The press release, subsequent to the two-day fortieth National Security Council (NSC) meeting, noted that “national security revolves around economic security and that sovereignty or dignity comes under stress without self-sufficiency and economic independence.”
This sentiment is echoed in the national security policy report prepared under the guidance of Moeed Yousuf, former National Security Advisor, and launched by the then Prime Minister Imran Khan in January 2022. That report noted that “the country’s security imperatives in the next decade will be driven by the need to realize its economic potential while ensuring national cohesion, territorial integrity, internal security, and citizen welfare.” It was hailed by independent analysts as a policy that differentiated between traditional security defined by a strong defence, territorial integrity and diplomacy, and non-traditional security that included a sustainable economy and well-being of its citizens.
While the then opposition, the incumbent administration, refused to attend the offer of a briefing by Yousuf yet the recent communique reflects the natural and unerring unanimity of views when in administration in spite of harsh almost inane criticism when in opposition. Be that as it may, a few observations on the press release relating to the economy are in order.
It refers to the briefing given by the finance minister on “economic stability road map of the government including the status of discussions with international financial institutions, exploring other financial avenues based on mutual interests as well as relief measures for the common people.” The unambiguous unfortunate implication is that macroeconomic stability road map by and large is reliant on external assistance and with little loan inflows given the stalled ninth IMF review the focus naturally was on “status of discussions”.
The status, no doubt, focused on reengagement with the IMF on the ninth review (after the end of the Christmas/new year holidays in Washington DC) however there are no reports that the finance minister highlighted the major lacunas in reaching a successful conclusion to the review on time (scheduled for 3 November 2022 in the seventh/eight review documents dated August 2022), many of which post-date his own appointment as the finance minister on 27 September and which include: (i) the debt equity source of external borrowing was compromised subsequent to the 6 October Moody’s Investor Services downgrade of Pakistan’s sovereign rating citing the floods as the major reason though coincidentally it was the same day that the Finance Minister announced a 110 billion rupee unfunded subsidy to exporters that was clearly violative of the spirit of the ongoing programme; commercial borrowing too would henceforth be at a prohibitively high interest as a consequence of the rating downgrade; (ii) exploring other financial sources perhaps reflects the Finance Minister’s earlier optimism that he could manage to delink the pledged assistance from friendly countries (China and Saudi Arabia) to the success of the ninth review.
That has not happened and the inclusion of this comment is perhaps at Dar’s insistence; one cannot however ignore that the inclusion of the phrase ‘based on mutual interest’ carry the seeds of an extension of or new security engagement especially as the Chief of Army Staff is currently on an official visit to two Arab countries; (iii) relief measures for the poor/vulnerable particularly the 33 million flood victims is a major selling point by the Shahbaz Sharif administration to multilaterals/bilaterals seeking climate justice for Pakistan.
Be that as it may, there are no reports that the 360 billion rupees budgeted for the Benazir Income Support Programme (BISP) for the current year pre-floods (under 5 percent of the total budget) has been augmented since; and (iv) the press release notes that “it was resolved that people centric economic policies with trickle down effects to common people will remain priority,” a theory that is no longer backed by empirical studies as tax concessions, cheaper credit or cheaper electricity to the well-to-do has not necessarily translated into higher growth which, in turn, theoretically at least, would trigger employment opportunities. This claim maybe a poor attempt to justify the unfunded electricity subsidy to exporters which as per the Fund is a “regressive” measure.
The two concrete though inexplicable measures identified in the press release are “imports rationalization as well as preventing illegal currency outflows and hawala business” – inexplicable for two reasons: (i) import rationalization through administrative measures pre-date Dar’s appointment, and the Fund extended its approval in the seventh/eight review documents in para 25 by stating that “the authorities requested more time to eliminate all remaining restrictions when balance of payment conditions permit by the new end of the program at end-June 2023;” (ii) the same para also noted that “staff emphasized that more prominence should be given to exchange rate flexibility as a means to address the balance of payment pressures” – an emphasis that predated the widening gap between the three prevailing exchange rates (prominent since October 2022) notably the interbank rate, the open market rate and the rate at which dollars are actually available in the open market – the major if not the only reason behind the flourishing hawala business post October.
The NSC press release further claims it undertook a comprehensive view of the ongoing economic situation vis a vis challenges being faced by the common people of Pakistan, particularly the lower and middle-income earners. This may give a comfort level to the policy makers however there is no evidence that any policy decision, other than the 340 billion rupees budgeted under the Benazir Income Support Programme and 699 billion rupees budgeted subsidies that are not specifically targeted to the poor or vulnerable, takes cognizance of the challenges facing the common people of Pakistan today.
The press release further contends that emphasis will be especially made to improve agriculture output to ensure food security and manufacturing sector however while this objective is standard normal for no one is likely to challenge it yet serious concerns remain on how the economy is being mishandled specifically through: (i) the 1.8 trillion rupee agricultural package announced end October 2022 that envisages over 1.5 trillion rupee credit to farmers but If the past sets any precedence then this measure will turn out to be an
unfunded credit subsidy to the rich farmers who have the collateral rather than the poor and subsistence level farmers; (ii) manufacturing output is on the decline given the rising costs of doing business and the expectation that the stranglehold on the rupee will have to be eased for the ninth review to be successful which will almost certainly raise the cost of imports of allowed raw material; and (iii) no attempt to curtail current expenditure is evident though development expenditure, a major contributor to growth, has been curtailed with money authorized a 100 billion rupees more than the around 250 billion rupees disbursed to date with the budgeted amount at 700 billion rupees.
The rest of the press release pertaining to the economy consists of the usual feel good jargon: “while taking into account the efforts for mitigating the challenges of 33 million flood affectees the forum resolved to mobilize resources for their rehabilitation and reconstruction in coordination with provincial governments” (with Punjab and KPK constantly complaining of lack of support from the federal government) as well as “multilateral institutions” leading right back to the Fund.
So far the practical outcome of the NSC has been the announcement of mandatory closure of retail businesses at 8:00 pm and restaurants at 10:00 pm with significant envisaged savings in power consumption which, if implemented, would be a major contribution to containing the circular energy debt. However, two provinces have already rejected this plan as has the MQM.
To conclude, Ishaq Dar’s statement during his rebuttal of PTI claims in his Wednesday press conference that the country will be on a path towards macroeconomic stability by June this year one facetiously may say that if the path is a 100 miles long then by June we may have covered a mile though whether this would be towards the end of the path or in the opposite direction is open to debate.
Copyright Business Recorder, 2023
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