Governance in a dismal economy

Politics must govern the state and the economy for the benefit of the people and the state. The constitution knits this contract into a defining relationship with responsibilities clearly told and stated. It is a government’s remit to create resource in the form of revenue and in how the natural resource endowed upon a land are brought to common benefit. Land, labour and capital constitute an economy. How these are developed, arranged and value-added will mean how an economy may progress or regress.

PTI was unfortunate on many counts. For its first time in power at the federal level it inherited an economy which was heavily borrowed, based on consumption, and weakest on production. Progress was a chimera and the borrowed stock and debt pile on which it was based was the highest ever for the country since its inception. Where instituted projects like the energy sector were front-loaded for payment and heavily skewed in the favour of private enterprise in return-on-investment. Industrial and agricultural production was at its lowest if not worse. Much of the industry relocated abroad. Little thought was given to a production-based economy which would be lasting; consumption being the magic around which a facade was shaped. Project based financing, local or foreign, enabled play-able cash which was easier to pilfer and launder. Same with aid, grants and loans. Infrastructure additions helped add perceptions of progress except those too were on borrowed money. The debt stock only got bigger. CPEC being one such example though with potential to deliver better with imaginative enterprise.

PTI was as ill-prepared as it was unfortunate to handle the complexity of an ailing economy. Naivety or inadequate comprehension of the necessary tenets of governance and economy meant it was shocked into inaction as it confronted the momentous challenge. Those that knew finance perhaps did not know the market or those who knew production didn’t spare much time for trade. Domains of knowledge remained restricted to previous experience and the economic team lacked wholesome expertise. Mistakes and procrastinations manifested in losses. Economy minders failed to manage the market which in return buffeted the economy. The headwinds were fierce and a collapse loomed.

There are two aspects which economy managers need to work on, growth and taxation. Taxation is regressive and punitive even if necessary and growth is productive, progressive and positive. The former kills economic sentiment, the latter regenerates it. Preferences and economic postulates may differ but both need to remain in harmony to keep the wheels of economy running. A heavily indebted economy imposes its own determinants yet needs the nimbleness of a magician to keep the ball rolling. Balancing books is as finite as it is noble but in a heavily distorted structure you just cannot shut the whole thing down to rebuild it from ground up. Such luxury in economic matters is self-defeating and politically costly. Growth remains the only magic which works. Without it sentiment is depressed and capital shies away. Stagnation and deflation result, shrinking the economy — our current ill.

So what then really happened to the PTI as it assumed power? Faced with daunting macro-fiscal challenges of double digit deficits, debt retirement far in excess of what any earlier government had to contend with and an empty treasury, desperation loomed large. Most of national silver and landmarks had been already pledged against borrowings. Even though high growth numbers were being recorded it was borrowed gloss. The current account deficit hovered at 20 billion USD. The exports during the PML-N years had dwindled down to around 20 billion USD or less and the collective sum, inclusive of remittances, was just wasn’t enough to make up the gap. CPEC investments came handy but were also additional debt. Projects undertaken under any guise in such a dismal fiscal environment were mostly short-term with limited economic benefit except as visible markers of apparent progress. The economy was essentially pushed into a fiscal and debt-laden straitjacket. That much was clear to the outgoing PM, Shahid Khaqan Abbasi, when he stated: “I would like to see who can change the (fixed) nature of the budget that we have passed.” The economic field was mined and booby-trapped. There was simply no fiscal space in the budget.

With no dollars to go around and a sky-high debt piled before them in an economy which was at best running on borrowed time the PTI called curtains. It practically shut down imports to save on the CAD but also shut down the economy forcing austerity on people and making them do with what if at all was available and produced within. Loathe to borrow it had little in USDs to inject in the money market to buoy the rupee against the dollar. The rupee thus depreciated by around 40 per cent appreciating everything else that made up local economy. Inflation hit double digits, buying power reduced considerably, indigenous staples were manipulated by the market to cost many times more under the ruse of general escalation of prices, businesses closed, jobs were lost, routine living became difficult and poverty multiplied manifold. Economy shrunk by almost 20 per cent within the first two years of PTI’s tenure. The CAD turned positive but at the cost of the economy which reduced to bare subsistence.

PTI attempted to tap revenue; but one, it was misdirected, and two, with so little to go around there was even lesser for individuals and businesses to part with. Those placed in the top 0.1 per cent buy or influence their way out of difficulty leaving the reeling millions to suffer the consequences of indirect taxation. Till when may we rob Peter? Growth could bring additional revenues but by depressing growth revenues dwindled. In essence we live in an extinguishing economy unless corrections come fast. What was attempted by PTI as correction was wrongly sequenced and poorly conceived. The political cost of it all is even bigger as PTI appears overwhelmed by traditional whirlpools of both economy and politics. Debt has accumulated faster than it had under all the previous governments. A slight betterment in exports comes on the back of existing slack in a pandemic-ridden global market but is unlikely to sustain long. Even harder days loom.

What do nations do when they fall on hard times? Austerity may be prescribed but to lift spirits through such times there must exist hope that tomorrow will be better. How do we infuse hope? By resorting to what is possible without extra expense: administrative efficiency; responsive bureaucracy; helpful police; cleaner municipalities; cleaner air; safety of life and rule of law; ease and comfort of routine administrative and legal matters; simplified justice code — a simple sense of a more comfortable and unthreatening life; making it easy for people to breathe. This would have surely made up for lack of material and financial comfort. The trick was to reform and restructure to make the systems efficacious. Along with billion trees and a social safety net it would have made a pleasing accompaniment. Once again we missed the boat. Once again we will be back with the old wizards.

Published in The Express Tribune, February 14^th, 2021.

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