A utopian approach to economy?

EDITORIAL: In a recent interaction with media, prime minister Imran Khan reportedly said that his government ought to have gone to the International Monetary Fund (IMF) "straightaway" as there was no other option to finance the USD20 billion current account deficit that his government had inherited. The prime minister, therefore, deserves praise for accepting his government's "mistake". He also deserves commendations for admitting that reforms in Public Sector Enterprises (PSEs) and energy sector should have been taken earlier. The gist of his conversation on the economy implies that he is ready to cut losses and move on. For the past few decades, the old school economists have failed to help successive governments bring the economy out of the woods. The prime minister made the same mistake. He, too, formed an Economic Advisory Council comprising the old guns and the debate for many months was whether to go to the IMF or not. Months were wasted on plans such as banning non-luxury imports, including cheese, as an alternative to going to the IMF. The Planning Commission has not been able to do any good yet. The positions of Chief Statistician and Chief Economist are vacant at Pakistan Bureau of Statistics (PBS) and Planning Commission, respectively. The prime minister needs to look at the Planning Commission as well and place its portfolio in the hands of someone who has a deep interest in the economy and who has realistic expectations and plans about running it.

The prime minister seems to have the realization that economy cannot be run through a utopian approach because markets are realistic and they need solutions that are tied to ground realities. The first step is to take the economy out of danger. That cannot be done by any rhetoric or some kind of mystical self-believe. Many in the cabinet (mainly elected ones) were living in a false belief; and some still are. That is why the battery of special advisors to the prime minister is building up to bring the right energy. These technocrats are independent experts and are here for the job they are being bestowed upon. The core team is shaping up well while the trial-and-error exercise also continues. The real problem for the prime minister is to win the hearts of bureaucrat - where he did admit the trial-and-error approach.

But the macro economy is not out of the woods yet is a fact. The government got much-needed IMF push in the start. Although, the quantum and timing of the tough conditions imposed by the IMF can be questioned, the overall direction was right. Covid-19 has given a lucky break to the prime minister to get some breathing space. Interest rates are down. The IMF programme is hanging in the balance; yet the budgetary support from Asian Development Bank (ADB) and the World Bank (WB) continues. This means IMF's comfort very much exists at the top-level. The IMF wants an upward revision in power base tariffs, a workable plan to resolve the circular debt, and more taxes to bridge in the fiscal deficit. With high food inflation and agitated opposition, it's not the right time to bring many of the measures. The window is here for a few months before the Covid-19 fear is over. The power sector top team is in place and is working on the plans. National Electric Power Authority (Nepra) has a strong and competent head. The PM is lucky he got the break; he got a chance to win the tournament - very much like the 1992 World Cup rain-washed match against England. There is no room for complacency. It is time to hit the nail on the head. Else, the rut of balance of payment crisis will run unabated.

Copyright Business Recorder, 2020