“Wheat crisis a result of figure fudging”

Q. The food inflation that we are experiencing clearly shows that domestic production and supply have not kept pace with economic growth. In the given situation, should we allow the economy to slow down?

A. Shaukat Aziz’s economic team had made it a habit to exaggerate figures in order to achieve high growth. This wheat crisis is a result of that. The government has fallen victim to its own manipulation of data. But the power shortage will affect growth more than the wheat crisis. Once the new harvest arrives the wheat problem will abate but the power crisis will persist for two to three years.

Q. What will be the economic fallout if the economy overheats?

A. Of course no economy can afford to allow inflation to creep up. But the question is how much control the government has on the economy in order to keep inflation within acceptable limits. So far the government does not appear to be in control as food inflation is soaring.

Q. Can we allow the economy to cool down, with negative impacts on both employment generation and per capita income?

A. No economy can allow these things. It’s not a question of your choice. When the economy cools down it means it goes into a recession and recession means unemployment.

Q. Then how does the government deal with this situation?

A. Removing the reasons due to which this situation has arisen. Inflation has to be curbed. Inflation is being imported because of higher oil prices but part of the inflation is also fuelled by the government’s own spending. While the State Bank is following a tight monetary policy, the government doesn’t have a tight fiscal policy and the latter is counteracting the former. That has to change and it can only change if the government curtails its current expenditure.

Q. Since we have failed to produce exportable surpluses, how can we finance the current account imbalance?

A. So far the government has been financing it on the basis of foreign investment and receipts from the sale of assets, for example Pakistan Telecommunications Company Limited. But when these foreign companies start remitting their profit back home a reverse remittance will begin. In fact, this has already begun and is now close to a billion dollars. If the political situation worsens the foreign investment will also dry up. The only way left to meet the current account deficit is to increase exports. But this will require a very resurgent manufacturing sector. These are the areas I think the government will have to concentrate on.

Q. The budget deficit is also expected to widen with the expected slowdown in the economy. One solution being suggested is to curtail development expenditure…

A. Whenever there is a resource crunch, development and social sector expenditure is cut. Now there is a need to move on to another paradigm and cut current expenditure, particularly defence. The economy cannot survive with further collapse in development expenditure. Social statistics and social indicators are already very poor and the infrastructure is virtually falling apart.

Q. What is the economic impact of official efforts to keep fuel prices under check?

A. If the government does not raise oil prices the budget deficit will increase and if it increases the prices the immediate impact will be more inflation. A hike in oil prices will also raise the cost of production of industry, which will make exports uncompetitive. There are only two ways to tackle the situation: pass on the impact of rising oil prices to consumers or cut current expenditure drastically.

Q. A large portion of development expenditure is being directed towards expanding energy infrastructure at a time when we are running short of both electricity and gas…

A. I think that the development expenditure is not going to the energy sector. There is a scramble now to purchase thermal plants. Of course when you are in a crisis and you want a thing very quickly, the price will be very high. And Pakistan is paying it because the government for eight years simply forgot that there is a need for power to run refrigerators, air conditioners and other appliances being sold under consumer finance schemes. Energy is only one item under the ambit of infrastructure. There is a need for roads and railways. Modern economic activities take place in cities. If city roads are broken, sewage is overflowing, garbage is all over the place and public transport is in shambles, it is not conducive to modern economic activities. It is not a question of just expanding infrastructure. It requires complete rehabilitation.