The Ugly Truth About Pak Economy: A Brief History

[zulu]

Thats the most difficult question.Should we focus first to design and implement new system replacing that old corrupt system or we focus on things which can do and hope when all other parts of system start working better that the system get corrected itself .This way or that way?? time consuming,going to face lots of hurdles and corruption but i think second way also it will avoid chaos too

My dear Pak,

I guess I left the foundational political system intentionally out... for that we need to have a different dicussion thread. Otherwise, things get confused.

The very purpose of Pakistan was/is not to have a purposeless, directionless state so that people could die their hair blone...nothing wrong with it... but it underlines something deeper.

Without creating a political sytem that enables the Human Dignity, Development and Full Human Expression within the framework of Pak's Unique Civilisational Heritage... ship of the Pak State will remain adrift...directionless, soulless vessel.

The current sytem of #CriminalEnterprise is collapsing... IK cann't deliver. He is in Prisoner's Deilema.

But we will dig it further as we progress with that particular discussion.

Keep #PakPositive and #SayYesToJinnahModel

Mangus

 

[Mangus Ortus Novem]

Thats the most difficult question.Should we focus first to design and implement new system replacing that old corrupt system or we focus on things which can do and hope when all other parts of system start working better that the system get corrected itself .This way or that way?? time consuming,going to face lots of hurdles and corruption but i think second way also it will avoid chaos too

Economy is total loss. Political system is impotent and ineffective.

Debt crisis was designed for a far bigger game... Pak's Friends saved from this.

Political Economy means political economy.

Desolution of the current system to create a breathing space for a better system...in the meantime stablise current form of economic structure. Then through popular will #JinnahModel be implemented. A bit of clean up between these two stages...

Things shall happen in sequence....

 

[Hakikat ve Hikmet]

Economy is total loss. Political system is impotent and ineffective.

Debt crisis was designed for a far bigger game... Pak's Friends saved from this.

Political Economy means political economy.

Desolution of the current system to create a breathing space for a better system...in the meantime stablise current form of economic structure. Then through popular will #JinnahModel be implemented. A bit of clean up between these two stages...

Things shall happen in sequence....

Allow me to be the Devil's Advocate here!!!! According to Pak Public Accountants, ~70% of the transactions are undocumented/unregulated/untaxed etc.!!!! Is it done with the knowledge and consent of the Deep State even if the pie of the humongous corruption is taken out???? Now that the Pak Deep State to an extent is getting normalized by steadily aligning (starting from 180 degrees) with the Deep Nation, are they confident enough to slowly let their hold be normalized too???? I am pretty sure for the "strategic" matters 70% isn't exactly required provided reasonably patriotic folks are at the helms....

 

[Fledgingwings]

Pakistan needs to remove interest from economy and apply zakat on the ones meant to and things will start to get changed dramatically as we are promised with abundance of barkat regarding paying zakat by Allah.

 

[Mangus Ortus Novem]

Allow me to be the Devil's Advocate here!!!! According to Pak Public Accountants, ~70% of the transactions are undocumented/unregulated/untaxed etc.!!!! Is it done with the knowledge and consent of the Deep State even if the pie of the humongous corruption is taken out???? Now that the Pak Deep State to an extent is getting normalized by steadily aligning (starting from 180 degrees) with the Deep Nation, are they confident enough to slowly let their hold be normalized too???? I am pretty sure for the "strategic" matters 70% isn't exactly required provided reasonably patriotic folks are at the helms....

My dear friend,

Indeed. That was what was the need of the hour.

Pak State has reached Strategic Independence now.... hence, after achieving condidtions for victory... it is time to do the battle with the #CriminalEnterprise.... time to roll their shop for good.

Pak was created for a purpose... Pak can not exist without that Purpose of Peace...and Prosperity.

Jinnah had given clear cut instruction regarding the System of the State and Welfare of the Paks. Time to implement that instruction.

Pak to be Pak...a clean up is long overdue.

Funny how Turkey's economy suddenly became 'sick' and how Pak's economy was brought to an abyss before current ruler took office.

Life is funny.

Regards,

Mangus

 

[niaz]

Economic Solutions' Framework: Laying the Foundation for a Sustainable Economy

All economies and their performace is the refelction of politics.

Dollar dominance is the result of politics.

Yuan management and slow, controlled trading is result of politics. Japanese property boom and bust was result of politics. ASEAN 'miracle' boom/bust/boom...politics. Buying T-bills is result of political decision.

Euro is purely a political decision. Had no underlying economic need other than trans-atlantic decision making and tightly nitting mainland Europe into a political entity. Ask PIGS the price they are paying for this. Greece, let us not forget.

The point is all economies mean political expression i.e. political economy. Just have a look at resource rich countries and their political make-up and their related economic performace.

If we look at the Pak economic history... apart from mere 7-9 years period of 1960s... primarily Pak economy has been a rentnier economy living off loans and aid packages. This is evident at both macro and micro level. The industrial, banking and export sector has the same behaviour. Just enough investment to keep things going.

No business or tech innovation. Getting the money out of the country or creating foreign shell (trading) companies to either under or over invoice. In any case just looking at the conoutry, consciously or unconsciouly, as a colony. The elite has all its assets abroad. An estimated $200 to $300 Bln is total net capital or assets abroad. Not all of it belongs to politicos.

In other words, if only Paks can invest in Pak then no foreign investment is needed. BD export boom in textile is Pak investor driven. Malaysia another destination. Again not all of it criminal produce but rather escaped capital due to 20 years of WOT and Karachi Burning.

We could indulge deeper about money sent back form Overseas Paks... through hundi... but the picture is there.

The Point!?: Pak is NOT a poor country.

What is a Developed Economy:

We can go into standard, known, features such as ease of doing business and all that jazz... however, let us focus on the quint essence of a developed or developing economy with solid foundations.

In essence a strong economy is a Giant Rules Engine with strong Exception Management System. Everything designed for Flow in the Process. Nothing else.
Without this there cann't be any innovation or business growth. Even in a communist political system of China one can easily find this fact.

A passing look at Pak's economy or general taxation system will show that the entire legislation is designed to retard economy activity. Or in other words a system designed to squeeze as much as possible from citizens and Pak State.

This in nutshell is the current Political Economy of Pakistan.

What Could be the Pak Political Economy?

Socialism? No!

Neo-liberal Capitalism? No!

Humanism? Yes

The very Idea of Pak was driven by a sense of this. To have a place where Paks could become Free Humans according to their unique Civilisational Heritage. Why else swim through ocean of blood?

Do the laws, regulations enable the advancement of Human Condition in Pak at the moment? Or do these enable the oppositie? Be it courts, civil services or daily life?

Except for 5 years under Ayyub Khan... Pak has been primarily a parlimentary system with British laws. These laws were designed to govern a Colony not a Free State. Yet Pak is still under the same laws. The entire legal framework is geared towards Control rather than progress.

This, however, is a separate discussion. Nevertheless, extremely relevant. But not now....

Creating a Humanist Economy:

With more than 50% living under the poverty line and 64% youth buldge redical steps need to be taken to Save The Social Fabric.

As an Artificial Intelligence dominated world is here... creating jobs for all these young population is a tremedous challenge.

Given the scope of this Framework I am forced to briefly highlight areas of focus and reform. Each element requires a Whitepaper in its own right.

1) Land Reforms:

Serfs living in Sindh or South Punjab are good to vote for Never Dying Bhutto but to elevate them from sub-human levels it is necessary that the landless farmers be given land from the Unionists who opposed the very Idea of Pak i.e. today's electables

2) Population Act:

A two child policy needs to be implemented under National Emergency Act. Easy said than done... but it must.

3) Education Act

A unified, standardised educational system from GB to Gawadar. In order to create ease of mobility in the job market later this is essential. Salaries of the teachers be the highest of any government employee. Only the best and highly educated should be hired through qualification exames. Only for 5 years. For renewal qualificaiton exame.

Free food and books. Any mismangement or theft means life in prison. You can forgive murders but not those who steal from educational instituitions. Compulsary education till 18 with focus on science, tech and paractial industrial skills. Urdu as medium. English as second.

4) Public Services Act

No more permanent government jobs. An AI based performance management system for all government employees. Except for Foreign Office.
Dismantle CSS. Direct hiring based on experience in business.
Create a country wide Rules Engine based on open source Enterprise Architecture spread across the country on Blockchain.

5) One Tax Act

Paks, poor ones, are criminally taxed through indirect taxes. On the other end corporate sector has the worlds highest tax ratio. This again is the reflection of rentnier mentality/system.

No sales or wealth tax.

A single Tax % for everyone living above the poverty line. This % has to be the same i.e. propotional to the income. If some earns a million he/she pays same % relative to income to someone who earns less. Justice in taxation.

Dismental tax office. Bring in AI solutions. Custom duties also be governed by unmanned systems. Pak State will have more revenues this way than any other schemes.

6) Agriculture Revolution

Per hectre yield of Pak farming lands is horribly low. This needs to become threefold at least. This is far easier way to reduce poverty than anything else.

The entire value chain related to Agri i.e. irrigation, machinery, fertilizers, storage, farm-to-market needs to be Pak made. Herein Value Addtion and Food processing/packaging is critical. Easily done. Just take out the parasites and redtape.

Biotechnology parks for Pak tech firms be established with 10 year tax break... provided there is complete tech transfer and skills development of Young Pak techies... Also essential that these have to be JVs only. No foreign firm be given this. Ban GMO except for cotton seeds.

Genetic Sciences and Tech centres of excellence and related business spin-off with subsidy and tax breaks for ten years.

7) Industrial Revolution

There is no luxury of time... from pure mannual labour intensive to high tech Pak must establish SEZs in all areas. Higher tax breaks for high tech. The key policy is to make Everything in Pak. Period.

Electronics, manufacturing and processing industries must be the focus in the first phase. Focus on transportation i.e. cars, buses, truck, high PK tractors etc. More competition the better. #BanSuzuki

8) IT Cities

There is a scope for at least four IT cities in Pakistan. Same as 7 policy should be to part of each step of the IT value chain. With Social Responsibility Act required of all IT companies to train young Paks through Skill Centres and Internships.

9) Banking Sector Reform

Pak banking sector is lazy. It has been fattening up by lending to government. Pak must allow competition by creating a Credit Issuing Agency.

Banking sector is owned by the same #CriminalEnterprise which own IPPs. Go figure!

10) Energy Act

IPPs be opened and tried under Economic Terrorism Act by special courts. Furthermore, renewable must form at least 50% of the energy mix. Dams. Dams and more dams.

Also, the need for Intelligent National Grid is critical. Nobody has paid any attention to transmission for last 30 years.

11) 10 New Cities

Firstly, Master Plan for Gwadar needs to be revisited with an eye on making it a second Karachi. Apart from this 10 small and medium seized cities needs to be planned using best practices available, in accordance to geography.

The cities must have a long term perspective to make them viable i.e miroc economically viable centres. Time to look at cities a different lens.

12) Free Karachi Act

Pass law to declare Karachi a Federal City or Second Capital of the State. Free Karachi from all political mafias.
Make Karachi go up. Must also be done for Lahore as well.

13) Tourism Yes, Disneyland No

There is no country like Pak. From GB to Gwadar... However, it is equally important that the 10000 years old Civilisation does everything possible to retain a distinct cultural and social hue.

The very distinct Pak Hospitality... the essence of Pak culture... is a Brand like no other. It is not just the landscape but the Pak People. It needs to be markted wisely.

Welcome to the Land of Dancing Horse

Welcome to the Oldest Living Cities

Welcome to the Oldest Civilisation

Paks are NOT whites... so trying to become would be useless. Then neither would be white nor Pak. Something which requires deep meditation!

14) Free Internet

With 5G coming this should enable in economic transformation. Fintech and Alibaba... can help women and young to have their goods /handicrafts sold worldwide.

Pak must also lauch statelites in this regard to provide free highspeed internet to all Paks.

15) Trains, trains and more trains

At the moment the entire train infrastructure is in shambles. Pak must plan for longterm and high speed trains... electric transmission. In this regard apart form track agreement... local manufacturing agreement with China needs to be signed.

Here blindly follow Chinese strategy.

16) China Model Yes, China Model No

China could do all those things because China is China. China doesn't have #DieselMullahs or ZAB or NS or #CriminalEnterprise

So following Chinese Model is not that easy. However, the elments of the Chinese Model can be implemented in Pak development.

A Thinktank of Sino-Pak Socio-Economists can become part of Sino-Pak Strategic Cooperation Framework.

17) MIC Pak & Co.

The expansion in Pak MIC and vertical integeration of private enterprises is needed. Not just lipservice. The export potential in product and services is huge and needs to become part of Military and Economic Diplomacy.

18) CPEC... to be a Road or a Bridge

CPEC can only deliver fruits for Paks if there is actualisation of SEZs, financial/trading centres and related services industry boom in Pak for China, MENA and Africa.

If Pak becomes just a road for China then the loss will be immense. Something to ponder.

And finally....

19) Financial System

At the moment Paks hold more gold privately than the State. Not bad for the people but bad for economy. RekoDig needs to be given protection under National Security Act. And all that gold must go straight to the State. PKR must have some underpinning of gold. It is miserably exposed.

#PetroPKR ??? Well it can be done but nobody has the guts to do it. Besides... too early in the game... so no flying horse just yet

Pak needs to plan today if and how it wants to escape the middle income trap...... the only solutions is spending equally on education as defence... perhaps double.

#2047PakAt100

@Reddington @zulu @Dubious @Khafee @niaz well gents, first attempt. Obviously, requires more detail in each facet. But then it becomes a book on Transformation!

Honourable Magnus .O. Novem

Your post is very good and difficult for me to improve upon it. I am not an economist and my formal education on this subject is limited to what I learned in the evening MBA programme at the Long Island University financed by Esso while I was in New York back in 1970. The hardcore economist would probably disagree with my comments which are based on the “Common Sense” approach and what I have witnessed in Pakistan & the other countries that I have visited.

With your permission, I would refrain from debating the pros & cons of the different economic systems. Instead, I would limit myself to what in my view ails the Pakistan economy and what is the possible solution.

However, I am not aware of exactly what is meant by ‘Humanist’ economics that you refer to? Scandinavian countries are well-known for their strong social welfare. The economic system called the “Nordic model” is essentially a capitalist society with generous welfare programs. The laws make it easy to shed workers and implement restructuring to keep the business profitable.

The Nordic nations tax structure is based on individual rather than the household income coupled with a flat tax. The system treats all citizens equally (including gender equality) and encourages workforce participation. The net result is a unique combination of market capitalism & social benefits which provides the citizens with quality free education & healthcare and guaranteed pension for the old. High taxation ensures that the gap between the rich & the poor, even though noticeable, is far less than the USA and many European countries.

In my humble opinion Pakistan economy has three fundamental weaknesses. First & foremost is that GOP has been continually spending more than its revenue. This is because Pakistanis in general don’t like to pay income tax and some even don’t pay their utility bills.

Many state owned organizations and provincial gov’ts delay paying their power bills which means that the rest of the consumers have to bear the burden. Lack of sufficient revenue means that after allocations for defence, interest payment on local & external loans, salaries for the gov’t employees and subsidies to the state owned loss making enterprises; there is not much left to spend upon infrastructure, education, health, public welfare schemes, agriculture and economic development projects. Hence we see that quite often funds allocated for development projects are spent elsewhere.

The second main problem the balance of payment situation. I think that Pakistan’s economic woes are primarily due to the fact that our economy never really progressed beyond what is called “Import substitution” stage. Hence our industrial base lacks the capability to convert the imports to higher value exports by adding value.

Performance of our service sector is also abysmal. Pakistan’s trade in services only amounted to $16.20 billion. Our neighbor country India, on the other hand, contributed US$162 billion in the international trade of services in 2016.

https://dailytimes.com.pk/239197/the-services-sector-and-export-growth/

Ever since 1958, Pakistan has been governed either by the military dictators or by the ‘Autocratic’ authoritarians in the guise of democratic leaders. Pakistan economy fared better under the dictators primarily because the people appointed to task were generally competent. This could be because in the military even the mediocre have to perform else they would not be promoted to the next rank. Also because there was political stability & continuance of economic policies for nearly a decade, investors knew what to expect in the near future.

On the other hand, in democracy, as practiced in Pakistan, like / dislike of the leader is the key determining factor. Ministers and Heads of state organizations are selected solely on the persons’ loyalty to the party leader regardless of their actual ability. Additionally, each time a new party comes to power, projects / economic policies of the previous gov’t; even if genuinely beneficial, are discarded. The result is that only short term measures which stabilize the economic situation are undertaken instead of the structural reforms that would correct the underlying weaknesses.

That is why time and again the fiscal & balance of payment pressures reach near crisis level before the GOP is forced to act and goes out to the IMF with the cap in hand. In my humble opinion; in addition to the elimination of the corruption & nepotism; orthodox economic measures such as cutting the wasteful expenditure and substantially enlarging the revenue through and equitable taxation system, eliminating the red-tape to encourage individual entrepreneurship are needed to correct Pakistan’s economic problems.

One must understand that no gov’t can provide jobs for all and/or provide shelter to all the homeless. The Gov't's job is to create investment-friendly policies by fixing the law & order situation, cutting the red-tape and improving the technical & innovative skills of the workforce through good quality training & education. It is the small & large industrial/trading enterprises that create jobs and help to resolve the unemployment problem. Pakistan will never get out this vicious cycle unless the three most important steps are taken.

All citizens with income beyond a certain threshold must pay tax regardless of how this income was generated Tax evasion must be substantially reduced. If the GOP needs to reform the FBR by firing all current employees and hiring new ones, so be it. Extreme circumstances need extreme measures.

GOP must make all effort to increase the exports to at least 10% of the GDP (currently it is about 8%) which means our minimum export target should be around $30-35-billion. This would help to correct the balance of payment problem to a large extent. Instead of capitulating to the Islamist lobby by not hiring a very capable Qadiani advisor; help from any individual; be a Hindu, Sikh or Buddhist should be welcome.

Presently Chinese steel plate is so cheap that many UK & US steel mills have disappeared. By continuing with the loss-making enterprises such as PSM, GOP is, in fact, doling out money to thousands for doing nothing. Pakistan cannot afford such white elephants and all loss-making state enterprises should be auctioned off at whatever the price market will pay for it. The money thus saved to be used for other poverty reduction programs such as rural roads, installing water filtration plants, improving agriculture yield through multi-crop farming etc.

 

[Mangus Ortus Novem]

@niaz


Kind sir,

Please, allow me to thank you for your thorough diagnosis of the state of affairs as they stand for Pak.

Nordic Model was product of Clavnism and of course, high investement in education and healthcare.
Finland is a prime example of ROI in education. They do have world's best system. In my younger years I did work in the Nordics so I am aware of both the Human Condition and Human Quality there.

Transformation, be it economic or social, is both science and art. The problems in Pak's case are many. Both structural and historical. Hence, no easy or plug-and-play solutions within the cmurrent system in its totality.

It requries thinking, deep meditation and a dialouge with professionals as yourself and young Paks here. I percieve it to be a process rather than just taking a postion or copy/pasting from some western models.

I do believe We can have original thinking by studying others...analysis-synthesis-application.

Regarding my Thesis of Humanist Economy... I don't mean a western welfare state.

As you know and obersve that the writing-off of people is becoming more common. 40 is the new 50. And with the advent of AI this process is going to be even more relentless. Result: Trump in US and other wannabes in Europe. Welfare state had its day when the rest of world was coming out of post colonial time... the advent of China only accelerated this decline.

Furthermroe, I don't believe that a cradle to grave welfare is the solution. It is practically ended now in Europe. A welfare check has also shrunk. I believe you can percieve the point I attempt to make here.

Hence, I purposed a Third Way.

I know it is a new Economy Theory. But... heck... why should we always copy/paste from others. Aren't we capable of Original Thinking based on certain Prinicples?

I shall avoid fake modesty which forces people to utter hollow gratitudes...Hence I shall keep the lips of wisdom sealed for the way you addressed this person.....

Nay... I shall say... you make me happy my brother that you concern yourself with Pak the same way as I do!

If you have time... then we can run with this thread and try to learn from each other... and teach our Young Paks a bit.

What else can we do?

Remain blessed.

Mangus

 

[niaz]

@niaz


Kind sir,

Please, allow me to thank you for your thorough diagnosis of the state of affairs as they stand for Pak.

Nordic Model was product of Clavnism and of course, high investement in education and healthcare.
Finland is a prime example of ROI in education. They do have world's best system. In my younger years I did work in the Nordics so I am aware of both the Human Condition and Human Quality there.

Transformation, be it economic or social, is both science and art. The problems in Pak's case are many. Both structural and historical. Hence, no easy or plug-and-play solutions within the cmurrent system in its totality.

It requries thinking, deep meditation and a dialouge with professionals as yourself and young Paks here. I percieve it to be a process rather than just taking a postion or copy/pasting from some western models.

I do believe We can have original thinking by studying others...analysis-synthesis-application.

Regarding my Thesis of Humanist Economy... I don't mean a western welfare state.

As you know and obersve that the writing-off of people is becoming more common. 40 is the new 50. And with the advent of AI this process is going to be even more relentless. Result: Trump in US and other wannabes in Europe. Welfare state had its day when the rest of world was coming out of post colonial time... the advent of China only accelerated this decline.

Furthermroe, I don't believe that a cradle to grave welfare is the solution. It is practically ended now in Europe. A welfare check has also shrunk. I believe you can percieve the point I attempt to make here.

Hence, I purposed a Third Way.

I know it is a new Economy Theory. But... heck... why should we always copy/paste from others. Aren't we capable of Original Thinking based on certain Prinicples?

I shall avoid fake modesty which forces people to utter hollow gratitudes...Hence I shall keep the lips of wisdom sealed for the way you addressed this person.....

Nay... I shall say... you make me happy my brother that you concern yourself with Pak the same way as I do!

If you have time... then we can run with this thread and try to learn from each other... and teach our Young Paks a bit.

What else can we do?

Remain blessed.

Mangus

Hon Sir,

What I wrote about Pakistan economy is well known and since it is the country of my origin, I have observed the state of affairs since my teens that is, for the last 60 years, therefore, I could write sensibly about it.

As I mentioned, I am a chemical engineer by profession and not an economist. I am not embarrassed to admit that I am not competent enough to make a meaningful contribution to a new economic theory, especially since you are obviously much better qualified in this regard.

Since I am not in the habit of posting for the sake of posting alone; I am humbled by your suggestion but regret my inability to be of assistance.

Thanks & best regards.

 

[guest9999]

I think this article sums up issues facing last 3 governments. Important bit to note, is that overvaluing the rupee will make your exports less competitive and helps to bring them down, while it makes your imports more attractive and essentially subsidizes them. To top that off, you borrowed billions which will never come back to prop the rupee.

An overdue stitch for the economy

History is repeating itself. Like the PPP (2008-13) and PML-N (2013-18) governments, the incumbent PTI government also discovered that its predecessor had left an economic mess for it to sort out.

A close analysis of external and internal factors by the last three governments reveal that while all three (and their respective caretaker governments) had to face some common chronic challenges, the trigger for economic mess was unique in all three cases.

The PPP government inherited a messy economy because the economic boost in the Musharraf-Shaukat Aziz era was dependent on an easy flow of dollars – thanks to the ’US War on Terror Coalition Support Fund’ – rescheduling of foreign debts, consumer led growth, and investment in the speculative (real estate and stick market) sectors. The year 2007-08 saw massive fiscal indiscipline. While international oil prices doubled (from $55 to $110) from January 2007 to March 2008, they were increased by only 9 percent for Pakistani consumers (to please voters for Elections 2018).

Same was the case for the electricity tariff where the impact of oil prices was not passed on. That was the beginning of the energy circular debt and aggravated the power outages. Government borrowing from the State Bank reached an all-time high, leading to widening of the current account deficit, rise in public external debt, loss in foreign exchange reserves, and higher inflation. Fiscal indiscipline by the PML-Q was the root cause of the problems that the following PPP government had to face.

The PML-N too got a messy economy, as the previous PPP government had to survive a huge burden of poor policies from its predecessors, two devastating floods of 2010 and 2011; the blowback of the war on terror – not only in the form of increased militancy but also in financial terms ($251.8 billion as estimated by Dr Hafiz Pasha) – and the historic high international petroleum prices which rose up to $152 per barrel.

This had led to the piling up of the energy circular debt and unprecedented power outages during the PPP era. Four finance ministers, three governors of the State Bank, and four finance secretaries in the first three years of the PPP government were tried for successful economic firefighting but things could not improve and the PML-N government had to accept the challenge of turning around the economy.

The PML-N government (2013-2018) was lucky to have most external factors in its favour. It found petroleum prices at an historic low (prices went down to $20 per barrel). The inflow for CPEC funds and Chinese investment for mega infrastructure and energy projects gave impetus to a stumbling economy. There was no major natural catastrophe. The law and order situation considerably improved, as did the supply of energy.

Apart from the IMF’s $6.5 billion, there were certain other factors that helped build foreign exchange reserves including a one-off payment from a 3G-4G auction, proceeds from Euro and Sukook Bonds, and payment from Saudi Arabia. The question arises: with all these positive externalities, why did the PML-N not leave a healthy economy for the PTI government?

Before answering this question, let us have a look at the chronic issues affecting Pakistan’s economy, which the last three governments found difficult to address.

The first issue is that there is a very narrow tax base. None of the previous governments was very successful in bringing taxable tax-evaders into the tax net (Although the PML-N government doubled the FBR revenue in five years, it failed to broaden the tax base). The second issue is the energy circular debt, which was ignored by the PML-Q (Shaukat Aziz) and which later proved out of control for the PPP because of the extraordinary high crude oil prices. The PML-N government did temporarily clear off the debt after coming into power, but that debt got tripled during the party’s five-year tenure. The third issue affecting our economy is lack of political consensus to reform loss-making public-sector enterprises (LPSEs). Each political party, while in opposition, opposed the then government’s efforts to reform LPSEs.

Now let us see why the PTI finds itself in an economic mess. The biggest problem with the last government’s economic performance was its inability to use the then fortuitous circumstances in addressing the chronic issues faced by Pakistan’s economy. Those issues got further aggravated by a wrong set of policies, especially the policy to artificially stabilize the value of the rupee for which (borrowed) $24 billion were injected by the government in the open market to keep the value of the rupee below Rs105 per dollar from 2014-2017. This overvaluation of rupee from 2014 to 2017, according to Dr Pasha, was a serious mistake, leading to subsidized imports and reduced exports (trade imbalance), large current account deficit and fast rising debt repayment liabilities.

In his latest book, ‘Growth and Inequality’, Dr Pasha writes: “the root causes of the incipient financial crisis today and the need ultimately to go [sic] the IMF are a unique combination of both internal and external factors. Due to a wrong set of policies, especially with regard to the exchange rate, Pakistan has been afflicted by a very rare form of the ‘Dutch Disease’” (apparent causal relationship between the increase in the economic development of a specific sector and a decline in other sectors).

“Large external borrowings have been used to keep the exchange rate nominally stable while leading to plummeting of exports and mushrooming of imports, thereby causing a big widening of the trade gap and resulting in a much larger current account deficit”.

He further writes that “the excessive external borrowing has also led simultaneously to a fast rise in debt repayment liabilities”.

Today, petroleum prices are once again bouncing back, touching nearly $60 per barrel. With the successful conclusion of CPEC’s funded phase-I, flow of funds under CPEC is over. Successive governments’ failure to address the chronic issues of low tax-base, LPSEs, and energy circular debt has led to a stage where circular debt and bailout to LPSE each has exceeded the annual defence budget.

It was quite easy for the current government to go on a lending spree, ignore fiscal discipline and let the economy suffer from a “rare form of the Dutch disease”, leaving a huge economic mess for whoever forms the next government. However, it has chosen a difficult path to address the chronic issues facing Pakistan’s economy.

The unpopular moves to depreciate the value of rupee to its real effective exchange rate, increase energy tariffs to stop further accumulation of energy circular debt, reduce imports through regulatory duties, and possible withdrawal of the unrealistic tax relaxations given in the last budget, will be painful both for the people (who will feel inflationary pressure) as well as the PTI government (which will lose its political capital). However, this pain must be endured by both – considering it an overdue stitch that would save nine stitches in months and years to come.


The writer heads the Sustainable Development Policy Institute.

Twitter: @abidsuleri

 

[CrazyZ]

I think this article sums up issues facing last 3 governments. Important bit to note, is that overvaluing the rupee will make your exports less competitive and helps to bring them down, while it makes your imports more attractive and essentially subsidizes them. To top that off, you borrowed billions which will never come back to prop the rupee.

An overdue stitch for the economy

History is repeating itself. Like the PPP (2008-13) and PML-N (2013-18) governments, the incumbent PTI government also discovered that its predecessor had left an economic mess for it to sort out.

A close analysis of external and internal factors by the last three governments reveal that while all three (and their respective caretaker governments) had to face some common chronic challenges, the trigger for economic mess was unique in all three cases.

The PPP government inherited a messy economy because the economic boost in the Musharraf-Shaukat Aziz era was dependent on an easy flow of dollars – thanks to the ’US War on Terror Coalition Support Fund’ – rescheduling of foreign debts, consumer led growth, and investment in the speculative (real estate and stick market) sectors. The year 2007-08 saw massive fiscal indiscipline. While international oil prices doubled (from $55 to $110) from January 2007 to March 2008, they were increased by only 9 percent for Pakistani consumers (to please voters for Elections 2018).

Same was the case for the electricity tariff where the impact of oil prices was not passed on. That was the beginning of the energy circular debt and aggravated the power outages. Government borrowing from the State Bank reached an all-time high, leading to widening of the current account deficit, rise in public external debt, loss in foreign exchange reserves, and higher inflation. Fiscal indiscipline by the PML-Q was the root cause of the problems that the following PPP government had to face.

The PML-N too got a messy economy, as the previous PPP government had to survive a huge burden of poor policies from its predecessors, two devastating floods of 2010 and 2011; the blowback of the war on terror – not only in the form of increased militancy but also in financial terms ($251.8 billion as estimated by Dr Hafiz Pasha) – and the historic high international petroleum prices which rose up to $152 per barrel.

This had led to the piling up of the energy circular debt and unprecedented power outages during the PPP era. Four finance ministers, three governors of the State Bank, and four finance secretaries in the first three years of the PPP government were tried for successful economic firefighting but things could not improve and the PML-N government had to accept the challenge of turning around the economy.

The PML-N government (2013-2018) was lucky to have most external factors in its favour. It found petroleum prices at an historic low (prices went down to $20 per barrel). The inflow for CPEC funds and Chinese investment for mega infrastructure and energy projects gave impetus to a stumbling economy. There was no major natural catastrophe. The law and order situation considerably improved, as did the supply of energy.

Apart from the IMF’s $6.5 billion, there were certain other factors that helped build foreign exchange reserves including a one-off payment from a 3G-4G auction, proceeds from Euro and Sukook Bonds, and payment from Saudi Arabia. The question arises: with all these positive externalities, why did the PML-N not leave a healthy economy for the PTI government?

Before answering this question, let us have a look at the chronic issues affecting Pakistan’s economy, which the last three governments found difficult to address.

The first issue is that there is a very narrow tax base. None of the previous governments was very successful in bringing taxable tax-evaders into the tax net (Although the PML-N government doubled the FBR revenue in five years, it failed to broaden the tax base). The second issue is the energy circular debt, which was ignored by the PML-Q (Shaukat Aziz) and which later proved out of control for the PPP because of the extraordinary high crude oil prices. The PML-N government did temporarily clear off the debt after coming into power, but that debt got tripled during the party’s five-year tenure. The third issue affecting our economy is lack of political consensus to reform loss-making public-sector enterprises (LPSEs). Each political party, while in opposition, opposed the then government’s efforts to reform LPSEs.

Now let us see why the PTI finds itself in an economic mess. The biggest problem with the last government’s economic performance was its inability to use the then fortuitous circumstances in addressing the chronic issues faced by Pakistan’s economy. Those issues got further aggravated by a wrong set of policies, especially the policy to artificially stabilize the value of the rupee for which (borrowed) $24 billion were injected by the government in the open market to keep the value of the rupee below Rs105 per dollar from 2014-2017. This overvaluation of rupee from 2014 to 2017, according to Dr Pasha, was a serious mistake, leading to subsidized imports and reduced exports (trade imbalance), large current account deficit and fast rising debt repayment liabilities.

In his latest book, ‘Growth and Inequality’, Dr Pasha writes: “the root causes of the incipient financial crisis today and the need ultimately to go [sic] the IMF are a unique combination of both internal and external factors. Due to a wrong set of policies, especially with regard to the exchange rate, Pakistan has been afflicted by a very rare form of the ‘Dutch Disease’” (apparent causal relationship between the increase in the economic development of a specific sector and a decline in other sectors).

“Large external borrowings have been used to keep the exchange rate nominally stable while leading to plummeting of exports and mushrooming of imports, thereby causing a big widening of the trade gap and resulting in a much larger current account deficit”.

He further writes that “the excessive external borrowing has also led simultaneously to a fast rise in debt repayment liabilities”.

Today, petroleum prices are once again bouncing back, touching nearly $60 per barrel. With the successful conclusion of CPEC’s funded phase-I, flow of funds under CPEC is over. Successive governments’ failure to address the chronic issues of low tax-base, LPSEs, and energy circular debt has led to a stage where circular debt and bailout to LPSE each has exceeded the annual defence budget.

It was quite easy for the current government to go on a lending spree, ignore fiscal discipline and let the economy suffer from a “rare form of the Dutch disease”, leaving a huge economic mess for whoever forms the next government. However, it has chosen a difficult path to address the chronic issues facing Pakistan’s economy.

The unpopular moves to depreciate the value of rupee to its real effective exchange rate, increase energy tariffs to stop further accumulation of energy circular debt, reduce imports through regulatory duties, and possible withdrawal of the unrealistic tax relaxations given in the last budget, will be painful both for the people (who will feel inflationary pressure) as well as the PTI government (which will lose its political capital). However, this pain must be endured by both – considering it an overdue stitch that would save nine stitches in months and years to come.


The writer heads the Sustainable Development Policy Institute.

Twitter: @abidsuleri

Pakistani leaders have been unwilling to do the things nessessary to correct the problems. They have embraced the Anglo-American model of import led growth and kick the can down the road. Works if you have the dollar or pound as your currency. Will not work with the PKR. The day of reckoning has arrived.

We must look to East Asia for inspiration. We must see forex as a precious commodity. Learn to deal with high prices with efficiency and indigenous resources. Above all else, we must embrace the work ethic of our ancestors. Consumption, obesity and laziness has become a sign accomplishment for many..this must change. Without a shock..it simply won't.

 

[Abdussamad]

Above all else, we must embrace the work ethic of our ancestors.

Things that improve labour productivity are given here:

• Investment is in physical capital — machinery, equipment and buildings. The more capital workers have at their disposal, generally the better they are able to do their jobs, producing more and better quality output.
• Innovation is the successful exploitation of new ideas. New ideas can take the form of new technologies, new products or new corporate structures and ways of working. Speeding up the diffusion of innovations can boost productivity.
• Skills are defined as the quantity and quality of labour of different types available in an economy. Skills complement physical capital, and are needed to take advantage of investment in new technologies and organisational structures.
• Enterprise is defined as the seizing of new business opportunities by both start-ups and existing firms. New enterprises compete with existing firms by new ideas and technologies increasing competition. Entrepreneurs are able to combine factors of production and new technologies forcing existing firms to adapt or exit the market.
• Competition improves productivity by creating incentives to innovate and ensures that resources are allocated to the most efficient firms. It also forces existing firms to organise work more effectively through imitations of organisational structures and technology.

Work ethic is nowhere to be seen above. Brute force effort is not what makes you more productive. If hard work was the metric then the labourer toiling in the hot sun all day would earn way more than the executive who works in an airconditioned office. Pakistan is lacking in all of the things that really matter.

The western and eastern infidels control the world by pushing buttons.

 

[CrazyZ]

Things that improve labour productivity are given here:



Work ethic is nowhere to be seen above. Brute force effort is not what makes you more productive. If hard work was the metric then the labourer toiling in the hot sun all day would earn way more than the executive who works in an airconditioned office. Pakistan is lacking in all of the things that really matter.

The western and eastern infidels control the world by pushing buttons.

Improving productivity requires technology and Innovation. The father of modern technical innovation was Thomas Edison...and according to him " Genius is 1% inspiration and 99% perspiration.".

Work ethic involves the mind and spirit as well as physical activity. The elite in Pakistan are mentally lazy. Its easy to import goods from overseas and make a huge fortune. Its hard work programming software...many hours toiling in front of screen...They are not interested.

 

[Abdussamad]

Sigh it's not laziness that is holding the country back. Let me tell you what is:

• Investment : This is a poor country so we lack capital alright. However part of the problem is that we have a very low savings rate. There are many factors for this. One is that the banking system has been protected from competition and as a result banks have become risk averse. They don't care about raising deposits. Foreign origin kyc/aml rules are also unsuitable for a country where the bulk of the economy is informal. Another reason is that real interest rates have usually been very low in Pakistan. As a result we have the lowest financial penetration rates in the region and the lowest savings rate in the world.
  
• Innovation : We are not at the stage where innovation is necessary. At this stage of our development it is adoption of technologies invented outside Pakistan that is important. You first need to catch up with the rest of the world before you can advance the state of the art. Unfortunately we are a very technophobic people. For instance the govt. has imposed many taxes on telecoms and internet access which widen the digital divide. As for generating our own intellectual property you would need laws protecting IP rights. Since even tangible properties are not well protected in Pakistan I don't think there's any hope for IP laws being enforced any time soon. We do have software houses but they prefer to export their product to countries where IP laws are enforced. Freelancers and freeagents also work for the infidels and earn dollars. The global market is far bigger than the Pakistani one.
  
• Skills : We don't spend enough on education. In fact we spend the least in the region barring Afghanistan. Instead the military gobbles up the bulk of our resources.
  
• Enterprise : We are generally risk averse. This is a cultural problem.
  
• Competition : Rent seeking is rampant in our economy. I gave the example of banks above. Other protected sectors include the auto industry and textiles. Sugar and wheat production are heavily subsidised at the expense of other crops which we end up importing. The most competitive sector is telecoms and it is taxed heavily. Effectively the govt. is punishing the most efficient among us.

 

[niaz]

A critical view of the 8 months of PTI management of the economy.


PTI in la-la land

• Zahid HussainUpdated April 10, 2019
  
  
  
  
  
  
  The writer is an author and journalist.
  
  THE magic wand has not worked. The promise of change has turned into a nightmare. Still, there is no shortage of self-congratulations. The eight-month rule of the PTI has so far been a lesson in how to blunder through.
  
  It is not just about incompetence and inexperience but also about the self-righteousness that has become the hallmark of the Khan government. The promise of instant good governance is far from being fulfilled; instead, chaos and paralysis have stalled even the regular functioning of the administration. The drift seems unstoppable. The performance of the government shows the limits of populism.
  
  Imran Khan is now doing everything that he had criticised the previous governments for. He is launching the same kind of tax amnesty schemesthat he had vehemently opposed in the past. He had labelled such schemes as ‘legalised corruption’. Has it now been declared kosher? For him, taking U-turns is a sign of leadership.
  
  His so-called austerity drive has been flaunted by the PTI government in Punjab that has recently ordered a new fleet of 70 luxury cars for provincial ministers. The total cost of these new vehicles is certainly much higher than the money fetched by the auction of the Prime Minister House vehicles that he had declared were symbols of status quo that needed to be broken. A ‘humble’ background has not stopped his handpicked chief minister in Punjab from attempting to secure substantial benefits for his life after the high post.
  
  The drift seems unstoppable. The performance of the government shows the limits of populism.
  
  Once described as relatively better governed than the rest of Pakistan, the country’s biggest and most powerful province has now gone down the ladder. Multilateral and donor agencies find it much harder to deal with a provincial administration lacking leadership. Being under the constant scrutiny of the National Accountability Bureau, the bureaucracy is not willing to put its neck out and take responsibility for any decision that may land it in trouble.
  
  It’s not much different in KP. The PTI government, which is serving its second term in the province, is implicated in a deplorable scandalinvolving the metro bus project that was launched in 2017. The cost of the project that is yet to be completed is nearly Rs70 billion. A recent report by an inspection team has revealed massive mismanagement of funds and other flaws in the project. To the anti-corruption crusaders, the scandal in their backyard does not seem to bother them very much. That also reinforces allegations of a politically driven accountability exercise against the opposition leaders.
  
  With the induction of Ijaz Shah, the federal cabinet now looks more representative of the legacy of the Musharraf era. The former IB chief has certainly not been appointed on any political merit. The overwhelming presence of old faces in the cabinet raises questions about Khan’s promise to break with the status quo and introduce a new generation of leaders.
  
  While in opposition, Khan had vowed to bring aboard talented technocrats from among Pakistani expatriates, but after the Atif Mian episode, no one is willing to come here. Given people like Shah and his ilk in government, professionals would hardly be motivated to come forward to serve the country. The PTI is no different from any other status quo party, though it may be less tainted.
  
  Nothing quite puts into perspective the la-la land in which the Khan government operates than the latest claim by the finance minister that the economy is out of “intensive care” and on the path to recovery. “The crisis is over,” Asad Umar declared before his departure to Washington for the final rounds of talks with the IMF for a bailout package.
  
  This wildly optimistic declaration came as inflation approached double digits, the rupee plunged to a record low against the dollar, and the stock market appeared in a state of free fall. Revenue collection has shown a record shortfall of more than Rs300 billion in the last nine months. And the economic growth rate is likely to decelerate to 3.4 per cent this financial year, and further down to 2.7pc next year, according to a World Bank report. Given this state of affairs, the economy is certainly not out of the woods as the finance minister has indicated.
  
  Part of the problem may be attributed to the ‘pain of stabilisation’, but it is mostly to do with the voodoo economics practised by the government and the state of uncertainty that has been fuelled by its inaction. Domestic investment remains low for that reason. There are few signs of any reforms being undertaken or incentive being provided by the government that could spur investment.
  
  Massive cuts in the development budget have also been a cause of slow economic growth. A high inflation rate combined with low economic growth could lead to stagflation with dire consequences. Surely, the borrowing from friendly countries has helped avoid default on the repayment of foreign loans, but it is short-term relief as new debts continue to accumulate. The current account deficit will remain a major problem, despite the finance minister’s claim of plugging the gap. Pakistan’s external debt has crossed $100bn and is predicted to grow further.
  
  More worrisome is the worsening unemployment problem because of the sluggish economy and high population growth rate. The PTI’s promise to create five million new jobs seems far-fetched in this situation. Yet Faisal Vawda, the federal minister minister for water resources, has announced that there will be such a spurt of employment opportunities in the next couple of weeks that there will be more jobs than people needing them.
  
  He might have been inspired by his prime minister’s statement that Pakistan was on the verge of discovering huge reserves of oil and gas that may change the fate of the country by making it a part of oil-exporting nations. The minister who is fond of riding motorbikes and maintains a collection of expensive sports cars is ironically a part of the ‘crazy crew’ in the la-la land that the PTI operates in.
  
  The writer is an author and journalist.
  
  zhussain100@yahoo.com
  
  Twitter: @hidhussain
  
  Published in Dawn, April 10th, 2019
  https://www.dawn.com/news/1475122/pti-in-la-la-land

 

[Mamadouso]

Credit to the current government for taking these painful decision. Not many government in the world could do this.

Seems the previous government in years 2015-2018 did enormous damage by artificially lifting Rupee.