According to the latest McKinsey Global Survey, the sentiment among the majority of business executives around the world is positive, with expectations of strong economic growth in the coming months. With a better than expected GDP growth rate of 3.9% and contained inflation, Pakistan has done well in bouncing back from the challenges it faced at the beginning of the pandemic. Adapting policies quickly to the realities of the pandemic, including fiscal and monetary stimuli, early lockdowns, incentives to export and large-scale manufacturing sectors assisted in a V-shaped recovery and economic growth. The FY 2021-22 Budget is growth-oriented with benefits for most sectors. The low interest rate should continue to fuel industrial expansion and drive demand.
While the IMF predicts the global economy to expand by six percent in 2021, disparities between nations are widening as advanced economies accelerate while developing countries fall behind. The key reason for the difference is access to vaccines. Pakistan’s GDP growth target for FY 2021-22, set at 4.8% by the government, is an important barometer for advertising spend given the strong correlation between the two – and although spends are likely to increase as the economy recovers, they can be impacted significantly based on the volatility of macroeconomic factors.
A few areas include:
1. Energy and Raw Material – A Major Direct Cost: A strong global economic recovery may increase prices and cause supply disruptions. Exchange rate fluctuations could also move prices in either direction.
2. Containing the Impact of Covid-19 Variants: Although businesses are less fearful of it, Covid-19 continues to be a top risk. The delta variant has raised concerns about strict measures, including lockdowns. How quickly a country’s population can be vaccinated will determine the effective containment of the pandemic’s impact.
3. Spill-Over From Afghanistan: The peace process remains elusive and civil war could create an influx of refugees and increase terrorist activities in Pakistan. On the flipside, stability can help realise opportunities in regional trade and energy supplies.
4. Impact of US-China Relations: Pakistan is dependent on the US, Europe and the Middle East for exports and remittances; however, the country’s infrastructural development and future growth is dependent on CPEC. Dexterity in navigating turbulent diplomatic waters will determine if balanced multilateral relationships can be maintained to unlock Pakistan’s economic potential or it will feel pressured to pick sides in a clash of powers.
5. Impact of Climate Change: From 2000 to 2019, Pakistan was ranked by the Global Climate Risk Index as the eighth-highest country affected by climate change. Pakistan is vulnerable to climate disasters that could threaten thousands of lives and billions of dollars in the agricultural sector, infrastructure and the economy. Relevant efforts by the government could help curtail the risk, but events such as glacier lake outburst floods (GLOFs) and flash floods will remain a threat.
6. Changes in Fiscal and Monetary Policy: Inflationary pressures could lead to an increase in interest rates and shortfalls in revenue collection, or IMF dictated policies could increase taxes.
Although economic growth and business optimism is likely to prevail, it is important to consider factors that could quickly change the scenario. The term VUCA, which stands for Volatility, Uncertainty, Complexity, Ambiguity, initially introduced in military education for a post-Cold War era, has gained traction in the business world and influenced strategic leadership styles within different organisations. An article in the Harvard Business Review, describing the traditional budgeting approach, states that “the predict, command and control model is especially ineffective in periods of constant crises and black swan events, like pandemic disease, social unrest, digital disruption, military conflict, terrorist attacks, financial shock and environmental crisis.”
So, how does one plan and budget for growth in an increasingly VUCA world? The answer is perhaps agile budgeting inspired by the philosophy of Agile Software Development. Understanding the principles articulated in the 2001 Manifesto for Agile Software Development sets out the required mindset:
Our highest priority is to satisfy the customer through early and continuous delivery of valuable software.
Welcome changing requirements, even late in development. Agile processes harness change for the customer’s competitive advantage.
Deliver working software frequently (from a couple of weeks to a couple of months) with preference to the shorter timescale.
Business people and developers must work together daily throughout the project.
Build projects around motivated individuals. Give them the environment and support they need and trust them to get the job done.
The most efficient and effective method of conveying information to and within a development team is face-to-face conversation.
Working software is the primary measure of progress.
Agile processes promote sustainable development. Sponsors, developers and users should be able to maintain a constant pace indefinitely.
Continuous attention to technical excellence and good design enhances agility.
Simplicity – the art of maximising the amount of work not done – is essential.
The best architectures, requirements and designs emerge from self-organising teams.
At regular intervals, the team reflects on how to become more effective, then tunes and adjusts its behaviour accordingly.
A key distillation of these principles is the adaptive versus the predictive nature of planning. Agile lies on the adaptive side and takes an iterative and evolutionary approach, identifying high-level milestones but leaving flexibility in the path to reach them – even allowing for changes to the set milestones. Most organisations tend to build on the previous year’s budget spreadsheet within a rigid process and organisational structure. Operating under a static annual budget allows little opportunity to take advantage of, or adapt to, sudden changes or new priorities.
Agile budgeting includes rolling waves for forecasting that provides a business with similar benefits that agile development does for IT. Instead of creating a static annual budget, companies iterate and update budgets in sprints throughout the year to reflect changes in the economy, the industry and even within the enterprise itself.
Agile management requires clearly defining priorities and aligning initiatives and budgets behind those priorities. Near real-time information and close collaboration between teams enable quick decisions and the pivots needed to deliver outcomes. Levers of risks and opportunities are clearly understood with periodic assessments to gauge the need to change.
A CFO of an international oil company in his presentation on Beyond Budgeting – An Agile Management for New Business and People Realities, demonstrates the concept by using an example of how roundabouts are more efficient than traffic lights. He observes that in both cases there is access to fresh information (the amount and flow of traffic) but only in a roundabout can the driver act on the information. However, the roundabout requires better competence and a set of values to self-regulate effectively. Traffic lights can be seen as the more traditional, rules-based way of management, which is easier to follow but not efficient. In a roundabout, there is a different mindset which requires trust to work together for the common purpose to make the traffic flow efficiently.
For agile budgeting to work, the organisation’s culture needs to be conducive. It must foster values, transparency and autonomy. Agile mindsets value collaboration over processes and tools, working prototypes and minimum viable products (MVPs) over comprehensive documentation, responding to change, rather than following a static plan. To sum up in the words of Stephen Hawking: “Intelligence is the ability to adapt to change.”
Amin Rammal is a marketing technology enthusiast and Director, Asiatic Public Relations. firstname.lastname@example.org