Self-proclaimed economists many a times lead one to experience a fatal cringing and a heightened need to claw. The latest argument encountered by the writer on what policy makers should and shouldn’t do proposed closing down the economy! The dissenting would agree that no matter how rhetorical, ‘blanket’ and ‘unheard of’ this argument seems, it is still intriguing. With chants of more and freer trade coming from all corners of the globe, the prospect of gliding back and finding sustainable alternatives sounds alien. Introspection would object otherwise. The theoretical backing for trade and comparative advantage is consumer centered. If more and cheaper can be imported from abroad, one should put domestic resources to other productive ventures. Applying this to the Pakistani or the emerging market scenario; without significant investments being made in technology or simply put ‘catching up’, the very theory of comparative advantage has led the economy to greater dependence on foreign inflows and agriculture for survival. Mixed with the country’s state directed corruption, very little remains in terms of tangible hope to allay apprehensions of implosion.
Why then should the country trade, if no good is to come out of it? In the last five years (since FY05), the cumulative outflows on the balance of payments front have amounted to $1.2 billion (Rs107 billion). Specific to trade, the cumulative current account deficit has amounted to $42 billion (Rs3.7 trillion). Identifying commodity classifications in the export/import list, textiles and oil emerge as the most prominent products. In the last three years, the former has comprised 51-2 per cent of the total export receipts while oil amounted to 32-4 per cent of the import bill. In simple magnitude terms, the economy has coincidentally imported/exported oil/textiles worth $11 billion on average in the last three years. However, upon close inspection of the import commodity bill (and much to the dismay of the messiah), one finds that most goods (besides oil) have an inelastic demand, and so circularly, to sustain the foreign reserve outflow, the export side is pressed to buttress. Thus for reasons beyond neocolonialism, the economy cannot be closed down!
Nevertheless, given that the economy has been able to sustain net foreign currency outflow or deficit in the last five years and since independence, it clearly does not lack the ability to garner some millions of dollars to invest back home. If power and energy (and the oil bill) is what drags the economy down, then maybe ministers and other important whatstheirnames should really stop making shiny comments about 175 billion tonnes of coal reserves and actively direct whatever resources the economy has, to utilise this resource and save or redirect the $11 billion being spent on oil instead of plugging in just Rs900 million or $1 billion for extraction of gas. If this vast resource is put to use, about 2000-2500 (conservative estimate) years can be spent without wondering which direction Arab crude prices will take. And for once, inflation might as well take a step down!
In all, Pakistan has sort of missed the bandwagon in terms of identifying its major sources of income. With India on the software, hardware and industrial front, China another league and even Bangladesh banking heavily on the ready made garments segment and with a steady growth rate higher than Pakistan’s, the time to identify and prosper on behalf of a niche has probably departed. And thus, to save whatever is left and running, inputs have to be restored. Once again, if the country is flushed with abundance, the rulers might as well stop themselves or be stopped from creating delays and inefficiencies. One remembers Marx’s definition of capital as what regenerates itself. Surely sitting on liquidity and investing in land will not create more of either of the two.
The writer is an economic analyst and freelance financial journalist. She can be reached at firstname.lastname@example.org