Thursday December 08, 2022

Political economics

October 25, 2022

LAHORE: We have not yet controlled terrorism. Political polarisation in the country is on an extreme, while the compulsions of the political economy have overshadowed the actual economic recipe for revival.

Our economic problems have been compounded by the ever-present corruption and bad governance. To bring sanity in the economic affairs is an uphill task. Economic managers are facing negative factors on both local and foreign fronts. We are still tagged as breeding grounds for terrorism.

Our corruption perception index has gone constantly down for the last four years. The International Monetary Fund (IMF) package signed by the PTI government was derailed when this government assumed power. The resumption of the IMF programme brought more misery for the people of Pakistan without much hope for the near future.

The economy has become dysfunctional. It means disaster for the poverty-stricken population of over 60 million. People are regularly losing jobs in a country that is adding 3-4 million additional workforce in the job market as per the current growth projections.

The IMF programme has condemned our growth to 2.5 percent. It is a strange IMF package that instead of strengthening the rupee has destabilised our currency. The economy is dysfunctional. We are adding 3 million new workforces every year. It would not be possible at our current growth projection even to re-employ those that lost jobs in the last four years.

The private sector has disappointed the nation. They are tax evaders, smugglers, under filers and use every trick to conceal income. The government has also burdened itself with expenses that are much higher than its revenues.

Fiscal deficit has crossed rupees three trillion a year. It has crowded financing of the private sector by taking loans from commercial banks. It is insane to expect that honest private sector enterprises can deliver much. The state-owned public-sector companies are an additional burden of Rs1.5 trillion on the exchequer.

In the current global financial market, the economy can only be run by the private sector, which is considered the engine of growth. By enlarging the government sector, the planners are marginalising the private sector entrepreneurs and promoting crooks who bypass all rules to make money without paying any taxes.

The role of the government should be limited to prudent regulations and deepening of reforms. It should deregulate highly regulated sectors like energy. Power distribution decisions should be dictated by market forces.

Instead of granting licenses for power production projects with buy back guarantees, everyone should be allowed to install a power project based on low fuel cost and is environmentally friendly.

The producer should be allowed to sell power to consumers of its own choice. The transmission and distribution companies should only confine their role to transporting the power from generation point to the destination desired by the producer.

This model is operating in the United Kingdom, United States and many other countries, but is best executed in Norway which has similar hydroelectric potential as Pakistan. Despite having excess gas, the private sector in Norway produces power from water resources.

Government should contain itself to policy and regulatory levels. Even the infrastructure projects should be built by the private sector on a built own and transfer basis.

Currently, our public sector development programmes are not more than 3 percent of our GDP, while to upgrade the infrastructure to desired level, we need annual investment of 10 percent of our GDP.

This would come from the private sector only by attracting both local and foreign investors. Korea, Japan and China are successful examples of public-private partnerships in infrastructure. We should learn from them.