Shortcut’s Short Legacy

I am still amazed at so many people still holding Musharraf-Shaukat team in high esteem for building a house of cards that came crashing down within seven months of Shaukat Aziz disappearing. I will not use some twisted economic logic to justify my contrarian point of view rather present data and information from other so-called credible sources to highlight the havoc played by the earlier regime. (However, this does not mean that I support the current regime or their management or lack thereof of the economy)

Some people had pinned high hopes on Shaukat Aziz since he was from Citibank. Those of you who don’t know, and I don’t want to engage in unnecessary character assassination here, he was a Private Banker helping corrupt dictators, rulers, etc in managing and hiding their looted wealth. He was also under investigation in US Senate as Asif Zardari had laundered away his millions under his watch.

Now since we have so much faith in western financial institutions and their employees regardless of the fact that these very employees have recently brought these institutions to the ground, I will here only refer to Citibank research report on Pakistan dated September 8, 2008 written by Citibank resident economist in London Mushtaq Khan.

Rupee weakness is a legacy of flawed policies
Although the trigger for recent weakness can be traced to adverse political development, we believe sentiment reflects economic fundamentals. The underlying problem in Pakistan is simple: the current account deficit inherited from the previous government has become unsustainable.

The consumption-led growth engineered by the policies of Shaukat Aziz was easy to initiate using cheap and plentiful credit, and self-serving – high growth, strong FDI and the stock market boom were used as trophies of success – but would invariably end in tears (rising inflation, the power shortage, a growing income divide and, more recently, the FX crisis and the stock market collapse). With little policy focus on exports, Pakistan’s ability to generate FX was quickly eclipsed by its demand for FX, as the  consumption-led growth provided a tremendous boost to imports.

As per State Bank of Pakistan data


Now look at the last two lines of the table. It shows in what sectors was all the FDI coming. Almost negligible in export oriented sectors and heavily weighted towards consumer sectors. Without any increase in export revenues, you can’t go on increasing imports forever.

The previous government did not focus on the export sector, but we feel this will have to change. ….. textile export growth has been unimpressive, while non-traditional exports like carpets & rugs, sports goods, leather items, and surgical instruments have not fared well during the previous regime. In the 1990s, non-traditional sectors were actively encouraged to reduce Pakistan’s dependency on textiles.

In the 1990s: Is Citibank implying that previous democratic governments were actually trying to improve Pakistan’s export base but all those efforts were wasted during Musharraf-Shaukat Aziz regime? I guess so. But isn’t that blasphemy to actually praise the earlier democratic governments and fault the Musharraf-Shaukat regime?

After taking Econ101 you can justify that consumer credit was the engine of growth etc. but what the numbers say is that the engine had actually been moonwalking _ giving the illusion of going forward but actually going backwards. We are actually in this crisis because of those consumer oriented policies.

In Yesterday’s DAWN, Shahid Javed Burki (a highly respected economist) had this to say

This is what the country did in 1999 and gave up growth in favour of stabilisation. It was in an effort to pick up growth that the Musharraf administration loosened fiscal and monetary controls over the economy, laying the ground for the current crisis.

The [Planning] Commission was overshadowed by the Ministry of Finance during the Musharraf period for the reason that the man who headed the ministry for the entire period did not have the self-confidence to ask for advice.

During his tenure economic policy making became ad hoc, subject to personal whims and pressures exerted by powerful groups of lobbyists.

I rest my case.


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