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We have done well, so far
The ongoing stabilisation phase of economic adjustment has gone well but as always there are nuances and reservations....
The writer has worked in the Planning Commission and the IMF (meekal.ahmed@tribune.com.pk)
The ongoing stabilisation phase of economic adjustment has gone well but as always there are nuances and reservations. The economy’s twin-deficits are better contained although there appear to have been some slippages on the fiscal side reflecting poor revenue performance and spending pressures. Inflation is down but there are disquietening signs that it is beginning to turn up again. This poses a difficult dilemma for the authorities. Should they tighten monetary policy to address inflation and risk killing off the nascent recovery or should they wait and hope that the rise in inflation will be temporary and subside as the effects of the pass-through of recent increases in the price of oil and gas fades and inflation resumes its downward course? There is no easy or quick answer to this dilemma.
The State Bank will have to remain in a heightened state of vigilance and act pre-emptively. More encouragingly, the first tentative signs of the economy’s arduous climb back up the steep path to ‘potential’ output of around 6.5 per cent per annum growth – a rate of growth the economy can sustain without inflationary pressures – are in evidence even in the face of the drag being imposed on the economy by crippling power outages and a difficult security situation which keeps producers and investors on the sidelines in a ‘watch-and-wait’ mode. Our foreign exchange reserves are up to around 15 billion and headed higher, the stock market, a good forward-looking barometer of economic risk and prospects as viewed by the market, is moving upwards. The speculative bubble in the real estate sector and commodities such as gold appear to have calmed.
The cynics and detractors will say other countries have done much better. They always point to India wahich puzzles me because I think Pakistan should hold itself to a higher standard. We should look at Brazil and China, or the former Asian Tigers to see how they have done and what we could have done better.
But since we are obsessed with India, politically and economically, let me make a few comments to try and satisfy that obsession. India has done well. It has weathered the global recession with demonstrated resilience and is looking at a growth rate in excess of 7.5 per cent per annum this year although there too inflation, led by surging food prices, is rearing its ugly head prompting its central bank to move into a tightening mode. India has done well because its starting position was stronger. It had the room and flexibility to ease the stance of its macroeconomic policies, fiscal and monetary, so as to cushion the effects of the downdraft arising from the global economic downturn. Its external deficit, always a binding constraint since neither India nor Pakistan, or any country for that matter, can print dollars to buy imports and service their eternal debts was only around one per cent of GDP. Pakistan’s external deficit in contrast was a staggering eight per cent of GDP.
India had room to maneuver; Pakistan did not. With a dangerously over-stretched fiscal situation – which was mirrored on the external side in a precarious balance of payments position – Pakistan had to go against the global grain and tighten, not loosen its policy stance. It simply had no choice given its precarious starting position and despite the pain that the economy and its people would have to endure in the process of adjustment.
Published in the Express Tribune, May 29th, 2010.
Reader Comments (13)
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Sir- which fiscal policies are you guaging here. The majority of the populace is being pushed to the brink of devastation via malnutrition, sleep depravation and insecurity. Yet you are blowing your own trumpet. Sound more like Nero and his flute while Rome was burning?Recommend
All economic stability will be temporary unless we reduce defence expenditure and increase tax to GDP ratio.Recommend
You have stated that Meekal has workrd for IMF and Planning Commission.Where is he working now? With such a cold blooded approach and his brilliance at twisting facts he should now be Chief Advisor to the president of PakistanRecommend
Waqas Sb; much like most uneducated “educated” people, your comments are entirely reactionary and blow the populist trumpet while rejecting the academic debate altogether. The matter at hand is controlling the fiscal policy and with economies crumping globally, we have done much better than many others to sustain ourselves.
Fighting two wars is not easy, especially when ordering a bunch of F-16s is the only thing on the minds of our uniformed lords and setting up another plutonium enrichment facility is the necessary thing even when we have enough warheads to destroy South Asia ten times over.
Global economic crises, decreased exports, decreasing value of the PKR and an unstable economy the results of a decade of consumer financed fake middle class growth is difficult to tackle.Recommend
Few days back there was an article in Dawn by Akbar Zaidi and he was pretty satisfied with our economic performane. Akbar Zaidi is author of one the most comprehensive books ever written on Pakistan economy.Recommend
Mr. Shahd,
well no need to imply whose educated or not- lets keep the discussion within civilised bounds. Is the fiscal policy commendable when majority of budget deficit is contributed by mismanagement (militarily and bad governance.) Sir you need to look around the world and realise that even Bangladesh is fairing better in the global recession. Do not blame global recession for your untowardly incapacity to provide food when having the facilities to be a major food exporter. Don’t lecture the populace when the industries have to resort to managing their own power supplies. Don’t even think you did a good job when the elite is not paying any taxes.
Mr. Shahd, atleast we should call a spade a spade. We can agree to disagree, but I think you dont have much ground to stand on if you look at the situation on the ground. With the global war on terror spilling some dollars in to the country means that we are still hanging on does not mean americans will keep on giving money to eternity.Recommend
Entire stabilization is temporary and short-lived. It is because of borrowed resources from the IMF. The fragility will be evident in the forthcoming budget when Economic Stability will be exposed. We have added around Rs. 3 trillion in the total debt in the last two years which is much higher than total addition to the debt in the last two decades. Mr. Tarin was expelled from the scene just to put curtain on his bad governance. The under-19 team he had in the Finance Ministry is a gift to the incumbant Finance Minister. Sooner he get rid of them it is better. The dubious growth figure for 2009-10 is just a last ditch effort of his under-19 team to show his success. Fiscal deficit is threatening not only to debt situation, it is hampering eocnomic growth and drain on financial resources available in the country and the government is in no mood to contrict their spending spree.Recommend
In reponse to a query, I work for no one now.
I know of no facts I have twisted. If there are any, I stand to be corrected.Recommend
Mr. Meekal, I’m a fan of yours and admire your expertise thoroughly and feel sorry that some people choose personal attacks over academic debates.
I will add, however, that at times data is not to be trusted, proven beyond doubt by your past experience in the IMF and data from the Govt of Pakistan. While (selected) data analysis says exactly what you have stated, more macroeconomic stability is of little use to the millions of improvished who have no hope of sharing the fruits of our sporadic stabilization efforts. Plus, government of Pakistan’s website says our population is 169million in May2010, while the UN’s population prospects database says 184million. What data credibility is left by the 9% gap in population estimates? The inflation monitor talks about 12% inflation while my wallet screams 120% inflation. Sadly, in truth, Pakistans condition is as rotten as its data collection.Recommend
Faraz is right in qouting Akbar Zaidi. The writer has rightly overviewed the problems of pakistani economy, and that fiscal deficit is the headache for government and State Bank.
But, does all these realities help reduce the problems of Pakistanis who are genuine tax payers and are continuously back-breaking inflation?Recommend
Mr Atiq Rehman,
Thank you for your kind words.
My article as published here is a truncated mid-stream version of what I submitted to this esteemed paper many weeks ago. It was to be published in full in two parts. By publishing it this way, three-fourths of what I said in the full article is lost and leaves me open to criticism — such as I am cold and heartless, I have twisted facts, I have no sense of what is really happening in Pakistan on the economic front, and that my article is a fairy-tale and cover-up. People want to know who I work for so they can figure out my “angle”.
I work for no one, I have no angle, I’m happily retired, I live on my pension and look after my children and I’m not looking for a job.
Of course, being far away I am somewhat at a disadvantage when I write on Pakistan. But I try and read as much as I can and visit Pakistan often as well.
To the others I would like to say that while we have achieved some measure of economic stability (it is still admittedly tenuous and fragile and the task unfinished) we now need to move from the stabilization to the growth phase which is the only route to creating new jobs, raising productivity and incomes, and reducing poverty. But we need to make this transition carefully without placing undue strains on our domestic and external imbalances and, most importantly, without reigniting inflationary pressures.
I have elsewhere expressed my deep dismay at next year’s inflation target which at 9.5% shows the callous disregard of our so-called economic managers to the devastation that inflation has wrought on the lives of the poor and vulnerable in Pakistan. They have no social protection and no way to defend themselves against the ravages of this cruel tax. I am not unaware of heartbreaking stories of people selling their children and committing suicide because they cannot cope.
On our macroeconomic data, I have written extensively elsewhere in response to people who say our data are fine because they are “endorsed” by the World Bank, the IMF and the international rating agencies (those hotbeds of conflict of interest as someone called them).
To anyone interested in reading my full article, please e-mail me.
Thank you all for your comments and interest.Recommend
Dear Mr. Meekal,
I would like to get the full version of your article. Kindly send it to the following email address.
mwdurrani@yahoo.com
I would very much like to read it.
Thank you and JazakAllah Khair,Recommend
Mr. Durrani,
I am sorry I did not see your request earlier.
I will send you the full article.Recommend