Between boom and bust
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.