Economic nosedives
IT was indeed a pleasure delivering a talk on October 23, 2022 to accomplished professionals about economic nosedives of the country with special emphasis on causes and remedies.
When I entered the hall a workshop on learning Arabic was in progress. The facilitator, a British Pakistani, also invited me to participate in an exercise on some fundamental conversational vocabulary.
The exercise concluded with a quiz on Kahoot and surprisingly I took second position which encouraged me to embark on Arabic learning which I aim to do soon.
Historical data shows that Pakistan has not been able to sustain growth for long periods. Rather, it has had short growth sprints followed by nosedives. This is because economic policies are subject to change with the changes in government corridors.
This implies that when governments are concluding their terms they ignore long-term implications of spending and utilize funds for their immediate political concerns to secure maximum seats in coming elections at the cost of national reserves; this is clearly evident from at least last three regimens of three different political parties.
During the fifth year in the office governments hastily extended unplanned subsidies and threw funds carelessly to constituency specific projects to win voters for forthcoming polling. This trend suggests reflecting on our policy of framing five-year financial plans.
It will be better to have legislation for 10 year financial plans with the consensus of all parties in Parliament while cycle of the government should remain the same five years.
It will ensure continuity of policies and liberate outgoing government from the urgencies of accommodating immediate demands.
State-owned white elephants are double burden on the economy. Organizations which are supposed to earn and contribute to the GDP of the Country are actually eating up what is earned by some of the state-owned enterprises. According to Dr Ishrat Hussain, “Currently we have 212 state-owned enterprises (SOEs).
85 are commercial SOEs while another 83 are subsidiaries attached to one or another SOE; 44 are non-commercial entities (such as trusts, foundations, regulatory bodies, universities, research and training institutions, promotional and advocacy bodies and welfare funds).
These SOEs make up 98% of the government’s assets and account for almost 100% of losses. The top ten loss-making SOEs contribute around 90% to the total loss of the government.
The set includes NHA, Pakistan Railways, PIA, Pakistan Steel, five power sector DISCOs and ZTBL. SOEs are a major drain on the country’s budget and consume public resources without any guilt or hesitation.
These corporate giants have been maintained by successive governments to fulfil their own political agendas. Governments have blatantly resorted to granting excessive and out-of-merit employment at all levels in these organizations, causing acute inefficiencies and deep-rooted corruption.
In the financial year (FY) 2019-20, the commercial SOEs collectively recorded net losses of Rs 143 billion.
Oil and Gas companies show net profits of Rs 242 billion while Infrastructure companies (PIA, Railways, NHA, Post Office etc.) show net losses of Rs 267 billion and Power companies of Rs 117 billion.”
Foreign direct investment (FDI) is extremely important for an economy. FDI helps generate employment, contributes to GDP growth and boost foreign currency reserves. During FY 2021, the net foreign direct investment (FDI) dropped by more than 28 percent.
Including uncertain government policies there is nothing right to attract FDI, factor costs, transport costs, political environment, exchange rate, trade openness, tax rates, infrastructure and property rights every dimension needs serious attention of policy makers to facilitate foreign investors to explore untapped opportunities in the 5th biggest market of the world.
Parking of capital in the real state is the big challenge for coming governments. The obsession with real estate has understandable foundations and originates in a fundamentally good idea: the need to buy assets that generate inflation-beating returns.
But it has gone too far and is now starting to create a drag on economic growth that investment opportunities and housing affordability.
There are some leading entrepreneurs opted to invest in real state due to attractive profits and less volatility.
They blame government policies not promoting investments in manufacturing sector which has a better potential to provide employment.
Construction sector does serve as a driver for several linked industries but when it dumps capital in non-productive tower blocks in mushroom residential societies it becomes real burden on the economy of the country.
Government needs to introduce policies which can divert the capital to the employment intensive sectors for better productivity and economic growth.
Young population has exceptional potential to contribute towards the development of the economy particularly in the technology and start-up sector, which is thriving, and the government has so far taken some initiatives to facilitate them but still there is a long way to go.
Market development is the key for the progress of any economy. We hardly observe any initiative from relevant departments for market development in countries where we have a few satisfied customers.
Market development in international societies is a costly affair and needs government interventions to support businesses back at home by enhancing demand of those products in which we have absolute or comparative advantage over our competitors.
On the other hand international business development is the process to identify new markets, nurture and acquire new clients and business opportunities to drive growth in the demand of your core products to contribute to the increased profitability of your businesses in the country of origin.
It has generally been observed that customers from international market are better aware of our strength and coordinate exactly with those industries and businesses that can fulfil their expectations and deliver the promise.
But we hardly experience any policy or practical intervention by relevant departments to attract and facilitate potential international clients to visit Pakistan and explore opportunities to get better products.
Mismanagement of different government departments and organizations has always been discussed and the same happened during Q&A session, it was general consensus that there is no dearth of competence in the country, however, it is probably the sense of responsibility and initiative which generally lacks in our government departments and organizations that costs us heavily in terms of economic nosedives and otherwise relatively less performance and mismanagement in key areas & critical events. The session concluded with supplication (dua) for the betterment of participants and Pakistan.
—The writer is Associate Professor Management Sciences, Head, Centre of Islamic Finance, COMSATS University (CUI) Lahore Campus.
