Plain Words
On the brink of bankruptcy
PAKISTAN'S economy is failing and it has to seek IMF aid to avoid being declared insolvent. Pakistan cannot pay all its liabilities, which include those bonds that mature early next year as well as debts owed to western powers. Criticism of Pakistani policies is well deserved because, while it has continued to borrow and also undertake some development, it has never seriously tried to build the ability to repay all its debts as and when they fall due. Hence the crisis.
Pakistan has never practiced what its founding fathers preached: live an austere life individually and collectively. They wanted more taxes to be collected and government to spend only what it had. Trouble is that it continues to consume foreign goods that it cannot pay for with much fewer exports because it has enthusiastically implemented the deregulation, privatisation and liberalisation program too soon and too rapidly. Thus, imports today are more than twice the exports.
Pakistan governments have committed all the grave mistakes in the book: They have been spending more than their revenues, relying on borrowings to finance the gap. Secondly, their priorities have proved wrong because of food-grain shortages, and other agricultural produce are also selling at inflated prices because of the private sector's talent for hoarding and profiteering. Even sugar, supposedly plentiful, continues to see local shortages and price rises.
The gravest shortage is electricity shortage. It appears that during Musharraf's rule, while consumer financing was encouraged, no thought was given to producing more electricity; not one extra megawatt of power was installed. The same happened in the case of automobiles. All streets are chockfull of private cars, raising the oil import bill.
Such economic management deserves a prize for economic stupidity. Even though the present government has been in existence for seven months, it has taken no measures to relieve the situation. It can hire or buy small mobile generating sets that are being used in Middle East construction sites, thus public distress and a big constraint on industrial production could be removed.
The hallmark of governments in Pakistan during the last five decades has been to encourage the elites -- the political class, feudals, successful industrialists, financiers and professionals have been allowed to consume more without paying more taxes. Pakistan can raise three to four times more revenue if only the black market can be curbed. But this has never been done, which is what distorts priorities.
The culprit is politically motivated action, which needs to be somehow reversed. There is the arms races in all relevant fields: conventional armaments, nuclear weapons and missiles. These things cost money, and the Pakistan army is now the sixth largest in the world. Pakistan economy does not provide enough revenues to finance its open and implied requirements.
The political class has carried on by virtually renting out this army to the US, that has, more or less, paid for its forex needs. The west has helped in achievement of some economic development with its aid. But that has increased Pakistan's liabilities beyond its ability to repay debts.
This year again, Pakistan is expected to default on its liabilities. For managing the economic and financials policies, President Asif Ali Zardari has appointed Shaukat Tareen, another of Citibank's gifts to this country. Tareen began by saying there was no option to borrowing. But the difficulty was that no one came forward to give a loan. Even Saudi Arabia, the supposed benefactor of Muslim countries, has refused to negotiate the renewal of its oil facility of deferred payment to Pakistan in Riyadh; it wants it to be negotiated in Washington, obviously in consultation with the Americans.
The US is tightening the screws on Pakistan following recent developments in Afghanistan, especially after the Indo-American nuclear deal and the growth of an Indo-American strategic partnership. Pakistan is being forced to do without easy loans for not doing exactly as the Americans want it to do; it's a punishment for its wayward tendencies in the Terror War. American agenda for this country is extensive: it wants it to make up with India -- no doubt in the holy cause of serving the US. Pakistan wishes to remain in the western sphere anyhow. It has to fight Islamic terror the way the Americans demand, and not the way the parliament wants.
In all this, no one talking of what Pakistan can do for its own economy. This government has taken only two significant steps: one was at the budget making when Prime Minister Jilani ordered that there would be no change of paradigm. In the war, Islamabad is doing exactly what the Americans want it to do, except that the Pakistan army chief made political waves by insisting on shooting at intruding American soldiers if they set foot on Pakistan territory. His men did shoot on American helicopter-borne soldiers. After that, Americans have made no ground forays.
They continue to bomb the tribal areas and their reconnaissance planes are flying all over the place all the time. It is possible that the army chief's statement was meant to embarrass the government by undercutting it politically, showing that the army was more patriotic and braver than the politicians.
If so, the strategy continues. He goes on saying he is subordinate to the government; the army only carries out the government's orders. By this mantra he is recovering the political position of the army in Pushtoon areas in contradistinction to the civilian government's propensity for obeying the Americans. He is shifting the political blame in Pushtoon eyes from the Pakistan army to the government.
Whatever the truth, Pakistan has to find a resolution of its economic crisis largely by its own efforts. Acting under specific guidance of IMF cannot be the ideal way. For seven long months, this government has not evolved any economic program of its own. Its only reliance is on the same old option of borrowing, no matter from where. This time, even China has refused to annoy the Americans.
The solution to Pakistan's economic crisis, in theory, is simple and certain. The government has to cut its coat according to available cloth and not borrow heavily from the central bank, which will be forced to print more money. It has also to cut the imports ruthlessly and import only what is vitally needed: food, or machinery for economic progress. It also has to cut the military's expenditures because there is no likelihood or need for any war with India. Therefore, the main mission of the army having been reduced, its size should also be reduced.
The world does not owe Pakistan either a nuclear program or a large army, or high consumption by its political class, which cannot be paid for by exports. Finally, the common man, the Aam Aadmi, has to be given something.
For all latest news, follow The Daily Star's Google News channel.
Comments