The Finance Minister has had his day in the sun and presented his budget, but he maintained a sphinx-like silence over how to tackle the basic imbalance in the Pakistani economy, which is at the root of other imbalances: we don’t earn enough from the rest of the world to pay for what we need from it.
Pakistan’s soil is very fertile, its land very rich, and its people both innovative and hard-working, but that still leaves Pakistan dependent for three vital items from abroad. The first is fuel oil, which it uses to generate power. Here gas and coal can be included, to complete the hydrocarbon triad. Then comes palm oil, which makes the banaspati ghee in which every Pakistani dish is plunged. Then there are pharmaceuticals. Here are to be included not just life-saving drugs which are imported after being manufactured and even packaged, but medicine raw materials, after which manufacturing takes place in Pakistan. Among the first multinationals to set up plants in Pakistan, based on materials imported from abroad, were pharmaceutical firms.
Pakistan for too long has tried to import essentials while having no essentials to import. Until that problem is solved, all other economic problems will remain. That provides one standard by which the budget can be assessed. Another standard is how far the country has moved to getting out of the IMF’s toils, but that too requires an answer to the basic question of how we are to pay for our imports
While these are essentials to be imported, the country does not export any essentials. Textiles are the mainstay, but people can opt for other clothes materials. Similarly, they can adopt other materials to bed covering, towelling, and the other many uses to which Pakistani textiles are put. Even on the area of its greatest strength, agriculture, Pakistan has nothing like the grip of Russia, Ukraine or Argentina on grain, or of Brazil on biofuel (ethanol from sugarcane) on other countries. Its attempts to export wheat or sugar have been hamhanded, and have ended up in domestic shortages and political crises, because the two crops are national staples, and shortages affect a very wide range of people. Leather goods suffer from the same problem.
The solution therefore lies in finding oil or gold. Oil exploration has been going on for decades, and only some oil deposits, insufficient to meet even domestic demand, let alone to export, have been found, and some natural gas, but even those deposits are running out, and liquefied natural gas has to be imported. Gold is to be mined by Famagusta Barrick gold, and is being touted as a gamechanger. It should bring considerable foreign exchange into the country, but not like gold brings foreign exchange into South Africa or Zimbabwe. In fact, unlike oil, gold does not seem to be the primary export of many countries. The ideal achieved in the Arabian Peninsula and the Gulf, of wealth just cascading down, and allowing all sorts of extravagances to the citizens, all without any work, seems far from achievable.
There is the parth followed by the Asian Tigers, of exporting manufactured goods. However, none of the Asian Tigers got indebted to the same extent. Pakistan may not be in immediate danger of default, but is still not out of the woods. One of the most obvious costs of being so heavily in debt is the loss of national and political sovereignty. Initially borrowing was supposed to be for projects that would increase economic activity, thus increasing revenue, and enabling the repayment of the loan.
It didn’t quite work that way. Those loans were meant to purchase political loyalty, both of individual elected officials and civil servants, not through direct embezzlements but by kickbacks from contractors. There were two effects. Not enough control was kept of execution, which meant that the project would not achieve the object it was meant to. Then came the stage where loans were taken which everyone knew would be embezzled, and the project was just the pretext.
At this stage, repayments became a problem, and now loans are being taken to repay old loans. These loans are being made on painful conditions, to the extent that the government cannot claim that it is imposing its own economic policy on the country. Now the PM has admitted that economic decisions are run past the IMF for approval, the IMF’s institutional role must be understood. It is not to ensure economic growth. It is certainly not so that the country can get out of the debt trap. Indeed, if the country remains within the debt trap, it will remain obedient to the IMF’s political masters. While the EU has the appointment of the MD in its hands, the USA is very influential because it puts up so much of the money it lends, and because as a Bretton Woods institution, it was set up to exert US economic influence. At that time, and even now, Europe means the USA. If there is indeed a split over the Ukraine war, the IMF will still want debtor countries like Pakistan to toe the US line. Continued obedience to the IMF will make it impossible to leave its debt trap. Even converting to the Asian Infrastructure Investment Bank, China’s alternate to the World Bank, will not be that easy, and will keep Pakistan having to obey conditionalities.
Pakistan’s problem will thus not be solved, unless it either establishes itself as a brand, as China or Japan, or even South Korea, have done. First of all, the all have a wide range of products, all of which have a reputation for quality and cheapness. There was no pride involved. An island was renamed USA, and factories established there, so that the made-up goods could be labelled ’Made in USA’. A Japanese company named itself ‘Sharp’ so that its being a US or European country could be created. But now there are Ginsu knives, American-made, but giving the impression they are Japanese.
Pakistan cannot claim that its name creates any impression. Another important missing component is the domestic market. The Asian Tigers’ export brands have all first been tested in highly competitive domestic markets. It is only after domestic success that the product is exported. Despite US President Donald Trump’s accusations of dumping, the Asian Tigers are making goods which appeal to the US consumer, suit his pocket better.
Do Pakistani products meet the test? If you build a better mousetrap, the world will beat a path to your door. Are Pakistanis making better mousetraps? The approach of the government seems to be to encourage more of the same, and while ending some protectionist measures, to start up others.
Another option is the conversion of our necessary imports into domestic products that would move freely. Fuel oil and palm oil both come from Muslim countries, and would be domestic goods, not imports. If there was one state, they would still have to paid for. The problem would remain the same. Either the central government would have to provide subsidies,, or Pakistanis would have to get off their behinds and start producing goods in exchange. They could also do so now, under the present system.
Pakistan for too long has tried to import essentials while having no essentials to import. Until that problem is solved, all other economic problems will remain. That provides one standard by which the budget can be assessed. Another standard is how far the country has moved to getting out of the IMF’s toils, but that too requires an answer to the basic question of how we are to pay for our imports.
