Saturday June 22, 2024

Bleeding economy

By Dr Farrukh Saleem
December 30, 2018

Our economy has been bleeding profusely – and it continues to bleed. The three major sources are: public procurements, public-sector enterprises and commodity operations.

Public procurements: the World Bank estimates that public procurements in Pakistan stand at 19.8 percent of GDP or Rs7.5 trillion a year. In 2002, the president of Pakistan promulgated the Procurement Regulatory Authority Ordinance “to provide for the establishment of the Public Procurement Regulatory Authority (PPRA) for regulating public procurement of goods, services and works in the public sector”.

Mohammad Khalid Javed, the founding managing director of the PPRA, said, “We do not need any borrowings from the World Bank or the IMF if we can save” the money that leaks out of the public procurement process. Rough estimates of the ‘leakage’ in this Rs7.5 trillion ‘business’ vary from a low of 30 percent to a high of 60 percent. And this ‘leakage’ amounts to a low of Rs2.2 trillion a year to a high of Rs4.5 trillion a year.

This is systemic corruption which is “primarily due to the weaknesses of the process” of public procurements. Over the past four months, there has not been any intervention on the part of the government to strengthen the process of public procurements. As a consequence, conservatively, on a pro-rata basis we must have lost Rs750 billion between August and December of this year. Yes, we would have to take on additional debt to finance the Rs750 billion worth of loss. The bleeding continues.

This bleeding comprises three things: fraud, corruption and abuse of authority. This bleeding represents four things: over-valuation, collusive behaviour, bid-rigging and substandard procurement. This bleeding is the result of three things: lack of a transparent process, lack of competition and gross process inefficiencies. The bleeding continues.

Solution: adopt e-procurement to “digitally transform public procurement systems to achieve enhanced efficiency, accountability and transparency.”

Public-sector enterprises (PSEs): Over the past five years, our 195 PSEs lost a colossal Rs3.7 trillion. The electricity sector continues to bleed – Rs1 billion a day. The gas sector continues to bleed – Rs500 million a day. Other PSEs – including PIA, Pakistan Steel, Railway – are losing a hefty Rs560 billion a year every year. Over the past four months, PSEs have continued to bleed. Over the past four months, we must have lost roughly Rs370 billion.

For the record, Pakistan spent Rs550 billion on education last year. Yes, public-sector enterprises lost Rs1.1 trillion the same year. For the record, the figure for defence affairs and services in Budget 2018-19 is Rs1.1 trillion. Yes, public-sector enterprises lost Rs1.1 trillion the same year. And the bleeding continues.

Solution: restructure what can be restructured followed by fast-track privatisation. Commodity operations: the government’s policy for the procurement of food grains, including wheat, pulses and paddy, has created another kind of circular debt. The last time I checked, the debt stood at Rs628 billion.

There has been no attempt to alter or modify systemic corruption. There has been no attempt to alter or modify corrupt processes. The estimated losses over the period between August and December stand at over Rs1 trillion. And to fill those losses, we will be taking on additional debt.

On December 19, the auditor general of Pakistan (AGP) “pointed out mismanagement,

irregularities and weak financial control of Rs5.8 trillion worth of public money by 44 federal ministries”. The bleeding continues.

The writer is the government’s spokesperson on economy and energy issues.


Twitter: @saleemfarrukh