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Admittance at last
Dr Ashfaque H Khan
Friday, August 24, 2012
After living in a state of denial for four and a half years, the government at no less than the prime minister level, has admitted that the country was going through the worst financial crisis and the economic condition has worsened to the extent that it had become hard for the government to make both ends meet.
Admitting failure in our political culture is a rare phenomenon. The prime minister must be appreciated for at least admitting the fact that the economy is now in the worst shape.
I and some others (notably Drs Muhammad Yaqub, Meekal Aziz Ahmed and Abid Hasan) have been writing regularly on economic issues, highlighting the emerging challenges and suggesting ways and means to address them. The government and its economic team continued to disregard out views. For them, we were simply a critique to the governments economic policy and indulging in criticism for the sake of criticism.
Now that the prime minister has admitted that the economy is in the worst shape, the army chief has alluded to the dismal state of the economy and the international financial institutions have been equally unhappy about the management of the economy, it is time for the economic team to accept its failure.
Realising the heat in the kitchen particularly after the prime ministers statement, the economic team planted a story the very next day in the English daily which specialises in economy. According to the story, the finance minister briefed the prime minister on the current economic situation of the country and that the prime minister appreciated the efforts of the economic team in improving the health of the economy.
Does it make sense for the prime minister, who admitted that the economy was in worst shape, to appreciate the efforts of its economic team? In fact, the team tried in vain to present a bold face and control the damage caused by the PMs statement.
How did we land in such a pathetic condition that forced the prime minister to acknowledge the failure of its government in managing the economy? Firstly, the economy was never on the radar of the government. It managed the economy thus far by giving the impression of having little sense of direction and purpose. Secondly, it misguided its own people about the health of the economy it had inherited. While it profusely praised the economic achievements of the previous regime in the document submitted to the IMF, the same was never revealed to the people of Pakistan. In other words, the government started its innings with deception.
Thirdly, the government failed to put up a credible economic team during its tenure. The successive teams were weak and frivolous; and lacked capacity to handle multi-dimensional challenges facing the economy. Fourthly, criminal increase in support price of wheat not only devastated the poor and fixed economic groups but contributed significantly in keeping inflation at higher double-digit level throughout the tenure of the government. Fifthly, the ill-conceived NFC Award sowed the seeds of perpetual macroeconomic crisis in the country and rendered the fiscal policy ineffective as a tool of the stabilisation policy.
Sixthly, the fiscal discipline has never been in such a worst shape in the countrys history with a budget deficit reaching as high as 8.5 percent of the GDP in 2011-12. In fact, fiscal indiscipline has been the principal reason for the economy to land in such a pathetic condition. Raising the government servants salary by 50 percent in the midst of deep financial crisis and continuous financing of the bleeding PSEs were nothing but the height of fiscal indiscipline.
Seventhly, it is generally argued that the power sector crisis was allowed to worsen initially to build the case for rental power projects. Once worsened, the government lacked the capacity and vision to take corrective measures. In fact, it continued to pursue a one-track policy, which is to keep increasing the power tariff. Such a policy encouraged power theft with little or no impact on revenue. Corruption, poor governance and erosion of state authority further compounded the energy crisis which emerged as a major headwind to economic growth and prosperity.
Eighthly, the deteriorating security environment, continued political instability and tussle between the executive and judiciary have contributed immensely to the worsening of the economic conditions in the country.
There is general consensus within and outside the country that the economy of Pakistan was never been in a state as this until now. Both the prime minister and the army chief have now acknowledged this fact. The IMF has now raised the level of endorsement from the finance minister to the president of Pakistan for any future programmes with the IMF. In doing so, the prime minister, the army chief and the IMF have expressed their no confidence in the finance minister and his team.
It is unfortunate that the present government failed to put in place a prudent fiscal authority and a strong monetary authority. While fiscal authority continued to pursue a lax fiscal policy, the monetary authority on the other hand failed to exercise its hard earned autonomy and voluntarily chosen to become the subservient to the fiscal authority. There cannot be any better example to this fact than the recently announced monetary policy. The executive summary of the monetary policy statement contained 19 paragraphs. It appears that the first 18 paragraphs were written by the monetary authority and the 19th paragraph which contained action was drafted by the fiscal authority.
The economy is bound to be in the worst shape in such a pathetic environment. The prime ministers government has neither the capacity nor the willingness to improve the health of the economy. In fact, the economic condition is likely to worsen further during the remaining months of the government. What an economic mess this government would leave behind for the new comer?
The writer is principal and dean of NUST Business School, Islamabad. Email: ahkhan@ nbs.edu.pk
Dr Ashfaque H Khan
Friday, August 24, 2012
After living in a state of denial for four and a half years, the government at no less than the prime minister level, has admitted that the country was going through the worst financial crisis and the economic condition has worsened to the extent that it had become hard for the government to make both ends meet.
Admitting failure in our political culture is a rare phenomenon. The prime minister must be appreciated for at least admitting the fact that the economy is now in the worst shape.
I and some others (notably Drs Muhammad Yaqub, Meekal Aziz Ahmed and Abid Hasan) have been writing regularly on economic issues, highlighting the emerging challenges and suggesting ways and means to address them. The government and its economic team continued to disregard out views. For them, we were simply a critique to the governments economic policy and indulging in criticism for the sake of criticism.
Now that the prime minister has admitted that the economy is in the worst shape, the army chief has alluded to the dismal state of the economy and the international financial institutions have been equally unhappy about the management of the economy, it is time for the economic team to accept its failure.
Realising the heat in the kitchen particularly after the prime ministers statement, the economic team planted a story the very next day in the English daily which specialises in economy. According to the story, the finance minister briefed the prime minister on the current economic situation of the country and that the prime minister appreciated the efforts of the economic team in improving the health of the economy.
Does it make sense for the prime minister, who admitted that the economy was in worst shape, to appreciate the efforts of its economic team? In fact, the team tried in vain to present a bold face and control the damage caused by the PMs statement.
How did we land in such a pathetic condition that forced the prime minister to acknowledge the failure of its government in managing the economy? Firstly, the economy was never on the radar of the government. It managed the economy thus far by giving the impression of having little sense of direction and purpose. Secondly, it misguided its own people about the health of the economy it had inherited. While it profusely praised the economic achievements of the previous regime in the document submitted to the IMF, the same was never revealed to the people of Pakistan. In other words, the government started its innings with deception.
Thirdly, the government failed to put up a credible economic team during its tenure. The successive teams were weak and frivolous; and lacked capacity to handle multi-dimensional challenges facing the economy. Fourthly, criminal increase in support price of wheat not only devastated the poor and fixed economic groups but contributed significantly in keeping inflation at higher double-digit level throughout the tenure of the government. Fifthly, the ill-conceived NFC Award sowed the seeds of perpetual macroeconomic crisis in the country and rendered the fiscal policy ineffective as a tool of the stabilisation policy.
Sixthly, the fiscal discipline has never been in such a worst shape in the countrys history with a budget deficit reaching as high as 8.5 percent of the GDP in 2011-12. In fact, fiscal indiscipline has been the principal reason for the economy to land in such a pathetic condition. Raising the government servants salary by 50 percent in the midst of deep financial crisis and continuous financing of the bleeding PSEs were nothing but the height of fiscal indiscipline.
Seventhly, it is generally argued that the power sector crisis was allowed to worsen initially to build the case for rental power projects. Once worsened, the government lacked the capacity and vision to take corrective measures. In fact, it continued to pursue a one-track policy, which is to keep increasing the power tariff. Such a policy encouraged power theft with little or no impact on revenue. Corruption, poor governance and erosion of state authority further compounded the energy crisis which emerged as a major headwind to economic growth and prosperity.
Eighthly, the deteriorating security environment, continued political instability and tussle between the executive and judiciary have contributed immensely to the worsening of the economic conditions in the country.
There is general consensus within and outside the country that the economy of Pakistan was never been in a state as this until now. Both the prime minister and the army chief have now acknowledged this fact. The IMF has now raised the level of endorsement from the finance minister to the president of Pakistan for any future programmes with the IMF. In doing so, the prime minister, the army chief and the IMF have expressed their no confidence in the finance minister and his team.
It is unfortunate that the present government failed to put in place a prudent fiscal authority and a strong monetary authority. While fiscal authority continued to pursue a lax fiscal policy, the monetary authority on the other hand failed to exercise its hard earned autonomy and voluntarily chosen to become the subservient to the fiscal authority. There cannot be any better example to this fact than the recently announced monetary policy. The executive summary of the monetary policy statement contained 19 paragraphs. It appears that the first 18 paragraphs were written by the monetary authority and the 19th paragraph which contained action was drafted by the fiscal authority.
The economy is bound to be in the worst shape in such a pathetic environment. The prime ministers government has neither the capacity nor the willingness to improve the health of the economy. In fact, the economic condition is likely to worsen further during the remaining months of the government. What an economic mess this government would leave behind for the new comer?
The writer is principal and dean of NUST Business School, Islamabad. Email: ahkhan@ nbs.edu.pk
