LAHORE: As far as economy is concerned, we are still groping in dark, as our planning was flawed even before the attack of the coronavirus; and now when the disaster is imminent, we are still banking on the same policymakers.
This government was in denial mode before the current crisis although the growth was steadily going down. The rulers wrongly believed the pressure, people are feeling, is because of the reforms they introduced.
But one fails to understand as to which reforms were introduced. The first goal of this government was to document the economy and it backed out after protests by traders.
The uncertainty created on this aspect resulted in slowing down of business activities and high profits for the non-documented businesses.
The traders that were out of the tax net still managed to avoid all government taxes rather increase their prices on the pretext of governments’ documentation campaign.
So, the idea to initiate reforms resulted in miseries for the common man. The other aim was to at least bring under the tax net over a million evaders possessing huge assets and bank balances.
The Federal Board of Revenue claimed they have undeniable data to nab these persons. Eighteen months later there is tangible progress in this regard. The smugglers, under-filers and those under-invoicing their imports are operating with impunity and getting richer.
Another incompetence that this government committed was to announce impossible revenue collection targets and increased its expenses in line with the enhanced targets.
The targets were not achieved during the last fiscal year, and even in this fiscal year, but the government was committed to spend the increased non-development expenses. This resulted in further increase in the fiscal deficit and increase in national debt that the government acquired to fulfill its non-development expenses commitment.
The economic managers were never reprimanded for revenue slippages. At best, the bureaucrats looking after the revenue collection were transferred.
This high fiscal deficit not only crowded out credit for the private sector, but also instrumental in increasing inflation. It did not hurt the richer segments much, but reduced even the uptake of food for poor families.
Similarly, privatisation of loss-making entities was another target of this government, but it failed on this front too, as no significant measures were taken for the privatisation of the loss-making entities during the last 18 months, instead the inefficiencies of public sector companies increased substantially that were financed by the state.
The government is bearing the huge salary bill of Pakistan Steel Mills that is non-operational for over a year. The privatisation process was too slow, although the government intended to make up for the revenue shortfall through privatisation proceeds before the end of this fiscal year.
Now with the virus impact, it seems impossible to manage even a single privatisation. The IMF will put pressure to impose new taxes. The government is not in a position to comply with this condition. The budget deficit would further increase, which will be an implicit tax on the poor.
This government was supposed to remove the inefficiencies in the power sector. Unfortunately, the inefficiencies increased. We are still unable to recover electricity bills from many influential private sector consumers. Of over Rs1,400 billion receivable bills, more than 50 percent are owed by the private sector consumers.
The line losses and thefts are apart from this leakage and are in the same range every year. After increase in the power tariff the losses in percentage terms may remain the same, but in value these would double.
Low revenues and higher non-development expenditures are troubling Pakistan’s economy. Had this government suspended the increase in non-development expenditures to the level it was in 2017/18, there could have been a saving of at least Rs1,200 billion every year.
The government could have saved over Rs500 billion every year had the loss-making state-owned entities been privatised (other than power sector companies). It could have saved another Rs600 billion by improving the power sector inefficiencies by 50 percent only.
The net yearly savings from these measures would have been Rs2,100 billion, which would have reduced the debt burden and subsequent debt servicing by the state.
The recovery from the power sector unpaid bills and privatisation could have provided the state with additional cash. This government’s slogans were austerity measures and public welfare, but instead it increased non-development expenditures and force the common man to go much beyond austerity. The public, at large, is the victim of incompetence and inefficiencies of the state.
