Dollars, debt and the demons

Landmines. Every departing government invents and leaves some for those following. The PPP did not; at least not the deliberate ones stitched into the system except ineptness in governance which badly marred its five years in power and its reputation. But when the PML-N government was departing after their dear leader, Nawaz Sharif, had been disqualified from his position, the replacement duo — Shahid Khaqan Abbasi and Miftah Ismail — enacted corrections in economic management including devaluation of the rupee which they rightly felt had been surreptitiously and fallaciously overvalued by the legendary Ishaq Dar. Dar is a wizard in keeping a façade of a boom even if it is hollow inside.

The outgoing Abbasi government formed and presented a budget which multiplied carry-over debt — devaluation was the instant culprit — and a Current Account Deficit which was historical in proportions forcing the incoming PTI government of Imran Khan to the door of IMF to borrow more to make for the gaping deficiency. Abbasi declared in the Parliament as he left, “We will see how any government can walk away from the (tightrope of) the budget we have presented.” He was right. He had stitched an economic plan challenging Imran Khan’s oft-stated and ill-considered bluster: “I will only go to the IMF over my dead body.” In the event IK dithered, delayed and distressed over the yawning reality of serious deficits in the economic calculus. He only got sucked further into the whirlpool of a deficiently structured economy which no government had the motivation and sincerity to remedy.

Those who constitute the economy are the ones in power across the political spectrum. Why would they saw their own feet off? This included Imran Khan who after struggling with inadequate economic understanding finally succumbed to the pressure of giving in to crony financiers passing the yoke of the consequences to the already heavily taxed common consumers. The governments then fall back on only one solution that works in this economy — uninhibited imports and heavy taxation of those to make do for increased revenue. Higher prices imbue feared inflation. Debt, deception and the demons continue to flourish.

After having floundered or failed at instituting reform governments resort to the time-tested mechanism of contrived growth through opening imports and encouraging consumption. The CAD and taxing the market only deepen the malaise. The 6 per cent growth is thus a patently deceptive chimera. Outgoing governments now plant real landmines by lavish hand-outs, subsidies or freebies in laptop schemes and ill-intended price-cuts in commodities at the time of their leaving the post. The PDM government which was to hand over to a caretaker setup did not desist from this foul-play. Landmines are now a bona fide departing strategy to increase the pain of the incomers — at the cost of the people. What and how we suffer in our homes and on the streets today in popular agitation against heavy-handed billing for power is only a manifestation of a malaise that lies elsewhere.

On its way out the PDM government did two ‘favours’ to the incoming managers: it opened full imports after having clamped on those for their entire tenure to keep the dollars from leaking and keep a contrived façade of buoyancy; and it permitted payment in USD on nearly fifty container ships awaiting at the Port for months to be downloaded. It amounted to a run on the dollar. The Banks borrowed from the open market as did private businessmen whose consignments were awaiting to be cleared at the dock. With the supply frozen except small trickles — that is another story — the demand for the dollar skyrocketed, binning the rupee and catapulting the dollar in stratospheric terms. Everything that was based on imports — almost the entire economy because of affiliated adjunction — only became dearer and expensive. Whoa! Super-inflation had only just arrived. People became poorer, their power of purchase neutralized amid rampant deprivation.

A couple more things added to the flavour: The PDM government in all its wisdom and wizardry permitted export of both wheat and sugar declaring their in-country stocks surplus. Sugar-barons in the government weren’t only humungous in stature, they were holding the government together. Among the stakeholders in sugar was the country’s prime minister and his family. There was thus no way but to bow to their needs. Wheat was a surprise. The nation was told that the next wheat crop was bumper, hence why keep old stocks. It is another story that a Russian ship will dock on September 6 with a six-million imported wheat consignment. This isn’t all. Most of what we produce here somehow finds its way into Afghanistan — wheat, sugar, cattle; what not. Not that it does but it gets shown so on papers and finds convenient hoarding in and around the western borders and in Karachi. The speculators and the market forces of demand-and-supply do the rest. The hoarded stock reenters the market at a premium. Inflation rises exponentially and the rot deepens. More people go poor; more people and their children commit suicides at their inability to feed themselves. The cartels blossom.

Governance in the border regions with Afghanistan is normally kept below scale because of cultural and geopolitical reasons. Smuggling across the Pak-Iran and Pak-Afghan borders is justified as an economic compulsion and finds favoured concession. All payments are in dollars. Afghan trade going to Afghanistan is only in name; most of it is targeted for the Pakistani market and there is suitable warehousing in Karachi to assist. Look at the silk available in Pakistani markets while officially not a thread is imported. It is financed by dollars bought in Pakistan from the open market. Dollars are also hoarded across the border to manipulate the market in Pakistan, as is the PKR — Afghans hold three trillion PKR, one-third of the entire money in rotation to buy the USD and undermine Pakistan’s FE market and add to the misery of poverty. India has banned both wheat and rice exports this season leaving a deliberate gap for Pakistan’s exporters to rush to earn desperately needed FE. It’s a trap. It will only multiply domestic shortages, showing light to a highly explosive sentiment. This is the new war with its new tools that many overlook.

The local needs are met with increased money supply as the voracious dollar eats away the PKR. Increased money supply means even greater inflation. This vicious cycle eats at the innards of a system which has taken a life of its own. The State Bank is not only ham-fisted it is out of sorts too. The finance minister thinks her hands are tied and she was wrong in taking the job. Poverty and deprivation thus eat out what remains. Pakistan stands at the crossroads, again. We know what will set it right. Can we set it right?

Published in The Express Tribune, September 1^st, 2023.

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