The entity is bankrupt: surgery is required – I – Notice

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I lectured to a graduation class at Hamdard University on December 15, 2021, which to my understanding was a private meeting. However, a few hours after this conference, some images of my conference were shown in the national media. The theme of my lecture was the past, present and future of the Pakistani economy from 1970 to 2020. The half century. One of the slides from the presentation which is quoted all over Pakistan read:

“• The entity is bankrupt and the store is not in operation.

• For a State, this is not a problem; restructuring will correct it, surgery is required.

It is very unfortunate that the first line has been taken up without referring to the second line where I stated that the aforementioned principles must be applied differently in the case of a State. The first word “bankruptcy” in this sense means that Pakistan’s predictable foreign exchange account will not be able to meet current liabilities and more loans will be needed to repay the current loan. In other words, I don’t see the current account being positive in the next decade if the fundamentals of exports and imports stay the same. This is not a desirable and sustainable position and each new loan will have more difficult terms with the continued deterioration of the exchange rate against the US dollar. There is no room to be complacent. Unless we restructure the basic framework of our economy and society, there will be a continued deterioration in the exchange rate, ultimately leading to increased inflation and no investment in sustainable employment for the people. . As stated in my speech, the worst year in this regard was 2018, when the trade deficit hit a level of $ 34 billion. There have been comparatively better years in 2019 and 2020; however, the signs in 2021/2022 are not good. A current account deficit of over $ 10 billion is expected. This is not a good sign for the current year and the years to come. My discussion at university and in this document is not about short-term and immediate solutions. The emphasis is on a durable, long-term solution to pull Pakistan out of these “bailouts” every five to ten years. In my opinion, a bailout is extended to an entity that is not able to generate enough resources on its own.

Import side

In my opinion, the focus was not on import invoices to Pakistan. In the past, we have tried to manage import invoices by levying duties and providing protection to industries which are sometimes inefficient on their own. It is necessary to base the analysis of the import sector at zero.

The first item that needs serious consideration is the import of energy. This includes petroleum, coal and RLNG. The basic reality is that this import of energy is intended (i) for the production of electricity, (ii) for transport activities and for other purposes in trade and industry. Over the past two decades, Pakistan has become increasingly dependent on the import of petroleum or coal for power generation. This is explained by the fact that there was no substantial development of hydropower after Mangla and the extension of the Tarbela dams. During peak seasons, we need around 24,000 MW at the current level of industrial production. A very large part of this generation is made from imported fuel. In addition to other factors, it is also a fact that there are average line losses of over 10% in the system which have not been reduced over the past decades. This means that the cost of around 2,400 MW adds nothing to the national economy. It is not a sustainable situation. The solution is the immediate privatization of discotheques with very restrictive conditions according to which their profitability will be based on the reduction of online losses. The current system of operating discotheques is extremely damaging to the economy.

The second component is the national campaign for energy conservation. In Pakistan, we see no movement to reduce unnecessary consumption. In our country, almost all of the city’s markets open from 11 a.m. and a large number of these stores remain open even after 10 p.m. Sufficient daylight is used. This uncivilized manner should be avoided immediately and all markets should be compulsorily closed before sunset.

On top of that, there is no movement or national energy to reduce energy consumption for private transport. There has been a trend in the recent past for the use of four-wheeled vehicles in the city. Pakistani cities can be unique in this sense with the number of four-wheeled vehicles in the city. The use of such vehicles increases the overall consumption of our oil bill. It is strongly suggested that a special motor vehicle tax be levied on all four-wheeled vehicles to offset the cost of expensive energy. Pakistan should decide whether it can, as a country, afford to afford luxury to a few elites at the cost of steadily rising costs of living for the middle and poor classes.

Another big problem in Pakistan is the wastage of gas as a household fuel at very low rates even for consumption in large quantities. In order to save fuel, it is recommended to reasonably increase the rate of gas for domestic consumption beyond a certain level of use.

Energy-deficit countries have increased their exportable surpluses and established their industrial base in coastal areas. In Pakistan, there is a concentration of the exportable goods industry to the north. This requires the cost of transporting the fuel from the port up to about 1000 miles north. It is therefore strongly suggested to focus on establishing surplus exportable industries in coastal areas to reduce the unnecessary costs of transporting energy to these areas and then getting the products from there to the coast. China is a large country but it has developed its exportable surplus activities in its coastal areas. This is an essential economic policy issue for Pakistan.

(To be continued)

Copyright Business Recorder, 2021


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