in the world where geo politics is governed by the economic growth imperatives, there are few states which tend to put the economic imperative on the back burner and make out the day to day business on the basis of hand out from the donor agencies. The premise over which the donor agencies oblige are the somewhat parameters which might ensure a next handout or tranche but in the process level little for the economic realities to be reigned in.
it is infact the tale of Pakistan, where actually two economies exist. The one which is governed by the IMF and its team in the Ministry of Finance and the State Bank. The other is the economics of every day faced by an average Pakistani. In the first economy, the economic indicators are encouraging and the promised turn around is just round the corner. In the second economy, the revenues and profits are just sustenance based, enough to make up the meeting of the ends for any individual.
With the current government in power for almost one and a half years and Pakistan well into another long term IMF program, a program, which the IMF and the government are both interested to sustain as it suits both of them, it has been a pure jugglery of words and statistics. The economic team, practically hand picked by the IMF never tires itself of what it calls the correction of the vital indicators due to the intervention of the IMF and the policies followed by the government.
That economy lives on a contracting monetary policy, supposedly to control the inflation. That inflation is further pushed forward by another contradictory corrective action; the uncapping of the exchange rate, or one can say, leaving the currency at the mercy of the market forces. While the high discount rate is there as per the theorist economists to control inflation; the exchange rate shock is enough for the market to be disrupted as the cost push inflation continues to disturb the business decision making process.
The first economy is more than content that the proverbial “injections” prescribed by the IMF have been administered with scant regard to the “ reaction”. However the reaction of that theorist approach is already visible six months on after the announcement of the first IMF cleared budget. The injection reaction has been visible in the real sector. A country where everyone wants to have an automobile, where the production lines could not satisfy the booking trends and people had to invest extra in the form of “own”, the same market now wears a deserted look, where big cars and small cars production units resort to periodic lay offs, as the demand for the commodity has been completely wiped out.
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That wiping out of the demand has been a two pronged issue. The auto sector was subjected to taxation which made the final product expensive by a certain percentage. That price jump occurred in an economy where GST and indirect were already taking the toll of the purchasing power of the people. The end result of these policies was soon evident in the case of the auto sector; which can well explain the scenario in the other sectors. The auto sector was subject to taxation which made the end product expensive. That was followed by fall in the exchange rate. That depreciation caused the input prices, mostly to be imported, to rise. A slack economy characterized by low purchasing power and rising input costs was enough to cause a slump in the auto sector. The whole country witnessed that auto brands had to close their production units as there were not enough buyers or running the production units was not a viable business option.
The tale of the auto brand is infact representative of how the other sectors are bearing the cost of good economic indicators but an opposite ground position. While the IMF is happy with the jugglery of figures and so called satisfaction of certain benchmarks; the on ground situation is quite the opposite.
Given the fact that the political government backed by the military establishment is happy that the economic indicators have been reigned in; the man on the street is far from being satisfied over had the opportunity to enjoy the fruits of the so called economic turn around advocated by the donors and the government.
The economic philosophy advocated by the government looks more like the proverbial or imaginary clothing of a king who is made to believe that his cloths are specially stitched in a manner that only the sincere can see the cloth. Obviously for the skeptical public, the king is stark nude. The current situation is just like that. While the IMF and the government makes the people believe that the clothing of the political government is best; the actual scene is very much like that of the king without clothing.
Given the ground situation; it will need a radical rethink of the economic philosophy, the absence of any soul searching; the society and the economy stands the risk of degeneration into a civil war or chaos. It remains to be seen when such a rethink is realized.