BUDGET
As the current government presents its fifth and last budget this term, it also will be facing the curse of the Rs500 billion circular debt; the same amount that it cleared in its first budget as a curse inherited from the previous government.
As the government rightfully claims that growth rate has accelerated during its first four years, for which it has earned accolades from creditable global institutions for managing the economy, the warnings have also been pouring in. Every institution that praises the government, also warns it of several risks that, if not addressed, would derail the macroeconomic stability achieved in the past four years.
They warn of the mismanaged power sector, they point out the huge loss making state-owned enterprises where the losses are increasing every year. They warn against the tendency to subsidise and they consider the SRO culture, a threat to fair practices. These warnings are realistic.
Power sector mismanagement is a big issue. Although this government has made tremendous efforts to add new generation capacity in the system, it failed miserably in reforming the corrupt culture in the power system.
And while it has also made a conscious effort to ensure that new power projects produce electricity at reduced rates, the percentage of power losses have increased instead of decreasing.
Meanwhile, the recovery of power dues is far from ideal. The ever increasing circular debt is the undeniable proof in this regard.
According to power sector experts, on supply of power costing Rs100, the government recovers merely Rs70. The rest is lost in theft named line losses and non-recovery of billed amount. It would be a nightmare for the next government if 10,000MW of reliable power is added in this corrupt system in the next one year. The circular debt would soar to unprecedented heights.
It is a major hindrance in achieving true economic growth. Various economic measures however, can help the government achieve short-term growth. One of those measures is foreign inflows.
As long as the country receives a steady amount in foreign inflows, the economy would continue to grow. However, if the inflows are used for balancing the budget, the economy would nosedive as soon as there is stoppage of inflows and pressure to pay back the past foreign loans.
Spending those inflows on sustainable development projects would make it possible to service those loans from the positive economic activity generated by these projects. The development projects would not be able to service the loans if they are handed over to those who mismanaged similar projects in the past. The power sector projects, if transparently operated would definitely be able to service their loans, but if they are operated in a non-transparent manner, the damage would be irreparable.
The economy is definitely growing, but the exports are declining, while imports are ballooning and numbers of sick units are increasing. There have been few green field projects launched by the private sector. The productivity is declining and minimum wage is being regularly increased without linking wages to productivity.
The federal and provincial governments have abdicated their duty to provide quality education and health services to the people of Pakistan. Both these sectors are now at the mercy of the private sector, where provision of education and health facilities is linked to the amount one is prepared to spend. We have crowded out quality education and health service for the poor. We cannot simply live on by balancing our accounts by withholding refunds, increasing taxes and squeezing development. There is a dire need to put our house in order.
Finance minister Ishaq Dar has worked very hard to achieve macro-economic stability. However, his associates in the Federal Board of Revenue (FBR), ministries of water and power, industries and commerce have not lent him the necessary helping hand.
There are claims that the revenues of the FBR have increased by over Rs10,000 billion, which is true, but it is also true that the number of filers is still one million, meaning that only 0.5 percent of the population pays taxes.
To increase the tax base, the FBR should raid the offices and premises where manufacturers, traders and service providers pay no tax at all. In any large market in the big cities, only 20 percent of the retailers pay income tax. They operate from compounds and buildings worth millions of rupees, they drive luxury cars, and their children go to most expensive schools. Raids should first be conducted on non-compliant sectors and then on under filers.
There is no accountability of the bureaucracy. Every illegal trade and operation is conducted with the connivance of the bureaucracy. The government should make those tax officials accountable who fail to bring tax avoiders in their area into the tax net.
It is this lack of accountability that smuggling has penetrated our culture. The only remedy to curb smuggling is to conduct raids on shops and stocks. In order to avoid any uproar, the government should give the traders a period of three months to dispose off their smuggled goods.
After the expiry of that period, any good found without proper documentation should be confiscated and destroyed or exported. There is no large scale smuggling in India because the tax authorities are free to raid any shop and ask for import documents.
These measures are important for making the system sustainable and reap benefits of the China-Pakistan Economic Corridor (CPEC).
There is no doubt that CPEC is the best thing that happened in Pakistan because of its strategic location. The infrastructure projects linked with CPEC have created number of jobs for the low skilled labour. But the actual benefit of CPEC lays in the high value-added industries.
For that there is need for skilled labour. Some investors may dare to establish state of art industries but would back out if required skills were not available. In fact, skilled workforce is not available in the country even for the low value-added manufacturing sector. Our vocational training institutions are providing training in skills that are not required by even our current low value-added sector.
Government would have to make efforts to improve the training programmes if it wants industries to grow. It should also better the conditions for small and medium enterprises.
Private sector in this regard has to do its bidding as well.
The reason promising SMEs fade out after a successful run of 15-20 years in Pakistan is that the main sponsor of the company keeps a firm grip on its affairs and does not prepare future leadership to take over when he is incapacitated or dead.
There are exceptions in the shape of some formidable business groups in Pakistan. One thing common in all these groups is that these are being headed by the same person, who has managed the group for 45-70 years. It was fortunate that the heads of these groups been able to lead and provide vision for over four decades. The chances of the survival of these companies are higher.
These drawbacks are also impeding our growth and the government needs to build the capacity of businesses and hold the corrupt accountable to lead the country on the path of economic stability.
The writer is a staff member
