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Economic governance – points to ponder

It seems that the country’s system is being run collectively by the three main organs of the state where decisions are taken in sync and responsibility of the outcomes are also hopefully assumed jointly. Now, this is a good omen for the country, which not only needed harmony but a joint commitment to some difficult looming challenges (example, FATF) in order to progress – Dividends are already beginning to show on the foreign policy front given the success of the Prime Minister’s recent US visit. The trouble though is that the primary function of these organs is to dispense governance in a manner that improves the life of the common man and this is where they may perhaps be measuring short. Unless the economic governance quickly falls into place the rest may be meaningless. The intentions may surely be noble, but when it comes to the economy, unfortunately mere intentions will not do. The exercise needs to be accompanied by delivery, which requires competence, related experience, and a focus on the ‘real’ objectives and of course practical management. So far, it has been a story of imported bookish theories with realities far removed from Pakistan, an overzealous and mostly unnecessary nature of revenue drives run by managers with little hands-on experience of practical business & industry in the country, and an irresponsible hype creation that has created an air of uncertainty in the markets, whereas, the need was to instead calm them.
Ostensibly, economic mismanagement carries long-term repercussions, because economic cycles can invariably take a long time to correct themselves: The present managers will be well served by studying some very respected work in this regard by the eminent Russian economist, Nikolai Kondratiev, who advises on how disturbed economic cycles in a non-conducive environment can sometimes take as long as 50 years to re-correct themselves. Incidentally, he also emphasizes why nations cannot sustainably develop unless they ensure cheap capital to the investor. In fact, the underlying argument to his work is that how a government is responsible for arranging cheap capital in its economy and what it must do to see to it that cost of capital to its investors is always globally competitive. A cursory look at the successful economies and not only have they all ensured this for their investors, but in fact today are operating at negative interest rates – Still the in the US the Federal Reserve further cut the interest rate last week despite fears of inflation owing to the on-going trade war between the US and China! Closer to home, Turkey recently reduced its discount rate by nearly 400 basis points in one go; India is expected to further lower its discount rate from the present 6%; and China just announced another cut of 100 basis points, with expectations for more in the coming months. For Pakistan to support 13.25% in an economic structure where discount rates have little correlation to real inflation just does not make much sense.
The origins of efficiencies often associated with the private sector management can be traced back to various forms of right-to-ownership. The more secure stockholders feel about their rights to the assets they own and about their rights to fairly deploy them in a competitive environment the more likely they are to expand portfolios or reinvest. Unfortunately, the shock of nationalization in the 70s shook the very foundations of right to asset ownership in Pakistan and our economy never truly recovered from that debacle. A damage further exacerbated by successive governments who coined their economic policies on political grounds, leaving Pakistan’s economic management per se in hands of those who had little or no understanding of how to create a just corporate culture in an evolving economy. As merit got lost in the lust to retain power at any cost and mediocrity became the order of the day, the required policymaking to keep us in the hunt for global competitiveness and achieving sustainable economic progress went missing. Further, somewhere across the journey, governance got inter-twined with personal gains and agendas and suddenly a national culture of get-rich-quick took root.



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PM resolves to facilitate trade with Afghanistan

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