The political atmosphere in the country during the past week has manifested itself in the economy as a major fall in the stock exchanges. Reports indicate that the Karachi Stock Market index of 100 major companies declined to 31,524.98 points in March from 33,632.19 in February of 2015. At the same time the dollar rose in value to 102.1 rupees reflecting higher dollar demand.
However significantly the Pervez Rashid-led Press Information Department, jokingly referred to as the Press Disinformation Department, releaseda Western news agency's story published on 16th March 2015 wherein it was maintained that the Sharif administration, in spite of street protests, law and order problems as well as a weak economy has begun to start turning the economy around. Inexplicably the raid on Nine-Zero (90) on 10th March was not mentioned nor indeed taken into consideration with respect to its possible economic fallout. On 19th March 2015 that Western news agency noted that "hours before Saulat Mirza was set to be hanged on Thursday, he appeared on about a dozen Pakistani television channels and gave a confession that has put the country's financial capital on edge. Mirza said that Altaf Hussain, who runs Karachi's biggest political party, ordered him in 1997 to kill the head of the forerunner to K-Electric Ltd., one of Pakistan's most valuable companies. Hussain's Muttahida Qaumi Movement, or MQM, refuted the allegations and said Mirza aimed to win a pardon."
Pakistani officialdom as well as its politicians remain enamoured of Western media and tend to regard their reports as more credible, less biased and indeed better researched. The days when foreign media was cited as the sole depository of unvarnished and unbiased truth are long over and if domestic viewership/readership alone is used as a yardstick to ascertain the relevance of foreign media then one would be compelled to acknowledge that there is a sea change in the way the average Pakistani responds to a report filed in the West.
The 16th March story of that global news agency therefore is clearly outdated due to later events. It noted that "the benchmark KSE-100 stock index has rallied 62 percent since Sharif took office, the sixth best performance among 93 world gauges tracked by that Western news agency. Over the past six months, Pakistan's rupee has outperformed every major global currency". That stock market performance has, as noted above, been tempered with recent post-MQM raid falls and unfortunately the story does not mention two pertinent facts namely: (i) the key 40 odd stock market players have performed admirably as and when the country's beleaguered finance ministers have needed some support; and (ii) the incumbent Finance Minister has slowed the implementation of a painstakingly brokered deal between the former Finance Minister Hafeez Sheikh and the stock market players in 2010/11 with the objective of generating revenue from this under-taxed sector. In India the stock markets contribute around 100 billion rupees to the tax authorities while in Pakistan the actual contribution is no more than a couple of billion rupees per annum.
The rupee-dollar parity is being artificially propped up, a view that has been repeatedly expressed by the International Monetary Fund (IMF) and the objective is fairly evident: understating the country's growing foreign external payments (interest as well as principal as and when due) which includes not only heavier reliance on multilateral and bilaterals but also issuance of Eurobonds and sukuk at rates well above what other more debt-ridden countries than Pakistan like Greece have issued in recent months.
That news agency's report also fails to mention the growing discredit of the country's statistical gathering machinery that is under the administrative control of the Ministry of Finance nor indeed on the economic policies that are focused not on development, so as to fuel growth and employment, but on deficit reduction which is further compromising the real growth rate.
But if foreign investment or even if local investment is actually rising then one must extend credit to the Sharif administration for turning the economy around. Unfortunately, the government upped its borrowing from the domestic commercial sector thereby crowding out private sector borrowing (data in the Economic Survey 2013-14 shows that private investment declined from 40.5 percent in 2005-06 to 14.9 percent in 2012-13 and plummeted to 4.7 percent July-March 2013-14). Public investment declined from 27.2 percent in 2011-12 to 17.1 percent in 2013-14 July to March. Enhanced government borrowing from the commercial banking sector - a policy attributable to the government desisting from its previous policy to borrow from the State Bank, which was violative of its agreement with the IMF under the 6.64 billion dollar Extended Fund Facility (EFF) - continues to have negative implications for the overall growth rate. Borrowed funds are not being used for development, which would have had the potential of fuelling growth, and the federal Public Sector Development Programme (PSDP) has been slashed by 9 percent and the consolidated provincial PSDP has been slashed by a whopping 32 percent in the ongoing fiscal year - the latter to show a provincial surplus that would reduce the pressure on the federal government to reduce its deficit.
Consumerism is on the rise, with household expenditure rising by 11 .9 percent in 2013-14 as opposed to 10.4 percent in 2012-13 though the government refrained from revealing data on government current and development consumption and gave a consolidated figure - a new trend evident since Ishaq Dar took over the portfolio. That Western news agency's report extols the contribution of rising consumption on the economy but fails to note that poverty data is hidden as per the inflation methodology in use.That report, however, cites a rise in consumerism as the pilot light to enhanced production however no emphasis is placed on the flawed data (including inflation).
But what about China's 34 billion dollar projected investment as per the signed Memoranda of Understanding (MoU)? Three factors need to be highlighted. First an MoU is not a binding contract; two, the timeline for the Chinese committed investment has not been announced and could well be more than three to four decades if existing inflows are any indication; and finally there is secrecy shrouding these deals with the public getting antsy about the constant violation of public procurement rules. These concerns are strengthened given that official data reveals that foreign direct investment has been on the decline since the PML-N government took over.
The obvious questions are: what is the state of the economy and who is to blame? While Ishaq Dar can and does manipulate data to show better than actual performance yet he is unable to manipulate the quality of life index, which relates to loadshedding (heavier than when the PPP was in power mainly because increased generation is far less than the annual increase in demand), governance remains appallingly poor, and the foreign exchange reserves are propped up by borrowing (which are taking an increasing bite from total annual government expenditure). But the law and order situation in general and the raid on Nine-Zero cannot be ignored as factors impacting on the economy.
Would the raid's applicability be time limited? After initial statements of defiance the MQM has clearly gone on the back foot. The party leadership and lawyers within its ranks are denying all allegations and claim victimisation as a defence. The MQM arguments are being dismissed though there is a consensus amongst law enforcing agencies that in the past the MQM leadership protected criminals within its ranks not through mounting a spirited legal defence but because of political alliances (National Reconciliation Ordinance ended 8,000 or so cases against MQM members of murder/extortion/kidnapping for ransom) and through intimidating witnesses, prosecutors, members of the judiciary and investigative/apprehending forces. The accused cannot be tried in military courts - not unless parliament redefines the purview of these courts to include non-religious based terror attacks. The meeting of the British High Commissioner with Minister of Interior late last week followed by a high-level meeting in the UK where the former envoy briefed Theresa May on what has been reported as a one-point agenda - pertaining to the MQM leader - is being seen as a confluence of one objective: to deal with crime.
Be that as this may, this may not be the last hurrah for the party leadership - a party that exercised unbridled power on the streets of urban Sindh for decades - unless, of course, the commitment of law enforcing agencies to end the militant wings of all political parties is neither abandoned midway nor indeed toned down for political reasons. It is hoped that proof against individual MQM rank and file as well as leadership must be irrefutable to ensure that no one can possibly hide behind the claim of victimisation.
The MQM, however, continues to be supported by the PPP chairman Asif Ali Zardari who, as a direct consequence, is facing internal dissension. Perhaps the two men have failed to take account of the new man in charge at GHQ who has clearly and unambiguously written on the wall with the army jawans' blood namely that crime - murder and extortion - would be punished while corruption, the crime that political parties accuse each other of, is of secondary importance - at least for now.
(The views expressed in this article are not necessarily those of the newspaper)
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