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Economy: Misconceptions and targeting relief

Dr Kamal Monnoo

In a surprising move, the Ministry of Planning last week released some statistics that aim at downgrading the performance of not only its own co-Commerce Ministry, but also that of the national export sector. The report argues that while Pakistan’s exports grew significantly in Dollar terms, the actual production of certain exportable items registered a sizable decrease, e.g. grey cloth in meterage, some unfinished MMF categories, etc. So, therefore the exporters have in fact failed the country despite being given massive government dole outs; that is whatever the term massive dole-outs or subsidies means? The only thing one can think of in terms of input costs is somewhat maintaining the electricity price, but then again it still stood slightly higher than some regional competitors and if what in effect is being recommended to arbitrarily jack up electricity tariff for exporters, then how anyone expects exports to compete internationally while having to absorb inefficiencies and corruption in the state-owned power sector is at least beyond my imagination! All other facilities like zero-rating, in-house bonded areas, etc. stand long gone with the sector today competing in an open-borders environment in compliance with the WTO principles. One is not even sure that why such a flawed report has a) been released and b) fails to take into account several key factors when making comparisons and drawing conclusions, because not only does it damage the industry’s confidence, but even more dangerously can also lead the government in the wrong policy direction, which needless to say could be disastrous, especially for the health of the external account. The argument in the report that import contraction is undesirable and could further impact exports adversely is again a half-baked theory that assumes that the contraction being recommended by most economic analyst primarily aims at curtailing unnecessary and luxury imports while giving a free hand to goods that in-turn boost exports or enhance production capacities. Also, it is pertinent to note that Pakistan’s export sector in fact has performed very well in Covid times, posting almost a 38 percent growth, even if at some places it is mainly price driven. Why? First, because it reflects value-addition kicking in, something that one has been talking about since a long time and second, that on a comparative basis regionally and globally, it reflects a robust performance in a like-to-like period where thriving traditional export economies have faltered: Japan negative 15 percent, Czech Republic negative 20 percent, Hong Kong negative 17 percent, Indonesia negative 48 percent, Egypt negative 49 percent (a large textile exporting nation), France negative 17 percent, Brazil negative 28 percent, etc. Even the regional ones that have posted growth remain either comparable or below the Pakistani performance while also relying heavily on price driven growth: Bangladesh positive 25 percent, India positive 27 percent, whereas Sri Lanka remained negative 4 percent.

On to the more important thing then, which is; what can this government do to ensure that the fruits are equitably distributed and how to successfully harness the current buoyancy in the economy for the benefits to reach the bottom of the pyramid and that too quickly? Well, other than of course clamping an emergency on undesirable imports (above) and curtailing domestic manufacturing that stokes non-productive consumption on the back of imported components, it will do well by championing three key areas; One, tweaking its Covid stimulus efforts in a way that it directly targets SMEs (Small and Medium sized Enterprises), Two, ensuring that its infrastructure build or rebuild projects are ones that are fuelled only by local currency and not exposed to foreign exchange fluctuation, and Three, invest in human infrastructure to tangibly take advantage of a young population, which otherwise would turn into a liability rather than an asset. A good example here could be Joe Biden’s recently announced stimulus package—a brainchild of Larry Summers—aimed at propelling the real GDP growth (it is almost now going at 5 percent in this running quarter) that in essence results in falling unemployment, the average household income going up, and the domestic retails sales registering an increase. However, the best part being that the lion’s share of the $1.90 trillion package directly engages the people’s segment that is ‘in official books’ already way down the education and income ladders, and a host of businesses in retail, cottage scale operations, mom and pop stores, self-driven manufacturing and similar level enterprises that simply couldn’t afford the disruptions caused by the pandemic.

Likewise, it has been legislated that any infrastructure spending, which draws on this new stimulus bill needs to statistically correlate related justifications to national productivity enhancement. However, no growth or heating up of an economy is without the pain of inflation. Like in Pakistan, US policymakers also face the same challenges, albeit the difference being that over there Larry Summers pre-empted this coming and provisioned accordingly. His argument being that a stimulus along with all the global supply chain disruptions and labour shortages that are inevitable when coming of a pandemic are bound to boost inflation. In addition, the simple public exhaustion due to grappling with this never-ending pandemic would mean a reduced resistance threshold of people in general to deal with a mounting inflation. And to overcome this resultant challenge where on one hand you are trying to put the economy on a recovery path while on the other you need to protect the people from rising prices and shortages, the only way is to direct all relief and resources (of the stimulus package) to the lower end of the pyramid and leaving very little or none for the ones at the top. So far, it seems to be working both for Larry Summers and the Democrats and perhaps this is exactly what the PTI government needs to ensure here in Pakistan as well.