This week there was another jolt of increased taxation for the public. While pensions and salaries have seen a nominal increase, prices of most commodities and services have increased between 100...
This week there was another jolt of increased taxation for the public. While pensions and salaries have seen a nominal increase, prices of most commodities and services have increased between 100 and 200 percent. For example, the annual tax on my 25-year-old-car increased from Rs384 to Rs7,200.
After the nationalization of basic industries in 1972, investment and business activities in the country came to a standstill. The then finance minister, Dr Mubashar Hassan, invited the heads of all public-sector financial institutions, including the governor of the State Bank, heads of PICIC, IDBP, NIT, NDFC and top civil servants to Islamabad and asked them to persuade the private sector to invest and do business in accordance with the new economic reforms and vision of the government of the PPP.
At this meeting, Dr Mubashar was informed that, though government policies may force businesses to shut down, exhortations alone could not force businessmen to set up new ventures. The heads of the public-sector financial institutions present were of the view that the nationalization policy had been ill-conceived and defective. For example, certain units of a large industrial conglomerate in Karachi were in the stage of machinery installation. Nationalization of these units delayed their commencement of production, inflicting large losses, not just to the owners but also to the economy in general.
A steel mills in Lahore was on the drawing boards and the mills, at that point, consisted of land only. This piece of land was nationalized as it fell under the category of steel mills. One company in Nowshera had most of its assets backed by loans from the IDBP – a public sector industrial bank. Their nationalization actually meant the re-nationalization of loans of a public-sector bank, which now had to be repaid by the government rather than the borrower.
Time has proved that the economic reforms of the early seventies were hastily carried out and lacked thoughtful depth and coverage. All independent economists agree that this policy proved disastrous for the economy resulting in decreased employment opportunities while the population was growing, a shattered confidence to invest in Pakistan and an overall negative impact on economic growth. Some of these adverse effects still persist in the shape of public-sector enterprises running at a loss. The nationalization programme only lasted for five years, ending in July 1977 – but only after heavy losses. It is not without reason that Shaheed Mohtarma Benazir Bhutto, in her election campaign of 1988, promised the industrial sector that she would end nationalization and carry out industrialization by other means.
The current government has come into power at the federal level for the first time. Like incoming government of the past, it is also beset with huge economic challenges. A major reshuffle of the economic team within months of coming into power reflects the government’s efforts to find a solution to the economic problems of the country. The new team of economic experts is struggling to increase national revenues, to increase economic growth and to increase exports.
While measures are undeniably necessary, these should restore and not shatter the investors’ confidence. If the private sector becomes scared, investments will be withdrawn. Government demands for the enforcement of certain policies will lead to a fall in agricultural and industrial production. Inflation will cause a decline in the purchase power of consumers. If there is no meaningful increase in exports despite heavy and continuous devaluation of the Pakistan rupee, then uncertainty, a decline in private-sector confidence and a fall in overall economic growth will result.
The external payments account is more important than domestic payments as the required foreign currency cannot be printed domestically and has to be earned. It is difficult to achieve large-scale and meaningful export growth in two or three years due to a variety of constraints. Devaluation can reduce imports but cannot increase exports at the same rate of the decline of imports. Therefore, the balance of payments deficits and its consequent woes will persist despite devaluation and at the cost of rising domestic inflation. To redress these difficulties, the advice of successful industrialists should be sought.
It may be noted that: one, leaving aside the Asset Declaration Scheme, the remaining economic measures taken by the government in the budget have affected common man and businessmen/industrialists alike. While speaking to my successful businessmen friends in Karachi it was noted that recent taxation measures yielded around Rs65 billion while Musharraf had written off Rs252 billion. It was agreed that it would have been more useful to the government to have recovered this amount from the beneficiaries. Those whose loans were written off are billionaires and own multiple, valuable properties. However, such measures require strength and understanding of economic realities.
And, two, Rs5 billion was wasted on the Thar Coal Project and a fine of $6 billion in the Reko Diq case may come as an eye-opener to the government. Having asked for that money from friends all over the world, there is nothing to show for it but this.