Economic indicators grim as govt completes 3 months

LAHORE: It has been three months since the new elected government assumed power, and virtually all economic indicators look grim. Inflation is on rise, fiscal deficit is widening, rupee is unstable’, exports remain stagnant, and imports are still rising.

The current situation is because of special-interest pressure, populist politics, bad economics, and sheer incompetence of the economic planners. Market failures come only in macro doses, in the form of the recessions and depressions that have periodically plagued all capitalist economies.

Prudent planners know that periodic bust and boom cause number of inefficiencies in the systems that have to be removed after careful assessment of every economic policy. Naive planners maintain status quo and try to move the economy up without plugging the deficiencies that continuously plague the economy.

The government is promising a new world to the electorate despite increasing defence and current expenditure, and drastically reducing the development expenditure. It is not showing constraints in wasteful spending and continuing the policy of populism by benefiting special interests through subsidies. This government needs more revenues than any previous government that came to power. Revenue growth is unsatisfactory.

In fact, the growth in revenues is not enough to cover the increase in budget outlay of the year. Current Federal Board of Revenue lacks the capacity and capability to generate fair revenues.

It is dependent on indirect taxation, while the country needs phenomenal increase in its direct taxes. It will take time and serious political commitment to reform FBR and the tax regime. The government can raise revenue though some of its precious assets that do not impact employment. The functionaries are moving around the globe for foreign assistance, but have failed to realise that the state has so many precious assets, which if offered to the overseas Pakistanis can fetch billions of dollars in six months.

Take for instance the Mayo Garden Colony that comprises of 47 British era mansions built over 8-12 kanals. It is located close to The Mall.

The address of Punjab Governor House is Mall 1 and the first residence in Mayo Garden Mall 2. This is a prime land, and these mansions are allotted to Railway employees mostly from grade 17-19. They certainly cannot afford to maintain the huge lush green lawns of their residences. But they are immaculately maintained obviously from funds other than their salary.

The going rate in this most expensive locality of Lahore is Rs50 million per kanal. These residences could be offered to overseas Pakistanis at reserve price of Rs50 million per kanal. The government should arrange a road show for this colony in all countries where affluent Pakistanis reside. Domestic investors may also be invited to bid for these residences. This colony would easily fetch $3 billion which could be used to manage our foreign reserves. Similar assets are available in Karachi and other big cities.

The government servants residing in posh government localities could be compensated by constructing three bedroom residences at some government land at less than five percent of the amount generated from the sales of Mayo Garden residences.

As the inflation increases, the interest rates are bound to rise. But the planners must have understood by now that lower interest rates do not necessarily increase investment.

The average inflation in the country was less than four percent during five years tenure of PML-N and the interest rates were also the lowest in past three decades. Still the uptake of credit by private sector was very low.

The investors are shy of committing their resources in this country because of numerous deficiencies in the system. Remove those hurdles and investment would come even at high interest rate.

To come out of the current mess, careful balancing is required. Turnaround would not be immediate, it would take some time.

Some decisions painful for rent seekers and elite taken now could shorten the length of the downturn and reduce its magnitude. If at the same time we think about what will be good for the economy in the long run, we can build a durable foundation for economic health.

There is something deeply peculiar about having rich individuals who make their money speculating on real estate or stocks paying lower taxes than the middle-class Pakistanis, whose income is derived from wages and salaries; something peculiar and indeed offensive about having those whose income is derived from inherited stocks paying lower taxes than those who put in a 50-hour workweek.