Be­tween boom and bust

The Pak Banker - - 4EDITORIAL - Khur­ram Husain

IT has be­come a theme now that may yet come to de­fine this gov­ern­ment's eco­nomic story. Global voices such as those of the mul­ti­lat­eral lenders and credit rat­ing agen­cies, along with in­ter­na­tional media, are giv­ing the gov­ern­ment high marks for turn­ing the econ­omy around and build­ing re­serves. Mean­while al­most ev­ery do­mes­tic an­a­lyst, in­clud­ing those who have held se­nior po­si­tions in gov­ern­ment and the State Bank, are sound­ing in­creas­ingly loud warn­ings that the so-called "turn­around" is in fact hol­low, made of air. Both par­ties have data they can point to. For those in the ap­prov­ing camp, the ris­ing for­eign ex­change re­serves, im­prov­ing credit rat­ings and shrink­ing fis­cal deficit are all signs of in­creas­ing con­fi­dence. To top it off, China's grow­ing in­vest­ments in the coun­try mean some sort of back­stop is still avail­able in case things go hor­ri­bly wrong, which in the Pak­istani con­text usu­ally means a rapid drainage of re­serves.

For the naysay­ers, the low growth rates in in­dus­try, lack of uptick in pri­vate in­vest­ment, slow credit off­take by the pri­vate sec­tor, fall­ing ex­ports and ris­ing in­debt­ed­ness are all signs that the econ­omy re­mains in the dol­drums in spite of im­prove­ments in a few in­di­ca­tors. Isn't eco­nom­ics an ex­act enough science to at least tell us whether or not an econ­omy is do­ing well? One could ar­gue that in both cases there are vested agen­das be­hind their re­spec­tive analy­ses. For the ap­provers, the only thing that re­ally mat­ters is Pak­istan's abil­ity to ser­vice its ex­ter­nal debts. Given that re­serves are at a "his­toric high" means the coun­try is un­likely to ap­proach the brink of de­fault within a few years, giv­ing am­ple warn­ing to hold­ers of Pak­istani as­sets. There­fore the econ­omy looks good, ir­re­spec­tive of how it might look to a Pak­istani citizen.

One could ar­gue that the naysay­ers have a po­lit­i­cal axe to grind, although in some cases amongst this camp that ar­gu­ment would be dif­fi­cult to ap­ply. The same sit­u­a­tion ex­isted when the econ­omy grew un­der the Mushar­raf regime, and some of to­day's naysay­ers were amongst the ap­provers at that time.

So which is it, then? The lay reader can be for­given for feel­ing a lit­tle con­fused. How could rep­utable in­ter­na­tional news or­gan­i­sa­tions get it so to­tally wrong, or give such a one-sided as­sess­ment of our econ­omy? Isn't eco­nom­ics an ex­act enough science to at least tell us whether or not an econ­omy is do­ing well? The an­swer is yes they could and no it isn't. What view one takes of de­vel­op­ments in the econ­omy de­pends a great deal on what per­spec­tive one adopts, and what in­ter­ests one wishes to ad­vance. De­spite decades of pre­tend­ing to the con­trary, econ­o­mists are still no more than so­cial sci­en­tists, and their tools just as sub­jec­tive as those of any other so­cial science.

So here's one way you could de­cide for your­self. Here is what life in an im­prov­ing econ­omy should feel like. First you should find a pro­lif­er­at­ing num­ber of av­enues to in­vest your sav­ings, and I'm not talk­ing about more prod­ucts be­ing of­fered by the same com­pa­nies. You should find that se­cure av­enues to in­vest, of­fer­ing a sta­ble rate of re­turn that is higher than in­fla­tion, are avail­able aplenty.

Next, you should find that prices are rel­a­tively sta­ble com­pared to in­comes. To­day we have a sit­u­a­tion where of­fi­cially re­ported in­fla­tion is com­ing down - which is a fact not con­tested by the naysay­ers - yet peo­ple find prices of many items of con­sump­tion are in­creas­ing. I've no­ticed doc­tors' fees spi­ralling up­wards, school fees climb­ing, rents ris­ing and many ser­vices con­stantly in­creas­ing faster than my own in­come, and I know many who have the same ex­pe­ri­ence.

So how could the gov­ern­ment claim that in­fla­tion is com­ing down when the naked eye re­veals some­thing else? The rea­son is sim­ple: of­fi­cially mea­sured in­fla­tion only uses a bas­ket of a few items of daily use, mainly a few sta­ple food items and con­sumer durables, and prices of these have in­deed been rel­a­tively flat. Ev­ery­where else, though, there is a dif­fer­ent story. In a sta­ble and grow­ing econ­omy this shouldn't be the case.

You should also find that your in­come is in­creas­ing faster than in­fla­tion, and your stan­dard of liv­ing im­prov­ing vis­i­bly with­out com­pro­mis­ing your sav­ings. Can you put more money aside ev­ery month this year af­ter meet­ing all ex­penses like rent, kitchen, school, than you could last year? Is the or­gan­i­sa­tion you work for grow­ing? Are op­por­tu­ni­ties open­ing up in your pro­fes­sion that were not there a few years ago? Your cur­rent in­come should feel bet­ter than last year, and your as­sess­ment of your own fu­ture should look brighter than it did last year; you should be able to see many more av­enues to rise in your ca­reer path than you could last year.

How many peo­ple do you know who have this ex­pe­ri­ence? I know very few. Some ar­eas of the econ­omy are in­deed boom­ing, like dairy in Punjab, con­struc­tion in Karachi, etc. Dairy is a good story these days be­cause the pack­aged milk revo­lu­tion is well un­der way and has lots of room for ex­pan­sion for years to come. Con­struc­tion is boom­ing be­cause of some public sec­tor projects, as well as a hous­ing boom, un­der way due to the spi­ralling prop­erty prices and rents. It's also a good sec­tor to be in these days.

Autos is boom­ing, banks are mak­ing record prof­its and even some bread and but­ter in­dus­tries like fer­tiliser are emerg­ing from a pe­riod of in­tense gloom. Con­sump­tion is up but in­vest­ment is down. Some peo­ple might well be feel­ing an im­prove­ment in their cir­cum­stances, but if this isn't widely shared, it can­not be said to be ev­i­dence of an im­prove­ment in the over­all econ­omy. Clearly some things are mov­ing in the econ­omy while much of it re­mains in the dol­drums. This un­bal­anced state of af­fairs is what the naysay­ers are point­ing to, ar­gu­ing that what­ever good news there is to high­light is of a tem­po­rary na­ture only and does not sig­nify any sus­tained im­prove­ment in the un­der­ly­ing fun­da­men­tals of the econ­omy.

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