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THE budget proposals presented a week ago together with the Annual Plan lack a sense of realism as well as action plans on how economic growth will be achieved.
The government’s approach appears to be to throw money at key sectors — where the ministries and executing agencies, both in the centre and the provinces have a proven incapacity. Similarly, there appears to be no plan to halt the gradual downward drift of the rupee. This is like spelling out a hope and then praying for rain.
Let’s get real. The present situation of governance in Pakistan is in a state of near paralysis. This is for three reasons: lack of political will, lack of fiscal space and the fact that real governance is in the hands of a civil service bureaucracy that runs on operating systems rooted in the 19th century which are unable to respond to the requirements of the 21st century. From this enormously handicapped position what would be a realistic economic ‘to do’ list for the ruling coalition for its remaining term — even if the sole objective is to deliver some results in time for the next elections? Let me stake out a path that involves working on only three or four big ticket items.
After four wasted years, reforming the civil service or the power sector are now best left to the new government which will be in office by mid 2013. In the meantime, by doing two things the ruling party and its allies can curtail the paralysing power outages within weeks. One, that every single installed megawatt of thermal capacity should be enabled, provided fuel and brought into operation. Two, adopt a zero tolerance policy towards power theft and a ‘30-day tolerant’ policy on nonpayment beyond due date. As uninterrupted power is restored it can create, at the very least, $6m in value added each day — potentially adding one percentage point to GDP growth.
Energy shortages have also decimated our exports. Unfortunately, at this stage given little exportable surplus and the global environment, increasing exports appears unlikely in the short term. That should be put aside for the next government. Nevertheless, decreasing imports has the same effect on GDP growth in that every dollar of import reduced brings one dollar of growth in the economy. It also helps arrest the slide of the rupee.
Pakistan’s imports in the present year are likely to cross $40bn. At $15bn, the single largest item is petroleum. Within petroleum, diesel and furnace oil constitute the lion’s share of our requirement.
The number of trucks plying on highways is the second area generating colossal economic waste. If this freight is put on the rail system, I am informed by experts that this single action will cut the expense on high speed diesel by 30 per cent.
In the same stroke the government may allow diesel and furnace oil imports from India. Together these measures will lower the import bill, relieve stress on our foreign exchange reserves and add another percentage point to GDP growth.
Turning now to the big battle against shrinking fiscal space, and I’m afraid the government’s bumbling is at its worst. There is even talk of approaching the IMF. Let’s stay real. Given our recent track record with the IMF, the present euro debt crisis and Pakistan’s state of relations with Nato, what will be IMF’s most likely response to our overture? ‘Go back, implement VAT and then we’ll sit down for a chat.’
That buck is best passed to the next government. Pushed into the corner, the government will quickly come face to face with the most likely and the worst-case scenario: borrow from banks and indiscriminately print more money. Result: increasing inflation, rising unemployment and a plummeting rupee. Everyone will lose, particularly the underprivileged and the next government that will inherit the mess in 10 months time.
Is there an alternative path? When options are tight what else can you do? You look for low hanging fruit; for some quick wins.
Some time ago there was a list that was shuttling back and forth between the Prime Minister’s Secretariat and the FBR offices on opposite sides of Constitution Avenue. Then all went quiet. On it were 776,000 identified prospects that own property, take multiple foreign trips abroad, own cars, have bank accounts but do not fulfil their income tax filing obligations. For too long they’ve enjoyed a free ride.
There is an estimated Rs450bn immediate potential here that can open up fiscal space and if crafted intelligently, can be a master political stroke by the ruling coalition to deliver in time for the next elections. Put to good use, the recovered money can help ease inflation, increase output, create jobs and bring about a reduction in discount rate — adding another percentage point to GDP growth.
Who knows, it may even prove to be the wave on which the ruling coalition can ride into the next election but for that it must start taking positions — and action — on the above issues before others bring them into the political arena.Taken together these few items could in a relatively short period raise our GDP growth rate to six or even seven per cent and perhaps position Pakistan, in these times of a global financial crunch, as an emerging market to be taken seriously by the international financial community.
At that stage, the reforms in civil service, power sector and value added tax can be unfolded, which become the second-post-electoral wave and send out a signal that better times are ahead.
The writer is an international business strategist and entrepreneur.
