The next prime minister of Pakistan inherits an economy on the cusp of a recovery.
We will let that sentence sink in for a couple of minutes. The largely economically illiterate media has been portraying a vision of doom to be inherited by whoever becomes the next prime minister. But in our special report this week, The Express Tribune lays out the evidence that while some headline numbers are indeed rotten, the economy is far from being on the verge of collapse.
Quite the opposite, the next prime minister will get to take credit for his or her predecessors’ efforts. All they have to do is not panic, not screw up, and not try to reinvent the wheel.
Let us start with the bad news first. By now, several numbers have come out that show just how badly the Pakistan Peoples Party-led administration managed the government finances. Horrendous numbers are being released about how big the budget deficit is likely to be, how much the inter-corporate circular debt that is crippling the energy sector has risen to, and how much the government is borrowing to pay it all.
All of those numbers are true, but they are presented without context. Yes, the government’s finances are in terrible shape, but the underlying factors that got them there – primarily the bad management of the energy sector – are on the verge of mending themselves. The next administration simply needs to accelerate the process in order to aid a faster recovery.
As we examine in our special report, the fundamental problem of the energy sector is that the cost of producing electricity in Pakistan is greater than the government is willing to charge consumers. The private sector in Pakistan – aided by encouraging government policies – appears to be helping take care of that problem, by investing more than $14.3 billion to increase the nation’s electricity production capacity by nearly 46% over the next five years.
And the investment appears to be taking place almost entirely in the cheapest fuel sources: hydroelectricity and coal. The government can aid this process along by converting the production capacity owned by state-owned utilities to cheaper sources as well.
Given the fact that the single biggest source of the government’s fiscal deficit is the subsidies it insists on spending on electricity, lower energy costs should help the problem.
But energy is not the only area where there is progress. After the central bank started squeezing their spreads, the banking sector has started to lend to the private sector more, particularly in manufacturing. Machine imports are up, which suggests that much of the borrowing is going towards capital expansions, likely to lead to job growth. And foreign investors appear to once again have Pakistan on their radar screens after the stellar run on the Karachi Stock Exchange last year.
In a nutshell, while the picture is far from rosy, there is plenty of reason to hope. More importantly from the perspective of the electorate, there is absolutely no reason to accept the excuse from the next prime minister that he or she inherited a mess from the last administration. They are not. They are being handed an economy with enough in it for them to build a robust turnaround from the day they are sworn into office.
There is much that the next administration needs to do and none of it is easy. It needs to rein in the deficit to manageable levels. It needs to improve law and order and the general climate of investment. It needs to cut back on red tape in some areas and strengthen regulations in others.
But this is very much a workable inheritance. Our special report focuses on the areas that provide the most room for optimism, because the civil servants who begin to advise the prime minister when he or she arrives into office will be the bearers of plenty of bad news.
The government will try to set a low bar by announcing all of it in the first few days, aiming to look good by comparison. And that is fine. But just because they are badmouthing their predecessors does not mean they should not be aware of the few positives it has left behind for them.
Published in The Express Tribune, April 8th, 2013.
Like Business on Facebook to stay informed and join in the conversation.
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ