That which works
THAT which works, requires not a stamp of approval.
Flattery undeniably massages the ego and is highly addictive, but before we again get complacent, would it not be wise to hesitate and cast, even furtively, a look at the flatterers, and read the fine print? Let’s not repeat history; let’s not be fooled again — once bitten twice shy.
Not very long ago, and the similarities are mind-boggling, during the days of the previous IMF programme, the usual suspects, Bloomberg, Wall Street Journal, Moody’s, World Bank and the likes, went gaga over our economy, and the predictions, amongst a lot of other over praise, were that we would be amongst the top 20 economies by 2030.
Back then, as a fast food chain’s slogan aptly puts it, we were loving it; and then suddenly, we were not.
In February 2017, Bloomberg was pleasantly surprised by Pakistan’s economy — yippee! — but suddenly in May 2018 Bloomberg was of the view that Pakistan’s economy has gone from bad to worse; Bad! What happened to the pleasant surprise?
Who amongst the outsiders do we believe is actually right about our economy?
In February 2017, the Wall Street Journal noted that Pakistan’s middle class was soaring as stability returns, but then in October 2019, it was of the view that the middle-class person is dying. Seriously, from soaring to dying in two years?
In February 2017, Forbes was of the view that Pakistan was getting ahead of India. In mid-2019, their headline was ‘IMF will either make or break Khan’s Pakistan’.
And the usual suspects are back, and as usual their timing is impeccable — the ‘IMF reaches staff-level agreement on the second review of Pakistan’s economic programme under the Extended Fund Facility’.
But this time around, would it not be wise to be weary of the flatterers and the traps they set. Considering the number of friends we have on the globe, it is unlikely that the interests of those who praise us are aligned with the best interests of Pakistan.
And should we not read the fine print, before we break out the champagne?
Recently, Credit Suisse came out with a glowing report on Pakistan’s economy; albeit they did spoil the taste a bit by talking about significant challenges that lay ahead. However, more to the point, substance over form, at the end of it what exactly do they recommend? To invest in three- and six-month T-bills, and actually caution against investing in exposure greater than 12 months tenors! So what do they expect will happen after 12 months?
Notably, their recommendations for equity investment are limited to a grand total of five companies, of which four are banks. And hot guys should not worry, since probably because of them, Credit Suisse believes the rupee could appreciate by four per cent and that the Central Bank is likely to keep rates unchanged at 13.25pc.
One word, wow!
The World Bank report from 2019 — Shaping the Future — is once again making the rounds. Somewhere in the report the bank believes that we can be a $ 2 trillion economy by 2047. In 2017, a Big 4 accounting firm predicted that Pakistan will be the 20th largest economy in 2030 at $1.86tr; so are we going to have another bust right after that? Duh!
And by the way, the World Bank, to achieve the targeted size suggests that we reduce making babies by at least half. Side notes also include, greater private investment, improved firm and labour productivity, more foreign direct investment, higher adult wages, improved education outcome, and this one is a classic — minimised government borrowing from banks.
So IMF does not want the government to borrow from the central bank, and the World Bank wants it to minimise borrowing from banks.
Alarmingly, the two don’t seemingly agree either; the IMF in October 2019 predicted Pakistan’s economic turnaround from 2020, whilst the World Bank predicted recently that the economy would languish at 3pc; unless of course, the IMF believes that 3pc is a turnaround!
By the way if we are relying on others, do a Google search — there are those who believe our economy is sinking, faces a tough year ahead, and faces headwinds on the path to recovery. Rationally, we should focus more on the bad news — analyse risks for materiality and probability, and devise remedial measures. But no, we simply hate criticism, and we just love the flatterers.
The key question is, who amongst all these outsiders do we believe is actually right about our economy, and more pertinently, why?
For my money, only if we are producing and exporting more, quantitatively — more cotton bales, more clothes, more shoes — is when the economy works; other indicators and other peoples views are an utter waste of time.
That which works, shows!
The writer is a chartered accountant based in Islamabad.
Published in Dawn, March 18th, 2020