Talking business
A few months back in these pages I said “look out for this headline, Sheikh briefs full cabinet.”
Looks like politics has trumped economics for the umpteenth time. I’ve lost count, but it does matter. A few months back in these pages I said “look out for this headline, Sheikh briefs full cabinet.” It seems like the headline finally arrived, and passed in the background to the assassination and the re-composition of the coalition.
But the coalition came at the price of the reforms. That is terribly sad news. A feel of despondency has settled on the fraternity of policy economists in Pakistan, they see overwhelming challenges ahead and a weak and embattled government to confront them.
A recently retired high official of the finance ministry, for instance, has publicly said there are no ideas on the books for how to deal with the mounting fiscal deficit. Another senior economist, very close to policy circles in advisory capacities, is now spoke in virtually apocalyptic terms about the fiscal situation, saying Pakistan might face the prospect of hyperinflation if the printing of money continues at the present rate.
Here you have the crux of it all. The government is unable to restrain its expenditures, it is unable to raise revenues and it is paying bills by printing money at an accelerating rate. It has, in the outgoing week, barely bought itself a brief and fickle lifeline and has ahead of it a series of massive confrontations: one to decide whether to wage political battle in Punjab and the other to decide how much political capital to invest in obtaining the conviction of the governor’s assassin.
In this embattled condition, the government is hardly going to be able to invest its virtually depleted store of political capital in seeing passage of tax reform, or public sector reform, or the withdrawal of subsidies.
How mundane the main items of the economic reform agenda sound in comparison to the political and ideological challenges facing the government! How dim the hope that there is going to be any progress on these fronts!
So the government, it turns out, does not have a plan B. But do you? How are you reading the implications and what are you doing to prepare? Well, if the money markets are any guide, the bets are getting shorter.
Nobody is interested in going long on government paper any longer and has not been since even before the floods. And those stampeding into three-month paper say they are doing it only because there is no tenor shorter still.
In an environment of policy paralysis and impending political confrontation, once again it is the economy, and the livelihood of people, that is caught in the middle.
Failure to reform threatens to spark runaway inflation. I will stop short of using the word ‘hyperinflation’ – but others seem to think this is where we are headed. And high inflationary consequences are devastating for the investment environment.
So high inflation is going to be compounded with high unemployment. Low growth, high inflation and high unemployment is a toxic brew for any political government.
Even as it sees progress and potential in its political confrontations, its ground will be eaten away by the advance of economic reality. I’ve been saying it often, and I will continue saying it: no ruler can rule for very long in the face of a deteriorating economic picture.
But who is to blame? What is to be done? This is why it is important to continue engaging with Musharraf’s self congratulatory rhetoric, to really flesh out how much of the present morass was inherited, and how much is self created.
It’s also very important to separate out the major economic initiatives undertaken by the government and determine their impact. How much has the high wheat support price contributed to the high inflation we see? There are many such questions.
But questions aside, what is to be done in days to come? Should we sing the elegy for the reforms? Should we devote all our energies to create a plan B? Is there anybody running the show?
the writer is Editor Business and Economic policy for Express News and Express 24/7
Published in The Express Tribune, January 10th, 2011.
But the coalition came at the price of the reforms. That is terribly sad news. A feel of despondency has settled on the fraternity of policy economists in Pakistan, they see overwhelming challenges ahead and a weak and embattled government to confront them.
A recently retired high official of the finance ministry, for instance, has publicly said there are no ideas on the books for how to deal with the mounting fiscal deficit. Another senior economist, very close to policy circles in advisory capacities, is now spoke in virtually apocalyptic terms about the fiscal situation, saying Pakistan might face the prospect of hyperinflation if the printing of money continues at the present rate.
Here you have the crux of it all. The government is unable to restrain its expenditures, it is unable to raise revenues and it is paying bills by printing money at an accelerating rate. It has, in the outgoing week, barely bought itself a brief and fickle lifeline and has ahead of it a series of massive confrontations: one to decide whether to wage political battle in Punjab and the other to decide how much political capital to invest in obtaining the conviction of the governor’s assassin.
In this embattled condition, the government is hardly going to be able to invest its virtually depleted store of political capital in seeing passage of tax reform, or public sector reform, or the withdrawal of subsidies.
How mundane the main items of the economic reform agenda sound in comparison to the political and ideological challenges facing the government! How dim the hope that there is going to be any progress on these fronts!
So the government, it turns out, does not have a plan B. But do you? How are you reading the implications and what are you doing to prepare? Well, if the money markets are any guide, the bets are getting shorter.
Nobody is interested in going long on government paper any longer and has not been since even before the floods. And those stampeding into three-month paper say they are doing it only because there is no tenor shorter still.
In an environment of policy paralysis and impending political confrontation, once again it is the economy, and the livelihood of people, that is caught in the middle.
Failure to reform threatens to spark runaway inflation. I will stop short of using the word ‘hyperinflation’ – but others seem to think this is where we are headed. And high inflationary consequences are devastating for the investment environment.
So high inflation is going to be compounded with high unemployment. Low growth, high inflation and high unemployment is a toxic brew for any political government.
Even as it sees progress and potential in its political confrontations, its ground will be eaten away by the advance of economic reality. I’ve been saying it often, and I will continue saying it: no ruler can rule for very long in the face of a deteriorating economic picture.
But who is to blame? What is to be done? This is why it is important to continue engaging with Musharraf’s self congratulatory rhetoric, to really flesh out how much of the present morass was inherited, and how much is self created.
It’s also very important to separate out the major economic initiatives undertaken by the government and determine their impact. How much has the high wheat support price contributed to the high inflation we see? There are many such questions.
But questions aside, what is to be done in days to come? Should we sing the elegy for the reforms? Should we devote all our energies to create a plan B? Is there anybody running the show?
the writer is Editor Business and Economic policy for Express News and Express 24/7
Published in The Express Tribune, January 10th, 2011.