Saturday, May 16, 2020
By: Mohammad Ishaq Dar (Ex-Finance Minister)
Unprecedented food inflation in a short period of first 18 months of PTI govt caused hue and cry all over the country as people are unable to afford the prices of essential commodities of daily use as well as medicines.
According to official data of Pakistan Bureau of Statistics (PBS) the Consumer Price Index (CPI) was 4.2% and food inflation was 1% in May 2018 when PML-N‘s government tenure completed. Since then CPI rose to 14.6% and food inflation peaked at 19.5% in urban and 23.8% in rural areas of Pakistan in January 2020. Such level of food inflation hasn’t been seen in last few decades except in 2008-09 when global financial crisis led to steep rise in commodity prices.
Regrettably, PTI government’s incompetence and failed economic policies destroyed the price stability it inherited from PMLN and ended up at high inflation with massive increase in prices of food items of daily use of common man. Additionally, the mafias within PTI played havoc with sugar and flour (aata) prices and made around Rs 100 billion by artificially raising the prices of these items after mindless export permission of sugar by the economic coordinator committee of the cabinet (ECC), duly approved by the Cabinet.
There has been overall mis-governance and economic mismanagement which has resulted in overall grounding of the economy. The main reasons for alarming inflation are imprudent devaluation of rupee and high interest rate which this government has pursued blindly.
The government, before entering into IMF program, allowed free fall of rupee which triggered inflation, particularly of food prices; then to control inflation it used the monetary tool of jacking up interest rate. This vicious circle continued even after agreeing for an IMF program and rupee/$ rate reached 160s. Interest rate peaked at 13.25% as opposed to 6.25% when PML-N left; reluctantly it has recently been brought down to 9% in three phases in post Covid-19 adjustments which were compulsory and widely demanded by business community in line with international phenomena.
For the purpose of record, PML-N had never agreed with IMF of any condition that required self-slided devaluation of rupee or raising of interest rate. What PML-N prudently agreed in July 2013 was forex reserves accumulation targets and a commitment to maintain positive real interest rates and these principles were religiously followed and targets achieved with margins till IMF program successfully completed in September 2016.
The exchange rate regime pursued by the PML-N government in recent tenure was no different than what it established in early 1999 where the inter-bank market in forex was established which is the sole determinant of the exchange rate. PML-N’s two decades old introduced regime continues to this day, no matter the hype created regarding market determined exchange rate or real effective exchange rate (REER).
Devaluation was advocated by some as the panacea for increasing exports and they should now serious reflect the ground realities. Exports for FY16 and FY17 were $22 Bio each.
Had this formula been followed by PTI in coming FY19 and FY20, we would have ended with exports figure of around $31 Bio by June 2020. But PTI government chose to follow pseudo intellectuals’ bookish theory, who were demanding a slide of $/rupee to 127 to boost exports, and allowed self slide of rupee devaluation but could not manage till it slided to 160s. Soon after it crossed $/127, such pseudos publicaly distanced themselves from PTI’s policy and criticised them on camera. Despite massive devaluation, FY19 ended up with negative growth of 2% with $24.2Bio and in current FY20, there has been no impressive results so far on this account.
However, due to Covid-19 pandemic in last three months, millions have been made jobless and multi millions pushed below poverty line as a result of which people’s disposable incomes have heavily shrunk, most of industry closed and GDP has nose dived; this has led to demand compression and resultantly CPI came down to 10.2% with food inflation at 13% and 15.5% in urban and rural areas respectively in March 2020 with latest numbers of CPI 8.5% and food inflation 10.4% urban and 12.9% rural in April 2020.
PTI government must take urgent monetary, fiscal and administrative measures to curb the inflation, specially food.
Let’s test the actions one by one on these principles.1. There should be one in charge! This is the first thing all teams need to do before attempting to do anything else. Agree on one person who will be the lead of this outbreak control team. Normally this person will be an epidemiologist with actual experience of outbreak control. In my own professional life I have been lead of many outbreak investigations even though I was most junior officer in many instances. Unified leadership is the critical component in any pandemic control strategy as decisions based on evolving data needs to be made on daily basis which requires understanding of epidemiology, data science and outbreak dynamics. It’s just like military operations. There should be a clear authority before you send your troops to an active fight. Everyone should know their role and responsibilities. Any ambiguity in authority cost lives in combat. Responding to a pandemic is no different. I have a simple question: who is the in charge here?
Pandemics are also local. That means pandemics do behave differently in different parts of the same country
2. Decisions should be based on health intelligence. Disease surveillance is not just a daily list of numbers of dead and sick but a step ahead to predict virus next moves based on its observed strengths and weaknesses and understanding of our own vulnerability. No combat leader will rely on computer models but get the real feedback from an ongoing battle and modify his response in real time. COVID19 pandemic is like third World War and this is high stake war of survival of our specie. Our enemy is not Nazi Germany but a microscopic foe which is stealth in infecting and killing us. We are still trying to learn about it so it become very critical that whatever health intelligence we have about SARSCOV2 (the virus which gives us COVID-19) we use it for our greatest advantage. “Are we making or evolving our decisions based on our data”?
3. Decision should be made based on science. That does not mean that political leaders should not be the final authority in the decision making. However they should get the best technical team of disciplines concerned, and listen to them before they make a decision. No doubt we all have technical committees but they don’t sit on the table when the decisions are made. This helps others to ignore their advice. Look around the world and every political leader is flanked by the country top epidemiologists and public health professionals. The technical committees in these countries are not at second or third tier of decision making but have seats in the top decision maker bodies. The simple reason is that our enemy is not a human whose actions and reactions we could predict but a microscopic virus which has evolved our billions of years. Even with top administrative professionals and military genius will need those who understand viruses and know how to manage them in an outbreak setting. “Do we have right technical experts sitting in top decision making bodies?”
4. One of the most important principles of pandemic management is that the government officials should not be seen fighting with each other in public. That confuses public and they ignore important guidelines being issued by the government because they are not sure who is right and who is wrong. “Are our government officials/ministers are being seen in public in conflict in their opinion on how to respond to an outbreak?”
By Hasaan Khawar
The PTI government has been witnessing a roller-coaster ride since the time it came to power. After an initial honeymoon period, reality started to set in, as the government tried to juggle with multiple challenges one after the other. Economic uncertainty prevailed, opposition gathered momentum, and the weak governance in Punjab became the talk of the town.
Realising the gravity of the situation, the government made multiple adjustments through tough economic measures, political concessions, alterations in the cabinet, overhaul of the economic team, and administrative changes. Finally, after 15 months into the government it seems that the situation has calmed down. If there was ever a moment of respite for the PTI government, it is now.
On the political front, the Supreme Court’s decision on the army chief’s extension laid many rumours to rest. The JUI-F dharna fizzled out without any untoward situation. And with Nawaz Sharif in London and Asif Zardari on bail, the political temperature is cooling off.On the economic front, after a turbulent ride, the dust is finally settling. The macro-economic indicators show some cautious optimism, with twin deficits improving, exchange rate in control, an impeccable first quarter review by IMF, donor money pouring in, and the stock market recovering.
On governance, Punjab has been a sore point since Usman Buzdar was appointed as chief minister. Critics started questioning his candidature right away but with time even the sympathisers joined hands in critiquing the Buzdar-led regime, characterised with frequent transfers, postings, indecision and corruption. After months of reluctance, the government recently provided a bureaucratic antidote, with a new team parachuted to Lahore, fully empowered to do what’s necessary to bring back the semblance of good governance. Although the lawyers’ fiasco has not been a good omen for the new team, even this crisis is likely to taper off with time.
And on reforms, the initial narrative of PTI’s unreal promises of five million houses and ten million jobs has given way to talks of more concrete initiatives like the Ehsaas programme, Sehat Insaf Card and Digital Pakistan.
But knowing the political climate of the country, this respite is likely to be short-lived. The army chief’s extension still needs a legislative fix, which might necessitate more concessions for the opposition. The early signs of economic stability have yet to give way to growth and job creation. The fiscal discipline necessary for the IMF programme would mean hardly any money left for real development. And Punjab’s new governance model, which may solve the administrative crisis, is likely to lead to a new political debacle as soon as the PTI MPAs realise that with the CM being marginalised they have also been excluded from the power corridors.
The government should therefore use this time to consolidate its successes and take some strategic decisions to pre-empt any future crises. The first is to look for a more permanent political solution to Punjab’s governance challenge, creating a fine balance between a high performing meritocratic regime and a participatory setup, where legislators are not altogether alienated. The second is to cement the fissures within the ruling coalition. There is a strong feeling that too many outsiders are calling the shots, with party stalwarts playing second fiddle. Thirdly, there is an immediate need to address the more difficult structural economic challenges like state-owned enterprises and circular debt to create much-needed fiscal space to deliver on the ambitious electoral promises.
The government must realise that at best, the present signs of stability take us back to 2017 and that’s not going to fly in the next elections. If the PTI is serious about creating a lasting legacy, this is just the starting point of a very long road ahead.