The story of Nero playing his flute while Rome burned should be familiar to readers. This expression is used to denote a ruler who believes that everything is fine while the country goes through tumult. It does not help that Nero is surrounded by courtiers that sing his praises day and night, creating a false narrative that the country is prospering under his able leadership.
Pakistan’s history is laced with such Neros and courtiers surrounding him. Naya Pakistan is no different. We have not one but several Neros that are dancing to their own tunes as Pakistan staggers from one challenge to another. Perhaps nothing demonstrates this more aptly than the way that the economic squeeze is being applied upon the people and the country. Despite this, Neros have created an imaginary narrative whereby we are well on our way to becoming an ‘Asian tiger.’
At present, there are two competing economic narratives vying for acceptance. One narrative comes from numerous Neros, consisting of the honourable prime minister, his economic team, the State Bank governor and donor institutions like the IMF. The other narrative is that of the people, who find themselves all at sea against the atrocious economic governance being inflicted upon them. It shouldn’t surprise readers that I am a strong adherent of the latter narrative, something that I have persisted with since the PTI-led economic team took over the reins of economic management.
The evidence of a confounding gap between the Nero and the people was strikingly reflected by the finance minister’s statement that tomatoes were being sold at Rs17 per kilogramme! On the day that he tried to make us believe this absurd story, tomatoes were selling at Rs250 per kg in Karachi (other cities were not too far behind). Just imagine the sheer incompetence that is on display, with the finance minister of a country so removed from reality.
Let us start with this issue of skyrocketing prices of tomatoes. Why is such a fuss being made of tomato prices? What does it have to do with economic governance? For a start, it is a staple item of our food mix, whether poor, middle class or rich. The issue is that when it comes to the poor and the lower middle class, their room to manoeuver in terms of food choices is already limited as their incomes allow for limited options to choose from. Tomatoes prices have taken such a giant leap that either these groups will have to give up its consumption or give up something else. The issue takes a tricky turn when you realize that almost every item in this limited set of choices has seen its price increase. Put another away, even the possibility of substitution between this limited set of items has diminished to a considerable extent. Naturally, the poor are now at pains to afford a meal for bare survival. No amount of government mandated hand outs can ameliorate this predicament.
What does economic governance have to do with it? After all, prices do tend to increase or decrease! Yes, prices do sometimes shoot through the roof. But then what one has to be cognizant of are the reasons that led to such surges, and governments try their best to stem it. In case of tomatoes, the closure of an important supply route (Indian border) and the destruction of tomato crops due to rains should have alerted the government that there would be lesser supply. It should have been a natural course of action, then, to find another source of supply to keep the prices from taking such a leap.
But we find no such course of action. Rather, what we witness is panic, with the PM hurriedly assembling his ‘price committees’ and ‘directing’ them to ensure that the prices are only allowed to rise as per the government decisions. Alas, what can one say about such course of action that has never offered anything meaningful? And importantly, why do we have ‘agricultural’ ministries at the federal and provincial levels? What do they do, and did they ever bother in forming the PM of the impending crisis? What’s the need of these ministries and ‘economic teams’ if they are unable to grasp such basics?
Other renditions of the happy narrative concern IMFs ‘satisfaction’ with quarterly performance of the government, glee over improvement in business rankings and the supposed uptick in investment coming to Pakistan. Let us parse through the fog to appreciate why this joy is unfounded.
The primary reason for IMF’s satisfaction with the government’s economic performance lies in the increase in total revenue collected by the state in the first quarter of this fiscal year, something that the finance minister ecstatically presented to the media. But neither IMF nor the finance minister divulged that a sizeable portion is attributed to increase in tax revenue from petroleum price increases. Again, notice that petroleum prices are an important driver of aggregate inflationary pressures in Pakistan. Whatever revenue was collected, it took a formidable toll upon the people. Governments’ gain, in this case, is peoples’ loss, aside from the fact that it gave further momentum to inflation.
Regarding the ecstasy caused by improvement in ‘ease of doing business’, there is no guarantee that investment will pour in and businesses will suddenly feel confident in terms of future economic prospects. Perhaps the improvement will mark a gradual shift in our economic fortunes, but this is too early to celebrate. Moreover, on-ground realities speak of a different situation altogether.
Last, should the news of increase in investment be taken seriously? Again, it is unnecessary exuberance that is not grounded in understanding of the basics. Simply put, if we compare the inflow with the outflow (like profit repatriation), then we get a worrying picture. In the first quarter of this fiscal (July-September 2019), the net investment (inflow minus outflow) was $885 million! This is not much for a country reeling under external and internal debt. Additionally, bifurcation of this investment data (‘Summary of foreign investment’, available at SBP) reveals that a substantial chunk of this inflow was in the form of ‘portfolio investment’, basically what economists term ‘hot money’, dumped in Pakistan due to higher interest rates rather than investment in brick and mortar that can generate real economic activity and create jobs. Unlike some solid investment (like setting up a factory or shop), it can be pulled out immediately, and has a troublesome legacy. So, I am not sure that there is a cause for celebration.
The above are just a few glimpses of the troubles being encountered by the people. All in all, the tales of turning a corner being foisted upon us are false flags. Rome burns as Nero plays his flute.
The writer is an economist
Pakistan’s history is laced with such Neros and courtiers surrounding him. Naya Pakistan is no different. We have not one but several Neros that are dancing to their own tunes as Pakistan staggers from one challenge to another. Perhaps nothing demonstrates this more aptly than the way that the economic squeeze is being applied upon the people and the country. Despite this, Neros have created an imaginary narrative whereby we are well on our way to becoming an ‘Asian tiger.’
At present, there are two competing economic narratives vying for acceptance. One narrative comes from numerous Neros, consisting of the honourable prime minister, his economic team, the State Bank governor and donor institutions like the IMF. The other narrative is that of the people, who find themselves all at sea against the atrocious economic governance being inflicted upon them. It shouldn’t surprise readers that I am a strong adherent of the latter narrative, something that I have persisted with since the PTI-led economic team took over the reins of economic management.
In case of tomatoes, the closure of an important supply route and the destruction of crops due to rains should have alerted the government that there would be less supply
The evidence of a confounding gap between the Nero and the people was strikingly reflected by the finance minister’s statement that tomatoes were being sold at Rs17 per kilogramme! On the day that he tried to make us believe this absurd story, tomatoes were selling at Rs250 per kg in Karachi (other cities were not too far behind). Just imagine the sheer incompetence that is on display, with the finance minister of a country so removed from reality.
Let us start with this issue of skyrocketing prices of tomatoes. Why is such a fuss being made of tomato prices? What does it have to do with economic governance? For a start, it is a staple item of our food mix, whether poor, middle class or rich. The issue is that when it comes to the poor and the lower middle class, their room to manoeuver in terms of food choices is already limited as their incomes allow for limited options to choose from. Tomatoes prices have taken such a giant leap that either these groups will have to give up its consumption or give up something else. The issue takes a tricky turn when you realize that almost every item in this limited set of choices has seen its price increase. Put another away, even the possibility of substitution between this limited set of items has diminished to a considerable extent. Naturally, the poor are now at pains to afford a meal for bare survival. No amount of government mandated hand outs can ameliorate this predicament.
What does economic governance have to do with it? After all, prices do tend to increase or decrease! Yes, prices do sometimes shoot through the roof. But then what one has to be cognizant of are the reasons that led to such surges, and governments try their best to stem it. In case of tomatoes, the closure of an important supply route (Indian border) and the destruction of tomato crops due to rains should have alerted the government that there would be lesser supply. It should have been a natural course of action, then, to find another source of supply to keep the prices from taking such a leap.
But we find no such course of action. Rather, what we witness is panic, with the PM hurriedly assembling his ‘price committees’ and ‘directing’ them to ensure that the prices are only allowed to rise as per the government decisions. Alas, what can one say about such course of action that has never offered anything meaningful? And importantly, why do we have ‘agricultural’ ministries at the federal and provincial levels? What do they do, and did they ever bother in forming the PM of the impending crisis? What’s the need of these ministries and ‘economic teams’ if they are unable to grasp such basics?
Other renditions of the happy narrative concern IMFs ‘satisfaction’ with quarterly performance of the government, glee over improvement in business rankings and the supposed uptick in investment coming to Pakistan. Let us parse through the fog to appreciate why this joy is unfounded.
The primary reason for IMF’s satisfaction with the government’s economic performance lies in the increase in total revenue collected by the state in the first quarter of this fiscal year, something that the finance minister ecstatically presented to the media. But neither IMF nor the finance minister divulged that a sizeable portion is attributed to increase in tax revenue from petroleum price increases. Again, notice that petroleum prices are an important driver of aggregate inflationary pressures in Pakistan. Whatever revenue was collected, it took a formidable toll upon the people. Governments’ gain, in this case, is peoples’ loss, aside from the fact that it gave further momentum to inflation.
Regarding the ecstasy caused by improvement in ‘ease of doing business’, there is no guarantee that investment will pour in and businesses will suddenly feel confident in terms of future economic prospects. Perhaps the improvement will mark a gradual shift in our economic fortunes, but this is too early to celebrate. Moreover, on-ground realities speak of a different situation altogether.
Last, should the news of increase in investment be taken seriously? Again, it is unnecessary exuberance that is not grounded in understanding of the basics. Simply put, if we compare the inflow with the outflow (like profit repatriation), then we get a worrying picture. In the first quarter of this fiscal (July-September 2019), the net investment (inflow minus outflow) was $885 million! This is not much for a country reeling under external and internal debt. Additionally, bifurcation of this investment data (‘Summary of foreign investment’, available at SBP) reveals that a substantial chunk of this inflow was in the form of ‘portfolio investment’, basically what economists term ‘hot money’, dumped in Pakistan due to higher interest rates rather than investment in brick and mortar that can generate real economic activity and create jobs. Unlike some solid investment (like setting up a factory or shop), it can be pulled out immediately, and has a troublesome legacy. So, I am not sure that there is a cause for celebration.
The above are just a few glimpses of the troubles being encountered by the people. All in all, the tales of turning a corner being foisted upon us are false flags. Rome burns as Nero plays his flute.
The writer is an economist