KARACHI: Dr Ishrat Husain, former governor of State Bank of Pakistan has said that bad governance is the root cause of all economic ills.
“The economy is facing lot of difficulties due to bad governance,” he said at a seminar on ‘Pakistan’s Economic Outlook – 2013 & Beyond’ organised by the Institute of Chartered Accountants of Pakistan (ICAP) on Tuesday evening.
Dr Ishrat, who is also Dean and Director of Institute of Business Administration, disagreed with the doom and gloom painted about the economy by other speakers, saying the situation is not as worst as being projected. “There is plenty of room to improve the system by improving good governance in law and order, education and energy,” he added.
He said that it was an issue of governance that authorities were not taking action against tax evaders and criminals. “Due to lack of enforcement the criminals feel comfortable,” he said.
The economic situation is much better right now, he said and added that the country had witnessed a crisis like situation when oil ships were anchored on the ports and government had no money to pay them in the past.
He neither criticised the present government setup nor supported it, but said that the democratic system should be given opportunity for sustainable economic growth. “We did not allow democratic system to flourish,” he added.
Further, Dr Ishrat said that 50 percent population of Pakistan is living in an urbanised society, and most of them belong to middle class. Besides, a big strength of youth would set direction for better.
To a question about rupee depreciation against dollar that is creating difficulties in capital investment for manufacturing sector, which would result in decline in exports, he said rupee depreciation will help in increasing exports. He said that the nation was blinded by short-term measures and frequent changes of heads at SBP and finance ministry also resulted in economic instability.
Syed Salim Raza, another former governor of SBP, also stressed upon strengthening of the economic institutions and their salvage from political intervention for achieving sustainable economic growth.
He said that mismanagement was main challenge of the economy not the resources. He said that the country had patchy record for sustaining reform and maintaining gross domestic product growth. Raza quoted that during past ten years, the GDP growth was at average of six percent in first five years and three percent in the later years.
The former SBP governor said that reversing current slowdown would need urgent resolve by the government (probably coalition government in the next setup) on the issues including: energy strategy, domestic debt spiral/ stemming public sector enterprises (PSEs) rot, and equity and universality in tax application. “Policy acknowledges that exemptions encourage evasion,” he added.
He said that though consumer price index (CPI) based inflation came down to 7 percent from 25 percent during FY08 to FY13, other indicators witnessed pressure during the period. Salim Raza said that investment to GDP declined to 12 percent from 18 percent and domestic savings came down to eight percent from 14 percent during the period.
He said that exchange rate pressure required urgent foreign inflows from coalition support fund, 3G auction and funds from PTCL until new IMF program comes in place. Raza also suggested that country should achieve cross-party consensus on possible restructured program.
He said GDP growth at seven percent annually by 2017 is only possible by increasing tax to GDP ratio to 15 percent per annum and reducing peak energy gap by additional energy sources through long-term liquefied natural gas contracts and developing coal and hydropower resources.
He advised that PSEs should have their own boards or be privatised. He said that provinces had about Rs686 billion surplus deposits in financial institutions and the savings should be transferred to industrial centers.
“The only assurance of policy continuity and therefore sustainability of economic growth in coalition governments is strength of economic institutions such as regulator, planning bodies, contract enforcement; and progressive devolution of revenue and expenditure authority to most relevant tier of government,” he said.
Syed Shabbar Zaidi, former president ICAP, said that the government would enter a new arrangement with IMF or US for dealing with dollar shortfall of about $10 billion
He said that the government has not taken measures for resolving rupee shortfall or fiscal deficit, while rhetoric and politicised debate on energy subsidy are eating up over Rs800 billion a year.
“The temporary foreign inflows will balance the dollar books and exchange parity during 2012-2015 to demonstrate that the new government is better than the past,” he said and added that $5-10 billion would be enough for creating the sentiment.
The rupee depreciation would help the government to estimate revenue collection about Rs2700 billion, he said and added that in this scenario the life of common man would further deteriorate that could result in a bigger tragedy.
He said that government should generate additional Rs800 billion with 10 percent increase annually from taxes and from untaxed sectors.