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September 12, 2019

Poor face hardships as government curtails development expenditure

Business

September 12, 2019

LAHORE: This government has obtained more foreign and domestic loans in one year than any other past government, curtailed the development expenditure to the lowest in the past decade, and still it is facing financial crunch with a shrinking economy.

Demand is subdued because government through its policies desires so; forcing the manufacturers to cut production. The imports of some luxury goods has declined because of high regulatory duties, but the imports of some essential goods like industrial inputs and machinery remains subdued because of the government’s desire to control consumption. Even the exporting sector is not investing in equipment because exports are stagnant in most cases and in some sectors idle capacities have increased.

This government neglected infrastructure. If it was allergic to funding in big cities like Lahore it should have diverted the funds to the remote regions instead of reducing the development funds. This one step alone created most hardships for the poor.

Infrastructure projects provide livelihood to the poor unskilled workers. When these projects are not undertaken, the unskilled worker is left with no place to look for work. Construction activity creates numerous jobs both downstream and upstream, accommodating a majority of unskilled workforce while accommodating skilled workers in industries related with construction.

As far as progress on privatisation is concerned, the government has disappointed many. It is inordinately delaying privatisation on one pretext or the other. This government is trying to reinvent the wheel by adopting failed policies of past three governments on the public sector enterprises; trying to restructure some to continue operating them in public sector while preparing some for privatisation after restructuring.

Steel Mill and PIA have to be privatised on ‘as is where is’ basis as numerous attempts to revamp these institutions have failed. The baggage that these institutions carry is now unbearable for the economy. As far as Railways are concerned, the government should look after the rail infrastructure and upgrade it where required. All trains should be run by the private sector. Goods trains particularly should be operated by the private sector that should follow the schedules strictly.

The experimentation of bringing a new board frequently in power distribution companies should be stopped and profit making companies should be offered for privatisation. Some circles are trying to delay the privatisation process by suggesting that larger companies like LESCO and FESCO should be further divided into smaller companies. The loss making discos should be handed over to the provinces.

These companies are in loss because the provincial governments do not provide adequate security cover to the centrally administered discos to nab power thieves and cut their connections.

Pakistan has two state of art RLNG run power plants in Punjab that produce power at competitive rates from imported gas because their efficiency is very high. It would be a folly to hand over these two plants to a foreign buyer at throwaway price of $1.5 billion each.

The guaranteed rate of return on these plants is standard 18 percent. Foreign buyers would gladly buy the plants. These plants could be privatised to a consortium of textile mills. If each mill (there are 275 operating mills in Punjab) pays Rs872 million, the entire privatisation price would be covered. Some mills may contribute three to four times more and that would cover those that cannot afford to make the contribution. Each RLNG plant produces 1,320MW power. This power may be provided to the textile mills only.

Government might charge the standard wheeling charges, but even then power cost would be less than the power each textile mill produces from RLNG from their inefficient plants. Some suggestions in this regard have been forwarded to the government by a textile association.

The other mill should also be sold to a domestic investor instead of foreign investors. It would save huge foreign exchange that would otherwise be repatriated in case of a foreign buyer.

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