Winning the borrowing game, losing the economic battle

February 23,2019

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LAHORE: The rulers would have to come out of the line-shooting mode after defeating all the previous governments at the game of borrowing and instead concentrate on improving revenue generation, decreasing losses in public sector companies, and alleviating poverty.

The government has failed miserably at all these fronts only because of flawed policies. It goes without acknowledging that the Pakistan Tehreek-e-Insaf- (PTI) led government did manage to borrow billions of dollars in very short period of time, a feat that no other party has ever been able to pull off in the past.

However by avoiding International Monetary Fund (IMF) for so long the cost of borrowing has increased substantially.

Even this huge borrowing has not been able to bring about required stability in foreign exchange reserves that continue to remain in the red zone. They start depleting in week or two after every addition of dollars from creditors. This should be a matter of concern and not of rejoice.

Current account deficit has declined 16.7 percent and is likely to remain in this range by the end of this fiscal. This is not enough as it depicts only the full impact of higher import duties and rupee devaluation and increase in remittances.

The remittances increased over 12 percent in last seven months. The exports in last seven months have hardly increased by 2.7 percent. There is a limit to which the remittances could grow but if the economic policies are right the surge in exports could be unlimited.

The government has done whatever it could to boost exports but Pakistan's problem would not be resolved by single-digit growth in exports. Instead of rejoicing a tad increase in exports the planners should have expressed concern on the meager improvement despite substantial government incentivisation and almost 30 percent decline in rupee value.

Razzak Dawood, federal adviser on commerce, has said the benefits start materialising after three months of devaluation. But it started 12 months back and no impact of three high state-intervened devaluations has manifested in our exports.

Emphasis on decreasing cost and increasing ease of doing business is good but the planners should realise that Pakistan was much ahead of both India and Bangladesh in both measure at the start of century but both these countries left us far behind in terms of economic and exports growth.

Even today Pakistan is ranked higher than Bangladesh on both (ease and cost of doing business) counts but the latter’s exports are surging, while ours are just struggling. In short the trade measures taken by the present government have not delivered up to expectation as the planners failed to think beyond textiles.

The main concern of the economic managers should be the revenues. Revenues are not increasing at all. In fact, in the first six months of this fiscal the overall revenues (tax plus non-tax revenues) have declined. Tax revenues increased by less than 3 percent but the non tax revenues declined 37 percent. The non development expenditure in first six months increased by over Rs400 billion.

Hence the budget deficit increased much above target. Increasing revenues was more important than rounding up loans. The government is relying on Federal Board of Revenue (FBR) to increase the tax base without realizing it is the revenue collector’s rent-seeking culture that keeps the tax base in check. Some critics say that asking the FBR to increase the tax base is akin to asking a thief to guard the wealth.

The government would have to make tax collectors accountable for the lapses they committed in tax collection. Tax evaders are living a respectable life and enjoying respect of the society and tax collectors are witness to their living style and their tax evasion.

It is indeed regrettable that the government has made no serious efforts to stem the losses of public sector companies. The bleeding is not because of incompetence but in case of power sector the losses are due to corruption.

Half of the Rs850 billion power dues are against private sector consumers most of whom are still getting uninterrupted power. The distribution losses (or theft) are on rise. Minister of State for Power Omar Ayub did make some efforts to nab power thieves; however most of his efforts were in Punjab where such pilferage is low.

Even these efforts fizzled out with time and no effort was made to confront the power thieves in other provinces. The economic revival is directly linked to eradication of corruption and efficient profitable operations of public sector companies. Otherwise whatever loans we arrange would be eaten by corrupt practices and losses of public sector entities.


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