Speculators knew that the government with limited reserves could not play the game for long. That is when the State Bank pulled the second lever; it began to raise interest rates.
When there was no let up in the capital flight the government put a lid on the amount of cash that could be taken out. But still the rupee continued to slide so the government decided to approach the UAE government for the remaining $800 million proceeds from the PTCL privatisation to build reserves. Pakistan’s economic competitiveness has been in steady decline over the years.
Today the country ranks 133rd out of 148 surveyed. This means that most goods are now not viable for production in Pakistan and the few that are, are fast losing their shine. This applies to not just manufactured goods but many of our farm products as well.
In a free trade world, this situation places Pakistan at a major disadvantage. A free trade agreement with China has brought an influx of Chinese goods but very little has gone in the opposite direction. Going forward, the situation for Pakistan looks set to worsen.
Two factors have brought us to this pass. One is the failure to develop indigenous energy resources. Today a substantial part of our import bill is fuel. The second and far more serious has been our failure to develop efficient, world beating industries in some key sectors (with few exceptions like cement, fertiliser and textile spinning).
The path taken by Japan and other high-performing Asian ‘Tiger’ economies, all of which were energy deficient, required them to first accumulate capital, then deploy that capital efficiently in a few sectors and finally pursue rapid technological catch-up with the West.
This was done on the back of a high standard of national education and a high domestic savings rate. In Pakistan these factors were not present.
A third ingredient was central planning, which in laissez faire capitalist economies plays a limited but vital role. Once a national economic vision is spelt out, the Five Year Plan is the instrument that helps direct scarce economic resources and necessary interventions supported with enabling policies towards sectors that have to be built.
Pakistani firms also do not spend much on R&D, preferring instead to buy licensed technologies or turnkey industrial solutions.
So at this stage can anything be done? The difficulty is that after decades of inaction and decay we are left with very little strategic space to work with. The upside is that Pakistan’s large domestic market still makes this an attractive place to do business.
Selecting winners and losers, resisting pressure from vested interest when their privilege gets taken away, refusing to backtrack once a decision is made, preventing mission creep, ie saying ‘NO’ to pressure for inclusion of more and more sectors to the list, implementing the necessary reforms, bringing the full force of law to deal with violent religiously inspired groups that impose an economic cost on business activity and shatter confidence.
The commodity most needed is political will, and as of now, that is the commodity that is in short supply.