Economy and the Caretakers

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There has been a collective sigh of relief with H. Saleem Mandviwalla declared as the former Finance Minister. It is unclear whether approvals he granted as chairman of the Economic Co-ordination Committee (ECC) of the Cabinet would be implemented during the caretaker set-up or be deferred till the next government either endorses them or throws them out of the window.

Some approvals of course are being stayed by the Supreme Court with many supporting the court's decision and very few neutral analysts referring to the stay orders as interference in the executive's prerogatives. The government's decision to cancel the Saturday holiday as it coincided with its last day in office to enable key ministries, and there is no doubt Finance is a key ministry, to give more approvals that are likely to be challenged in court or reversed by the winning party in the next elections if PPPP is unable to form the next government smacks of mala fide intent; and provides little support to the party's claims of adherence to democratic culture.

The question is: where to from here? Here, for Pakistan's economy at least, is half way on the road to hell. Mandviwalla who many are jokingly referring to as Mandiwalla (a man of the market) with the market described as one where each ECC approval had a market value left us with an entire range of approvals that materially benefited some foreign companies (Lotte of South Korea comes to mind) as well as influential locals (for example the inland freight subsidy extension to the wealthy politically powerful sugar exporters as well as raising the margin of oil marketing companies and dealers). I will mention the award of an LNG contract to Qatar gas by the Raja Pervez Ashraf cabinet, supported inexplicably by the Foreign Minister, and which was reportedly against the recommendation of the Law Minister who suggested the decision be deferred to the next government given that its term was expiring in less than a week. Off hand I find it a challenge to itemise a single decision that Mandviwalla may have taken with respect to improving the macroeconomic fundamentals; however even if he had taken any such decision the time that he held the portfolio of Finance was too short (from 19th February to 16th March) to have made any impact - favourable or otherwise. The foregoing does not indicate what the 'here' is in relation to the question where to from here? But to put it in a nutshell the only indicator that is performing well are remittances which witnessed an unprecedented rise in recent years.

Those politicians who may refer to this as proof of the patriotism of the remitters and argue strongly in favour of extending them the right to stand for elections to our national and provincial parliaments must take note of three major factors. First, the remitters are largely poor Pakistanis with work visas for the Gulf countries, and not with dual nationality, from where more than 60 percent of our remittance income emanates; they are sending more money back home to their families because of the ever rising cost of living index in this country courtesy our economic policies. Second, dual nationals working in the West are sending money to their families back home however these nationals are essentially professionals as well as wage earners and would have few savings that would sustain them during periods of unemployment.

In short these wage earners have little if any interest in returning home to contest elections. And thirdly those of our politicians or their families who sought and were granted citizenship of foreign countries on the basis of political victimisation rely mainly on money that they had remitted from Pakistan (not remitted to but remitted from) with a few engaged by think tanks abroad. In short such is their patriotism that they actually increased the remittance income of their adopted country rather than Pakistan's. All other economic sectors have performed very poorly: the budget deficit is expected to touch 8.5 percent by the end of the current year, higher by one percentage point than what this government inherited; the external debt rose by an unprecedented amount and its servicing rose from 3.7 billion dollars in 2007-08 to 5.6 billion dollars in 2009-10; however it declined to 4.7 billion dollars in 2010-11 and then again the next year to 3.5 billion dollars. This decline is not the outcome of a decision to reduce reliance on external sources of finance but a decision by multilateral and bilateral donors to cease extending budgetary support due to the government's failure to implement agreed tax and power sector reforms; the rupee has deteriorated in value from around 62 rupees to the dollar to nearing 100 rupees to the dollar. Lawlessness has found new roots and the Taliban are no longer the only source of terror attacks. Now ethnic, sectarian and religious conflicts are evident in nearly all parts of the country. This is precisely where we are at today. So where can we possibly go from here? Opposition political parties are maintaining that they would effectively reform the tax structure as well as the power sector and reduce or end reliance on external sources, a reliance which has made us susceptible to foreign pressure. It is not quite clear in their manifestoes how they would implement these critical reforms without strengthening the administrative machinery available which has been systematically undermined by the PPP government's appointments based on nepotism and corruption. In other words, the next government may be compelled to induct people laterally to ensure that the administration is at a level where it can implement reforms in letter and spirit. I would however just like to add that an agreement between the Leader of the House and the Opposition is urgently required to determine whether the two month long caretakers would be enabled to seek a loan from the International Monetary Fund, which would allow the country access to budgetary support from multilaterals and bilaterals, given that it would come attached with a set of extremely stringent and politically challenging long term economic policies that would effectively bar any elected party or a coalition from implementing its manifesto for the next two to three years. The two men also need to decide whether the caretakers are to be allowed to take any decision to reverse the economic downslide other than to approve the bare minimum of expenditure of state and revenue generation already approved by parliament as part of the Finance Act. Two months of a caretaker set up does not seem long where electioneering is concerned but can be a lifetime where an existing economic downswing can lead to a further haemorrhaging of the economy that would require the entire term of the next government to rectify.

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