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Saturday January 28, 2023

Economic malaise

November 27, 2022

LAHORE: Pakistan’s economy is still directionless under the coalition government. The current government took charge over six months ago, but it is still in fire fighting mode and has been unsuccessful in stopping the economic downslide.

Policymakers need nerves of steel to put an ailing economy back on track. Almost every economic planner in the country knows the reasons for the poor performance of our economy. They also know the steps that must be taken to improve our economic credentials. But they dare not.

They fear that vested interests would remove them if they pursue a genuine reform agenda. The stakes of vested interests are very high and they cannot allow any government to hurt their interests.

Take any example that comes to mind. We for instance are facing a power crisis that does not relate to our power production which is in excess of our needs. It is the power cost that is hurting our economy.

Our planners hide under the power agreements we signed with private sector power producers. The capacity charges that they have to pay for not buying power from some is definitely an issue that increases cost.

But the inefficiencies in the power system and corruption are greater problems. The stakes are very high in corrupt practices. In fact hundreds of billions of rupees pilfered through corruption go to the pockets of officials in the power sector.

Corruption is institutionalised in which each official from top to bottom (baring few) gets his/her share in the booty. It would require a herculean effort to break this organised mafia.

The task of improving efficiency and eliminating corruption is assigned to one of the officials who are part of the problem. Power theft is not the only issue, non-collection of power bills from the private sector consumers is another problem.

In case of power theft, corruption is involved while in case of letting private sector consumers withhold bills involves both influence and corruption. The solution lies in replacing the entire power sector staff with fresh human resource.

This could be done by targeting a few specific grids first and then moving on. We can reduce the power tariff by 25 percent if corruption and theft are eliminated.

Every planner knows that the investors are reluctant to commit their resources in Pakistan unless they are given incentives. The private sector power plants want a guaranteed rate of return on investment and supply power only to the state.

In case the government does not need power from them then it is bound to give capacity charges equivalent to 60 percent capacity of their generators.

Industries that are established with foreign collaboration bound the state to give them protection against imports for a period of 5-10 years. And the government obliges.

The investors charge a premium slightly lower than protection for 10 years, making Pakistani products made from protected raw material uncompetitive in the global markets.

Ideally, industries that are globally competitive should be built in Pakistan. But this is only possible if a level playing field is available to all and there is full transparency in economic affairs.

When no one can under report production. When the investors are confident that the product they manufacture will not be allowed to be imported or freely smuggled at low prices to avoid duties that local producers pay. Only then can industries progress and thrive.

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