July 5, 2022

Finance & Economy

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An ‘if and but’ economy

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LAHORE: We are running an ‘if’ and ‘but’ economy as we lack genuine economists who can guide the government in formulating better economic policies.

Most of the economists have a political tilt. They favour the policies of the political party they support no matter how irrational those policies may be.

Some economists serve different political parties when they are in power, but their input on policies is restricted to defending what the ruling party says. Genuine economists assert on transparency, level playing field for all and equal taxation on incomes derived from any source.

They recommend strengthening institutions and pruning them of political appointees. These recommendations do not suit any party that assumes power.

Parties, when in power, must oblige their supporters and party stalwarts. So, the slots of ministries are filled by senior party leaders even if they lack knowledge or expertise in the field they are asked to serve.

Top bureaucracy is expected to obey the commands of naive ministers or be prepared for transfer elsewhere. With policies formulated by non-experts and approved by party economists some vested interests are served, but not the country.

Every government immediately after assuming power consults representatives of trade and industry. Each representative advises measures that serve their sector.

They invariably seek protection in case they are domestic producers and duty and tax reduction if they are importers. Producers of basic raw materials seek high duty protection even if their total capacity is much less than the total consumption of that input in the country.

No one bothers to realise that higher input cost because of protection results in higher cost of the finished product. This diminishes the chances of export of that product and encourages imports of finished materials.

Our entrepreneurs are deadly against reforms. In contrast, the Indian entrepreneurs pleaded with their government to introduce reforms that are in vogue in successful economies around the world.

Indian businessmen realised early on that those reforms do hurt at the initial implementation stage, but are beneficial for all genuine businessmen in the long run.

Reforms ensure transparency and level playing field for all. Reforms take away the discretion of the ruling elite to take decisions and make appointments without merit.

Half-baked reforms in Pakistan have landed the economy in deep trouble. We are an agricultural country, but have failed to build new water reservoirs so essential for agricultural production.

Agricultural planners have negligible role in our agricultural output. The production of any crop is dependent on mother nature.

The crop would be bumper in case of timely rains and favourable weather. The ‘if’ in case of agriculture includes availability of quality seeds, availability of required fertiliser, and timely water.

Production of wheat crops this year for instance would be badly affected due to shortage of urea fertiliser. The services provided by the agriculture extension department also play a major role in crop productivity.

Economic performance of our country has always been dependent on the extent of foreign inflows during any fiscal year. Inadequate foreign inflows hit GDP growth.

Due to our dependency on foreign inflows, our economic managers are unable to correctly predict the growth rate in any fiscal year. Indians on the other hand predict the expected growth rate for the next three years.

This need for foreign inflows has forced economic managers to attract dollars at high interest rates.

But in that too, there is a difference between owing the World Bank and owing on digital deposits.

If we owe the World Bank $10 billion, its interest rate averages one percent and at the completion of one year, the interest on loan would be $100.

In contrast, on $10 billion digital deposits, the country would have to pay $700 million as interest in one year. Another point worth noting is that World Bank loans are always for development purposes, and the development projects completed under the eyes of World Bank have the capability to service the loans. Digital accounts on the other hand are consumed to cover fiscal slippages of the government and the liability goes on increasing as the time passes.

Another avenue to increase foreign inflows are exports, which too are subject to subsidised and uninterrupted supply of power and gas. If the subsidies are withdrawn the exports nosedive.

https://www.thenews.com.pk/print/932457-an-if-and-but-economy