A reform agenda
THE incoming government will take over at a very challenging time.
On the fiscal side, we have inflation at more than 25 per cent, budgetary deficit at over 7pc of national income, energy costs and its frequent unavailability a millstone around the neck of industry and consumers, large foreign and local debt repayments that keep us close to the brink, and underwhelming exports.
In the human development area, we have one of the highest infant mortality and female fertility rates even among poor countries, 58pc of kids under five are stunted or wasted, 26 million (40pc) children are out of school, 8m-plus babies born every year for whom we neither have schools nor teachers, and worst of all, 39pc of our fellow citizens living in abject poverty.
In terms of governance, we have a totally ineffective local government system — the government tier that interacts most with people and is supposed to provide services — leaving our citizens without health, education and other basic services.
In fact, all areas of our governance are lacking in effective delivery. For instance, our state-owned enterprises (SOEs) lost around Rs700 billion last year, we have a bloated bureaucracy where there is no consideration of merit, cases linger in courts unresolved for decades, and our police aren’t considered a service but a burden by the citizens.
All areas of our governance are lacking in effective delivery.
Given these persistent problems, here are some reforms the incoming government may undertake.
No other reform will succeed if we don’t urgently undertake population control. The 8m babies being born every year will overwhelm every plan and resource we can muster. Moreover, no economy can prosper if 40pc of its people remain poor and illiterate, and the literate remain undereducated and unskilled.
Next, we need to tackle government financing. After the seventh NFC award, about 63pc of all federal taxes go to the provinces (including AJK, GB and former Fata), leaving the provinces with plenty of cash but the federation with not enough money to even cover its interest payments.
The next NFC award must, gradually over five years, increase the share of the federation to 55pc and ask provinces, districts and divisions to also collect their own taxes. The idea that one government collects taxes and another gets to spend it is a recipe for fiscal indiscipline. Responsible federalism requires that not just authority to spend but responsibility to tax too is devolved.
Another reform should be constitutional local government empowerment that cannot be diluted at the whim of the provincial administration. This means education and health devolved to district or city level as appropriate, and police and infrastructure to the division and city level. It also means elected tehsil, district, city and division mayors who aren’t removed until a successor is elected. Most importantly, these entities should be given funds directly from the federal divisible pool, on a predetermined formula, and they need not depend on the largesse of the provincial administration alone.
Also on the agenda should be reduction of the government’s footprint. This would mean privatisation and robust regulation of all SOEs. It should start with PIA and PSM, already on the agenda, but must include all power and gas distribution and generation companies, and oil-producing and distribution companies. Necessary changes should be made in the law to allow for quicker privatisation (currently it requires at least 460 days to complete a transaction).
Our electricity and gas distribution companies are allowed profits on the totality of their assets, a formula which must be changed post-privatisation. The price these companies fetch will depend on what profits they are allowed post-privatisation.
The government needs to carefully think about the new profit formula and how to divide the surplus profit, after improvements in bill collection and transmission and distribution losses that should accrue after privatisation, between consumers and companies. The ultimate objective of this privatisation should be the establishment of a wholesale market for electricity and gas and a substantial reduction in consumer prices and improvement in services.
Beyond the privatisation of SOEs, we need to also otherwise reduce the footprint of the government. This means, for instance, reduction of ministries and divisions, especially in the areas devolved by the 18th Amendment, and by giving more functions to the private sector.
For example, the Ministry of Food Security can easily be made into an office within the commerce ministry. Or the Ministry of Education, which runs schools in GB and Islamabad, should devolve those functions to the local jurisdictions and just set national curriculum standards for education across the nation. We can also dissolve the Trading Corporation of Pakistan and let the private sector import food commodities.
Much of the rest of the world is able to provide food security to their people without a government company directly involved in trading and imports. The government’s strategic storage of wheat and fertiliser is warranted. However, the government will be able to buy and store wheat and fertiliser more economically if it relied on the private sector.
Given the tight fiscal position, the federal and provincial governments need to cut their development programmes. The money saved can perhaps be given as direct cash transfer to citizens through BISP or provincially-run programmes, and their quantum should be increased to at least 1pc of GDP.
My favourite reform is to give vouchers to poor students to attend private schools. Sindh and Punjab have done successful pilot programmes in this area, and now this programme should be expanded nationwide to all poor children.
Perhaps nothing is more important for long-term economic growth than legal reforms that result in predictable and timely decisions by the courts. This will keep government excesses in check, facilitate foreign investment, and disallow elite interests from prolonging court cases to their benefits.
Finally, the best way to improve governance is to improve the competence of bureaucrats. Civil service reforms should include specialisation, promotion on merit, and mandatory retirement of officials not up to the mark.
If Pakistan is to compete with its peer countries and lift our people out of poverty, these reforms are essential. Otherwise we will just continue to drift.
The writer is a former finance minister.
Published in Dawn, February 17th, 2024