Optimism about the economy

Good news about Pakistan’s economy does not come as frequently as it should, and so perhaps, we should not begrudge the nation a moment of some contentment on the recent spate of positive trends in economic indicators. Inflation is down, the rupee is stable, remittances are up and GDP growth is steadily ticking upwards. The good news even got the small band of foreign correspondents in Pakistan to take a break from writing their usual pieces about terrorism and political instability, and notice the economy for a change. There is absolutely no denying that the surface level numbers are good. But peaking beneath the surface yields a picture that is far more mixed. The Nawaz Administration has mostly been the beneficiary of low global oil prices, which benefit an economy like Pakistan, since we are a net importer of energy. Strip away the effects of those low oil prices and the record, though still somewhat better than that of the preceding Zardari Administration, leaves much to be desired.



Take, for instance, the fact that the rupee has stabilised and that the fiscal deficit is low. Both of these are directly attributable to low global oil prices, a phenomenon over which Finance Minister Ishaq Dar has no control whatsoever. As oil prices go down, the dollar value of Pakistan’s fuel imports goes down, which in turn results in less demand for US dollars in the currency market in Karachi, which in turn helps stabilise the price of the rupee. The fiscal deficit is down from its artificially high fiscal 2013 base largely because power companies that operate oil-fired thermal power plants need to spend less on their fuel costs and hence the government needs to spend less to subsidise electricity, thereby reducing its fiscal deficit.

The structural problems in Pakistan’s economy remain intact. If oil prices were to shoot back up to $100 per barrel, all of the chaotic dysfunction that was the hallmark of the Zardari Administration’s handling of the economy would return. Pakistan remains vulnerable to the costs of imported energy, largely due to the fact that the government has yet to realise that it does not have the power to control global markets, but it continues to make feeble attempts to do so anyway.

To its credit, the Nawaz Administration realises that the government exercises precisely the wrong kind of control over the energy sector and has announced its decision to privatise some state-owned power companies, starting with power distribution companies that serve central and northern Punjab as well as Islamabad. We would have preferred that they privatise the state-owned power generation companies first, but we acknowledge that the government’s rationale for its decision is at the very least well thought out. What worries us is not the government’s energy plan, but rather the lethargy with which it seems to be implemented, or so far, not implemented.

Even before coming into office, Prime Minister Nawaz Sharif made it clear that energy was going to be his number one priority. Yet here we stand, almost exactly two years to the day the nation overwhelmingly voted his party into power, and the centrepiece of his energy agenda — realigning the role of government away from owner of the energy grid to becoming its regulator — has yet to take off. The collapse of global oil prices afforded him the perfect opportunity to undertake his bold agenda in a relatively painless manner, and yet the prime minister appears to continue stalling, distracted by the many slings and arrows thrown his way by a feckless opposition.

The news coming from the statisticians about Pakistan’s economy these days is unquestionably good, but we sincerely hope the government has not been lulled into thinking that the disease that ails us has been cured. Until the prime minister succeeds in implementing his own agenda, for which he has a strong electoral mandate, that good news is likely to be a passing phase.

Published in The Express Tribune, May 15^th,  2015.

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