Two Holidays (24082008)

The government, facing a liquidity crunch, is all set to announce two weekly holidays in its next cabinet meeting to stave off the rising petroleum bill, Finance Minister Naveed Qamar is reported to have said during a chat with a select group of journalists. "This will help combat the escalating oil import bill, which is adversely affecting the current account deficit. We want to discourage the use of oil, especially high-speed diesel (HSD), in the country and two weekly holidays is a step in this regard."

Such is the intellectual bankruptcy of our policy makers that they are unable to think beyond holidays, anything to take an extra day off! Karachi governor has always exhibited his "love" for education by closing education institutions in the city for slightest of the excuse and now the federal government is exhibiting its love for work ethics by proposing absurd measures like a two-day holiday.
Our politicians need to pull their heads out of the unmentionable places they have tucked it in and for once try and think like ordinary working citizens and businessmen, alas, if we had greater number of politicians from working and middle class then we would not have the kind of culture we see today in the government which is reminiscent of the French Queen's advise to its starving masses in the face of shortage of bread to eat cake.
The cost of doing business is already spiraling and with a two-day paid holiday the cost of labor and salaries will further increase by 16%, furthermore, how exactly is the government going to ensure that in places other than government offices; Other businesses like private factories, private goods transport and shopping centers will not close down. This measure is not unlike the previously failed measure of trying to get shops closed for saving electricity. Furthermore, if the country indeed closes down for one extra day than how are the millions who live on daily wages to survive? Assuming a very nominal 2% of the country's population depends on daily wages, i.e., 3mn people who earn 200 rupees a day this will cause a loss of 31 billion rupees to the poor people in a year, this will mean that for that many days (52 extra holidays) so many children may go hungry, is this what really the government wants and will the government save more than 31 billion rupees in fuel subsidy?
The people in the government simply appear to be clueless on how to handle the crisis, the central bank has one recipe and that is increasing discount and interest rates, which has so far proven to be disastrous, the finance ministry has yet to give any confidence or inspiration to the nation with its policies. The problems are simple, the government is spending too much money due to heavy oil imports, weakening rupee and unabated consumption. The only short-term way out of this is to increase the price of the oil and reduce the subsidies, this is the most basic and fundamental of principle of economics, let the price determine an equilibrium between demand and supply, nothing else will work. If the people cannot afford to pay for oil they will not consume it and if they can afford it then let them pay for it. The other measures that can help government curtail consumption is a restriction on use of credit cards which are fuelling the consumption at retail level, as well as, more stringent Debt: Equity ratio for purchase of consumer goods like cars, air conditioners, etc.
If anything the interest rates need to come down because the biggest borrower is the government and by increasing the interest rates the central bank is just reducing the fiscal space available to the federal government. Furthermore, the interest rates are directly impacting the cost of doing business in the country and will have an adverse effect on the export compatibility of our products. The song and dance about the depositors getting lower returns is irrelevant at this point of time because the country's economy is facing challenges where every one must pay a price, besides majority of depositors are firmly anchored in Pakistan's economy and have no option to move their savings out of the country, so this is not a real threat. The real threat is due to the lack of confidence in the ability of the central bank to manage the foreign exchange position, in this the bank has completely failed, once the confidence in the currency is restored the confidence in the capital markets will return, which will reverse the flight of capital that will help the economy back on the track, in the mean time, the government needs to raise foreign exchange through international markets to bridge the short-term gap. Simple Stupid.