Problems with the economy By M A NIAZ
The problems with the economy are not showing signs of going away, despite the optimistic pronouncements of government officials, and the increasing worry of the Chief of Army Staff about the economy, which seems reflected in two developments, the first being his inclusion as a member of the National Development Council, the second his being the chief guest at a seminar in the National Defence University on the challenges facing the economy.
The Prime Minister in office resents the slur of ‘selected’ enough to have the word ruled unparliamentary in the National Assembly, but that should not obscure the fact that from the so many expectations of Imran Khan, the foremost was that he would pull the country out of its current economic crisis. The most potent symbol of the crisis seems to be the value of the rupee, which continues to fall. The armed forces have been reduced to accepting a freeze on their budget. That may not be much of a sacrifice, because what has been frozen is the revised budget, which increased because of a war scare, with the result that the budget estimates for 2019-2020 are substantially more than those for the previous budget estimates.
It is no surprise that oil-exporting friendly countries like Saudi Arabia and the UAE included oil on deferred payments; not only is oil the only thing they have in abundance, but it is something that Pakistan has to import, even if it were broke
There seem to be a number of factors behind this, one being that the country does not export enough. Imports are not just luxury goods, and include fuel, palm oil and medicines. Apart from their being essential, when the rupee loses value, their price increases. This is on top of the normal inflation that is the price of the capitalist system. Foreign workers’ remittances represent not only a source of foreign exchange, but also the proceeds of exporting labour. As the demand for dollars exceeds that for rupees, the rupee-price of the dollar goes up. As all those traders selling to Pakistan want dollars, the rupee is under permanent pressure to devalue. There is no equilibrium really at which the price should settle, because the goods Pakistan wants will remain in demand, no matter what. It is no surprise that oil-exporting friendly countries like Saudi Arabia and the UAE included oil on deferred payments; not only is oil the only thing they have in abundance, but it is something that Pakistan has to import, even if it were broke.
Another pressure on the rupee is the need to make loan repayments. If it was simply a matter of dollars in and dollars out, it would be different, but Pakistan has got to pay interest as well. The alternative is to default, but that would mean that it could not get any money from the money markets, or at best at very high rates of interest. One of the results is that whenever Pakistan has to make a large repayment, the government has to pick up dollars from the State Bank, which in turn goes to the market, and thus creates a demand which can only be slaked by the fall in the price of the rupee. This is what seems to have happened with the post-Budget fall of the rupee.
This is the place at which the government becomes involved. It has to make those repayments, and originally it needs revenues to pay for the dollars from the State Bank. It took the original loans. Broadly, the theory was that the money was borrowed to fund development. However, some of the loans were for defence equipment. Also, a government which had money for development could afford more money for defence. Military expenditure was something that Pakistan found it could not avoid, first with India threatening from Pakistan’s creation, and then Afghanistan added from 1979 onward to the present, with first one superpower, then the other in it. Both presented a challenge to the armed forces, not to forget that the War on Terror created its own dynamic. All of this has meant that the military wants the economy to work so that it can do its job effectively.
The PTI thesis which found favour with its voters was that the political parties were built on an edifice of corruption, and smashing that edifice would lead to prosperity. The PTI achieved the imprisonment of Mian Nawaz Sharif pre elections and he remains incarcerated today. But the economy is still in bad shape. So what is the take-home? That corruption is good for the economy? In the words of Gordon Gecko in the film Wall Street, that “Greed is good”. Or that the Sharifs were honest and did not erect an edifice of corruption, merely one of loyalty.
There is even a doubt raised that it might not be a failure of personnel, but a systemic failure. That would explain the bringing in of experts, those who have been trained in the West, and can overcome the problem of having ‘natives’ try to run a developed economy. That would also explain why even these foreign-trained experts have not been able to fix the economy.
However, that would create a dilemma not just for the PTI and its backers, but for the PML-N and the PPP as well: It would mean that there would be a substitute needed for the PTI, with none in sight. The PML-N and the PPP might find that they are not in a position to return to office.
It should not be forgotten that the military is deeply invested in the system, to the extent that it ensured the preservation of the 1973 Constitution in both episodes of direct rule after the loss of East Pakistan. Will something similar solve the problems the people face? It may well not, but it may not matter, because, as Lenin said repeatedly, revolutions occur when both government and people feel they cannot carry on as before.