Sayem Z Ali
Saturday, March 23, 2013
From Print Edition
PML-N’s 2013 elections manifesto brings to mind the fairy-tale ‘Alice in Wonderland’. “If you don’t know where you are going, then it doesn’t matter which way you go”. This seems to be the dilemma of the PML-N’s 3E policy which aims to “transform Pakistan into one of the top ten richest economies of the world”.
This policy objective alone showcases both the understanding of the party’s policy wizards of the ground realities facing Pakistan today (crippling energy crisis, record debt, record unemployment) and the seriousness of the PML-N leadership to tackle the momentous challenges ahead.
Big words need to be backed up by a credible plan, otherwise they sound no different to Raja Rental’s promises of ending loadshedding in two years. The credibility of the PML-N promise to eliminate the energy crisis within two years and add 10,000MWs power generation within five years remains a question mark. The main thrust of the PML-N’s energy plan is to pass on the higher cost of power generation to households and businesses.
This essentially means that the price of electricity will be increased by another 50 percent, from Rs9.5 to Rs14 per unit. So, households consuming 100 units would pay Rs1400 under the PML-N government compared to Rs950 today.
This plan will no doubt appeal to the IMF but it will also lead to another cycle of record inflation, rising cost of doing business and more job losses. This is exactly the same strategy pursued by President Zardari’s government, which raised the energy bill by close to 100 percent in the last five years.
However, the energy crisis has only become worse and power theft has multiplied manifold. So how will the PML-N succeed when the same policy implemented by the PPP has been a complete failure?
The other central pillar of the 3Es policy is to raise the tax-to-GDP ratio to 15 percent within five years. What policy measures the PML-N will enforce to achieve this target remains a complete mystery. How will the PML-N broaden the tax base without taxing the rich agriculturist, property tycoons and stock brokers? Unfortunately, the manifesto does not contain a single word on these taxes on the elite.
How will the PML-N government document the economy without introducing VAT or RGST? But again there is not a single mention of VAT or any other measure to document the economy and raise tax revenue. The PML-N also promises a reduction in tax rates for big banks, oil companies, cartels and wealthy individuals. So how exactly will it raise tax revenue?
The tax cuts to big business and wealthy individuals introduced by the first Nawaz Sharif government in 1990 led to a decline in tax collection. Tax-to-GDP fell from 14.3 percent of GDP in FY90 (fiscal year ending June 1990) to 13.3 percent of GDP in FY93.
The second time a Nawaz Sharif-led government came to power – in 1997 – it repeated the same mistakes, leading to the same results. Again tax collection declined from 14.4 percent of GDP in FY96 to 13.3 percent in FY99.
The performance of the outgoing Punjab government shows that the financial wizards of the PML-N have not learnt from their past mistakes. Punjab’s revenue has declined to 0.3 percent of GDP in FY12, down from nearly 0.6 percent of GDP in FY08 – when the PML-N took over the government.
We are told that steps will be taken to reduce tax evasion and raise tax revenue. But this would have sounded more credible had the party leadership taken some action against the 73 (out of 106) ‘honourable’ parliamentarians of the PML-N who did not file tax returns in 2011 – as highlighted in the Centre of Investigative Reporting (CIRP) report. Not only has the PML-N not taken action against these tax cheats, it has also promised them tickets to contest the coming elections.
The focus of the PML-N’s governance reforms is on re-introducing the local government system within six months. The abolition of the local government system by the PML-N has led to a sharp deterioration in service delivery to households in Punjab.
The Punjab Millennium Development Goals report, jointly produced by the UNDP and the Punjab government, shows that over 6.8 million (seven percent) people across Punjab did not have access to clean drinking water in 2011, a sharp increase from 3.5 million (four percent) in 2008.
Similarly, infant mortality rate has increased to 82 deaths per 1000 births in 2011; a sharp increase from 77 in 2008. That means 523 children die every single day in Punjab due to the lack of proper health facilities. A child born in Ethiopia, Rwanda, Sudan and Zimbabwe has a much better chance of survival.
It’s good that the PML-N has learnt from its mistake and is now willing to make amends by reintroducing the local government system. This will be critical to its target of achieving 100 percent enrolment in the next five years.
In the absence of local governments, the net enrolment rate in Punjab has dropped in the last five years to 61 percent. That means that under the PML-N government in the last five years, the number of children without access to education in Punjab increased to 11.5 million. This is a sharp increase from the 10.1 million children without access to schools in 2007, when the PML-N took office in Punjab. (Reference: UNDP Punjab Millennium Development Goals)
In conclusion, the credibility of the PML-N’s 3E manifesto remains a big question mark due to a weak policy framework and more importantly the party’s extremely poor track record on the economy. Average growth during Nawaz Sharif’s two stints in power was only 4.1 percent (SBP Handbook of Statistics 2010). This gives the PML-N the distinction of having the worst ever record on the economy compared to all civilian or military governments of the past including those of Ziaul Haq (5.9 percent), Musharraf (5.1 percent) and even Benazir Bhutto’s two stints in power (five percent).
During Nawaz Sharif’s second stint in power – from February 1997 to October 1999 – the economy grew at only 3.1 percent, which is the slowest pace of growth for any government on record. To give you a perspective it is exactly as bad as the performance of the just-concluded PPP-led coalition government, with average growth of 3.1 percent between FY09 and FY13. So while the PML-N manifesto rightly criticises the dismal performance of President Zardari’s five years in power, the party compares its own equally woeful performance with the top ten richest economies in the world?
The front page poster of Nawaz ‘Top Gun’ Sharif strapped up in the cockpit of the JF-17 Thunder fighter jet, about to lift Pakistan to the level of the top ten richest countries in the world is truly a marvellous sight. But it is hard to ignore the fact that all previous attempts at similar take-offs have only led to a crash and burn for the economy.
Under the exceptionally talented leadership of the PML-N, the citizens of Pakistan today are far worse off than the citizens of the poorest Sub-Saharan African countries in terms of basic education, health and availability of clean drinking water. The PML-N’s 3E manifesto gives little confidence that the flight path of the economy under a new PML-N government will be any different this time around.
The writer is an international economic policy expert and a former World Bank staff member. Tweets @SayemZA