Resource or governance crunch?

LAHORE: A highly selfish elite is unwilling to give up the slightest of their privileges. They have been living beyond their means for too long a period. The root cause of the problem is not shortage of resources but the crisis of governance.

The privileged class has been extremely successful in obtaining periodic bailouts due to Pakistan’s strategic importance in view of events in this region. This has helped the elite to protect its interests, while the economy of the country has remained in turmoil.

Pakistan’s tax to GDP ratio is lower than that of Afghanistan and to further elaborate the point there are less tax payers among 220 million Pakistanis than the number of taxpayers in Guatemala’s 16 million population.

Majority of the parliamentarians do not pay any tax. There are 55,000 corporate entities in the country and only less than 30,000 filed tax returns last year.

Out of over 4 million registered tax individuals, only around 2 million filed tax returns. Farmers do not pay any taxes but still demand subsidies on fertilisers, water and power.

Only one item of expenditure, debt servicing eats up almost the entire revenue left with the federal government after transfers to the provinces. Domestic debt is almost 10 times more expensive than the foreign debt.

This is despite the fact that foreign lending agencies that avoid giving loans to us at market rate charge 2-3 percent additional premium over market rate. In fact, foreign aid to Pakistan has been a curse that has postponed reforms.

We entered the IMF programme 14 times on firm promises of time bound reforms and every time we defaulted on our promise and sought waivers that were promptly granted. The donors should have avoided capture of aid by interest groups.

We have 100 million young people with no skills and low education which makes it difficult for them to become stakeholders in the growth process. This demographic advantage is turning into a demographic nightmare. We are adding double the number of people in the workforce than the jobs we have created in the last one decade.

There is a need to re-fix priorities from the security paradigm and change the mindset of the ruling elite. Regional trade should be given preference as the markets are growing in the East. It is not prudent to continue wasting energies on the dying markets of the west.

Reviving economy needs political will. There is little space for the planners as the losses of the public sector are very high.

Pakistan is losing Rs220,000 per minute on power losses. This amounts to a loss of Rs66 billion per month. Four months of power losses are equivalent to $1 billion loan we have been begging from the IMF for the last five months. Three public sector companies, the PIA, Railways and Steel Mills are incurring a cumulative phenomenal loss every day.

These economic imbalances have acquired structural problems. Then there is a misconception among some in Pakistan that it is too big a country to be allowed to fail. With the donor countries facing an economic crisis at their doorstep, no one has the ability to help a population of 220 million.

The only glimmer of hope is the resilience of the people of Pakistan. One must also appreciate the third generation entrepreneurs who are at least resisting corruption.

Their efforts have been overshadowed by well entrenched vested interests that have more clout. The vibrant media has created awareness about governance and transparency but the media is periodically silenced by the powers that matter.