to an end when President ââ¬Ëfatherââ¬â¢ Bush said he wasnââ¬â¢t sure he could guarantee that Pakistan was not making a nuclear bomb.
When democracy came back in 1988 the dream times of Pakistan being the third biggest recipient of US assistance were coming to an end. Thatââ¬â¢s when the rumours that Pakistan could become a failed state started bubbling up, and patriots began defending an economy whose statistics had to be fudged to get the IMF tranches. This time the economists thought the real crunch time had finally arrived. But then 9/11 happened and the money began coming Pakistanââ¬â¢s way again even as many Pakistanis started to hate President Pervez Musharraf for abandoning the Taliban. Once again Pakistan was forgiven its sin of ignoring calls to do something about its energy (and water) needs. Under General Musharraf, economic management has also been better because he left the State Bank alone and Pakistan pocketed the windfall of remittances from scared Pakistani Americans.
The real indicators however are still not impressive or sustainable enough. Foreign investment has come into a few sectors only like telecoms and real estate while privatisation of key industries has helped replenish the coffers. But domestic investment in the manufacturing sector, except for automobiles and cement and fertiliser, has not been significant. What will happen when the pent-up demand in the telecom sector is satisfied and growth flattens out? What will happen in a couple of years when all the big units have been privatised and there is nothing left to sell? What will happen when the property boom bursts and demand for cement falls? What will happen when the easy credit policies behind the automobile boom are squeezed by rising interest rates? At the end of the day, we will still need to balance our international payments. And trade rather than aid will be the mainstay of our economy. That is when the shortage of money to pay for increased energy needs will dampen the economy. That is when we will rue the day we demonstrated our preference for honour over economic survival: our love for the Taliban and Osama bin Laden rather than a consensus on building the Kalabagh and other dams for our energy needs; on going on a spending spree for weapons and armaments instead of making peace and trading with our neighbours. *
http://www.dailytimes.com.pk/default.asp?page=2006\12\24\story_24-12-2006_pg3_1
EDITORIAL: Planning for the future
The International Monetary Fund (IMF) and the World Bank are supposed to have told Islamabad that Pakistan will be starved of energy in the coming years and that this shortage might attain critically dangerous proportions if certain steps are not taken right now. Pakistan extracts only 50,000 barrels of oil per day from domestic sources but needs seven times more oil daily to survive. Needless to say, it imports the additional oil required and that is the biggest drain on its balance of payments. Pakistanââ¬â¢s current account deficit is alarming and even good growth in exports is not able to keep pace with the growth in imports, which is mainly because of the growth in demand (the economy is growing at over 6 percent) which accounts for growth in the demand for oil whose international price has shot up dramatically in the last few years, with the likelihood that this trend is not about to reverse itself soon.
This is not a good or sustainable position. The American invasion of Iraq has made things worse in the oil sector. But if Iran cops air strikes because of Mr Ahmadinejadââ¬â¢s antics or Mr Bushââ¬â¢s desperation, oil prices will rise further and simply throttle Pakistan. The IMF and the World Bank say energy reforms in Pakistan are not keeping pace with the changing outlook. Pakistan has never moved up from 50,000 barrels a day for the last 20 years, despite rumours of fabulous strikes that often push the stock market up to roof-busting heights only to come crashing down the following week. The world bodies think Pakistanââ¬â¢s declared aim of getting oil production up to 100,000 per day by 2010 is not likely to be realised.
The so-called ââ¬Ëreformsââ¬â¢ in the energy sector have not gotten anywhere while growth rates warn that more energy will be needed to prevent the country going haywire sociologically with yawning gaps developing between the classes. Look at the way Pakistanââ¬â¢s demand for oil has sky-rocketed during the last couple of decades: it has risen from approximately 160,000 barrels per day in 1986 to over 350,000 barrels per day in 2006. All this goes into the import bill, sending the country into the dark alley of devaluation that has never seemed to work for Pakistan, except that stagflation chokes the lifeââ¬â¢s breath of the long-suffering masses.
The future has never looked terribly good in Pakistan. Most expert predictions have always been gloomy and at times ominously threatening. There was a time when the economists used to blithely give out red signals, but they were proved wrong so many times that they no longer do that sort of thing now. The reason is not that they had got their economics wrong but that Pakistan invariably hit a patch of good luck right at the spot where it was supposed to go belly-up. After the Bhutto interregnum the famous state coffers were empty after adventures in nationalisation. Pakistan was unpopular after what it had done in East Pakistan and it was not doing all the right things to exploit the Cold War bonanza.
Then General Zia-ul Haq hit the jackpot with the Afghan jihad and was able to run the country with huge US grants and other less transparent handouts from his Arab friends who sold us their hardline Islam. Thus, despite an economy in listless mode, Pakistan still managed to get its debts rescheduled and borrowed more to pay salaries, there being little development. In fact there was no development for so many years that when the funds became available the country didnââ¬â¢t know how to spend them! Then President Reaganââ¬â¢s ââ¬Ëpackagesââ¬â¢ came to an end when President ââ¬Ëfatherââ¬â¢ Bush said he wasnââ¬â¢t sure he could guarantee that Pakistan was not making a nuclear bomb.
When democracy came back in 1988 the dream times of Pakistan being the third biggest recipient of US assistance were coming to an end. Thatââ¬â¢s when the rumours that Pakistan could become a failed state started bubbling up, and patriots began defending an economy whose statistics had to be fudged to get the IMF tranches. This time the economists thought the real crunch time had finally arrived. But then 9/11 happened and the money began coming Pakistanââ¬â¢s way again even as many Pakistanis started to hate President Pervez Musharraf for abandoning the Taliban. Once again Pakistan was forgiven its sin of ignoring calls to do something about its energy (and water) needs. Under General Musharraf, economic management has also been better because he left the State Bank alone and Pakistan pocketed the windfall of remittances from scared Pakistani Americans.
The real indicators however are still not impressive or sustainable enough. Foreign investment has come into a few sectors only like telecoms and real estate while privatisation of key industries has helped replenish the coffers. But domestic investment in the manufacturing sector, except for automobiles and cement and fertiliser, has not been significant. What will happen when the pent-up demand in the telecom sector is satisfied and growth flattens out? What will happen in a couple of years when all the big units have been privatised and there is nothing left to sell? What will happen when the property boom bursts and demand for cement falls? What will happen when the easy credit policies behind the automobile boom are squeezed by rising interest rates? At the end of the day, we will still need to balance our international payments. And trade rather than aid will be the mainstay of our economy. That is when the shortage of money to pay for increased energy needs will dampen the economy. That is when we will rue the day we demonstrated our preference for honour over economic survival: our love for the Taliban and Osama bin Laden rather than a consensus on building the Kalabagh and other dams for our energy needs; on going on a spending spree for weapons and armaments instead of making peace and trading with our neighbours. *
http://www.dailytimes.com.pk/default.asp?page=2006\12\24\story_24-12-2006_pg3_1
