Understanding fundamentals of Economics is very important for analysing Economic performance of a country by a particular team of professionals. There are several theories in Economics which deal with different problems and its solutions, however, all theories are based on some assumptions. Remaining constant of an assumption during implementation of Economic Model is very important. Sometimes a theory fails in presence of some adverse factors whereas it can be successful otherwise if the factors assumed for the theory result accordingly. Therefore, one can observe, a set of some good and bad results in Economy as a reflection of decisions taken by the government of that particular time. However, there are some exceptions, if exist, can make no theory work; Corruption, Incompetency and Unwillingness. When these factors become dominant, individualism in society starts which ends up nowhere but a total collapse; from a Nation to a Bunch of people.
There are a typical set of theories in Economics which can be understood by everyone who have even a little knowledge of daily economic activities i.e. Demand and Supply, Factor of Production, Competition and Budgeting. Determination of Price related to a commodity or service is based on its supply and demand. If demand of a product is more than its supply, price increases and vice versa if supply increase more than its demand. Factors of Production i.e. Capital, Labour and Over Heads are determined according to its availability which makes a country competitive in a set of products and services. However, either factor of production can be imported, if not available locally. Budgeting is an initial tool which describes future course of actions based on past performance and future targets i.e. spending is based on revenues available and its sources. Other factors are based on these discussed theories which include Inflation, Unemployment, Interest Rates, Balance of Payment, Fiscal and Monetary regulatory measures, Taxation and Deficit Financing. Real Value of Economy for a country can be determined if there may be a free economy where prices of all factors are determined by Demand and Supply of the same.
Economy of Pakistan is being experimented by different political parties according to their own economic theories. Unfortunately, no one has addressed real problem Pakistan is facing through i.e. deteriorated real value of Economy
Free Economy doesn’t exist anywhere due to the fact that a government which is representative of people tries to keep general public happy at large by injecting subsidies and with a vision to make country’s national income grow. For example, a country doesn’t have a skilled class of workers can reduce unemployment ratio by increasing government spending on developmental projects which are more labour intensive. However it is equally important for the government to educate workers with relevant skills which are required by the country for comparative advantage. This is called an efficient government with an aim to give relief in short term but with a long term vision to produce an efficient class of workers side by side. Therefore countries develop Short term, medium term and long term plans which can bring revolution if devised and implemented successfully. Countries which do not make medium or long term plans just to get votes for re-election purpose, depends on short term strategies only. This may result in disturbance of assumptions related to economic theories and can create problems in making budgets due to over spending which ends up in a deficit case bridged by loan,instead of increase in source of revenue,with no vision to attain capacity of repayments.
Economy of Pakistan is being experimented by different political parties according to their own economic theories. Unfortunately, no one has addressed real problem Pakistan is facing through i.e. deteriorated real value of Economy. Some governments took loan for non-developmental expenditures whereas others thought to make some cosmetic positivity in economy like controlling currency devaluation by injecting foreign loans which checked inflation figure to lowest together with interest rates. Due to this artificial position purchasing power of consumer increased which resulted in a huge import of luxury items on one side whereas due to strong rupee our products become expensive in international market while price of imported goods were cheaper than that of local which negatively impacted our local industry.This Lack of Long Term Vision by either government has made our country on the verge of National Economic Emergency.
PTI came into power with a slogan of change. Prime Minister Imran Khan is trying to bring country on right track but for said reason he needs to be preciseto choose a perfect combination of short term and long term plan which may bring instant relief to general publicand give stand to Economy of Pakistan in long run with a proper strategy to get rid of Foreign Loans, simultaneously. PML-N brought relief to general public with cosmetic positivity that costed our country in a trap of never ending saga of international loans and its repayments due each year. On the contrary PTI Ex Finance Minister Mr. Asad Umer, tried to overcome this damage by bringing Economy near to Real Economic Values but this has made life of general public more miserable.Both the governments applied short term strategies ending up a devastating impact on either side. Now, PM has changed Finance Minister as he smelled this short coming with his economic policies, we wish the new office bearer, Dr. Hafeez Shaikh, best of luck who has experience of this portfolio already and is a seasoned economist.
The writer is an Economist, Columnist and a Chartered Banker UK