IS IT GOING TO BE SOMETHING MORE THAN NUMBER CRUNCHING?
May 16 - 22, 2011
Jack Ma, chief executive, Alibaba Group said: "People did not regretfully suffer much... the crisis passed so quickly I don't know how many of us have learnt the lesson... we must heed the crisis's wakeup call or we will face much graver consequences."
While the 2007-09 financial crisis did not assert itself on global economic system with its full force, it certainly shifted economic growth focus from one region to another, leaving some economies badly bruised while offering some others a host of opportunities. These opportunities reached Asian doorsteps and many of the economies welcomed them. We failed to open our doors out of lethargy and inaction and suffered in consequence. We are persisting with our inaction policy and continue to stand alone in the backyard of economic oblivion. We have refused to review our monetary and fiscal policies in the face of Asian economic dynamism unleashed by the crisis.
Regretfully, we did not suffer much, to quote Jack Ma, or perhaps the economic mileage gained during the previous rule of a 'dictator' was too high to be undone in mere two or three years' time.
Pakistan's economy grew at an average rate of 6.2 percent between FY-02 and FY-07 and then slumped to a paltry average of three percent during the subsequent three years. We are determined to maintain our economic slide and hope to achieve a growth of 2.8 percent during the current financial year. No matter, if it is in sharp contrast to the average rate of 8.8 percent the Asia Pacific region economies are reported to have attained during FY-10. At least we have been able to retain our individuality by showing to the world how an economy can be made to operate with the highest policy rate beside highest inflation and corporate tax rates.
According to a review published by ESCAP, UN Economic and Social Commission for Asia and Pacific, the focus of economic growth has shifted to Asia Pacific region where economies have attained amazing growth levels after shrugging off the effects of global financial crisis. During 2010, GDP growth recorded by these economies was China 10.8 percent, India 8.6 percent, Sri Lanka eight percent, Thailand 7.8 percent, Philippines 7.3 percent, Malaysia 7.2 percent, Indonesia 6.5 percent, and Bangladesh 6.4 percent. ESCAP review sets the average growth rate of these economies for 2011 at 7.3 percent after sounding a note of warning in the following words: "Still, the 2011 regional growth outlook is subject to downside risks, notably from the return of high food and fuel prices, sluggish recovery in rich nations, a deluge of volatile capital inflows and the after-effects of natural disasters."
What is especially wrong with the Pakistan's economy that makes it go adrift after loosing its connect with the mainstream? We may find the answer in UN Under-Secretary-General and Executive Secretary of ESCAP, Dr. Noeleen Heyzer's words: "The Asia-Pacific region emerged from the global financial crisis as a growth driver and anchor of stability of the global economy. It now has the historic opportunity to rebalance its economic structure in favor of itself to sustain its dynamism with strengthened connectivity and balanced regional development and make the twenty-first century a truly Asia-pacific century." She further said: "While rapid growth in large economies such as China and India should benefit smaller neighbors, this cannot be taken for granted. The rising tide of developing opportunities will not lift all boats if these are separated by water locks." So, the answer is that our economic boat has not been moved by the tides of development simply because we have hampered its movement by such water locks as unusually high interest rate, depressed demand for consumption, public sector crowding out, stalled domestic resource mobilization ingrained bias against some of our neighbors.
With muffled policy action and government neglect of economic issues and priorities, what type of budget one may expect in the days to come? Is it going to be something more than a number-crunching? One may hope the IMF presence in the arena this time may change the attitude of our economic managers who may be forced to alienate themselves from the government ambitions to get hold of as much funds as possible to go shopping the next year. But one should remember that the lenders, like any other bank, are only interested in the service of the debt they have created out of someone else's money. They are not supposed to be and are therefore not interested in the well-being of their debtors. Whatever policy the IMF dictates will only serve to further stifle our economic growth. A low budget deficit, to give an example, would sound sane and reasonable. But, the economic history shows that properly managed higher budget deficits are the only route to growth given the economic model the world is made to operate with. When the rich economies tried in the wake of current financial crisis to control their deficits they found themselves in the grip of recession and delayed recovery.
Increased consumption and development spending are the surest means to come out of recession and particularly stagflation. The swift global recovery that has been possible during a short period of 2-3 years owes much to these economic tactics. A report from Basel where world central bankers recently assembled to take stock of world economic situation says: "Governments in industrialized nations, some of which already faced significant public deficits before the economic crisis, spent heavily in recent years to stimulate their economies and pull out of recession."
Joseph Stiglitz, the Nobel prize winner writes: "Financial-sector deficit hawks said that governments should focus on eliminating deficits preferably by cutting back on expenditures. The reduced deficits would restore confidence, which would restore investment - and thus growth. But, as plausible as this line of reasoning may sound, the historical evidence repeatedly refutes it. When US President Herbert Hoover tried that recipe, it helped transform the 1929 stock market crash into the Great Depression. When the International Monetary Fund tried the same formula in East Asia in 1997, downturns became recessions, and recessions became depressions."
The world central bankers, in the said meeting at Basel, appreciated the growth recorded by emerging economies in the post-crisis era. This growth has been possible in a very low policy rate regime. We used this recipe in the pre-crisis era and matched the growth shown by the emerging economies in the post-crisis era. The change of government in 2008 and an obvious bias against previous economic policies led us to the no-action zone. While the orchestrated hue and cry against previous regime's economic policies has died a logical death, the eyebrows are raised at the economic mess their successors have created.
This is high time the state bank and our fiscal managers take a u-turn and do something new to put the economy back on track. If not, then they should brace up to 'face much graver consequences' as Jack Ma has warned.