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April 15, 2021

Too many fires to put out

Business

April 15, 2021

LAHORE: Even if all the economic ills were because of flawed policies of past regimes the blame game should stop now and the rulers must come clean on their progress made in the last 32 months.

Has the GDP growth increased? Has the inflation been tamed? Have the prices of daily use items come under control? What percentage of foreign reserves is based on foreign loans? Are we paying interest to the creditors that financed our foreign reserves? Why are the power rates increasing and power sector inefficiencies decreasing? Have we created more jobs in the last two and half years than the ones destroyed? Has the lot of common man improved? These are few of the many questions that come to mind as this regime tries to improve governance through trial and error.

For the first time we have seen a ruling party playing the game of musical chair with high ranked bureaucrats. Inspectors general of police rarely stay posted for six months. Average tenure of chairman Federal Board of Revenue is six months. Federal secretaries feel lucky if they serve a ministry for even one year. Commissioners and deputy commissioners are made rolling stones through frequent postings and transfers.

This government is looking for instant solutions to the problems faced at various fronts. The government is talking about a turnaround in exports. Its total exports this fiscal are likely to be slightly higher than the exports achieved by the previous regime in its last year. Is this a turnaround or a failure? The export package was to be announced in the last budget but has been lying in limbo. The subsidy based package would never work. The government simply does not have the resources to boot the bill for subsidies if the exports increase by even 25 percent. Though, even a 25 percent increase in exports would not be enough to solve our foreign exchange woes. The subsidized power rate promised for next five years is 7.5 US cents per unit or Rs11.25 at current dollar rate. The normal non-subsidised tariff for electricity consumers is Rs21. The government subsidy of Rs10.75 per unit would be unbearable in the long run. The state would default to the power distributors as it lacks resources to boot the subsidy.

Subsidy is a short-term solution. Our planners have to analyse the factors that make our exports uncompetitive. Energy no doubt is a major cost but there are many expenses that are much cheaper than competing economies. For instance our wages are the lowest among our competitors at par with Bangladesh. Our industrial water charges are cheapest in India, China, Bangladesh and Vietnam.

The steam charges in these economies are also much higher. The cost of industrial land in Pakistan is very low when compared with other competing economies. These factors to great extent nullify the higher cost of power and energy. However even after providing power and energy to the exporters at regional rates (after huge subsidy) we see no appreciable upsurge in exports. Another factor that we neglect is the depreciation of rupee in the last two and half years. We failed to increase exports on 42 percent devaluation but our exporters are worried about 8 percent appreciation of rupee in the last two months.

The actual factor that increases the cost of doing business in Pakistan is bureaucratic corruption. Nothing moves in Pakistan without paying bribes. All departments that are deputed in the industry to ensure fair play for workers and also proper taxation (no under filling) allow all times of irregularities on rent. The exporters are generally compliant on all labour and tax laws of the country as their procedures and processes are subject to strict audit of their foreign buyers. The foreign buyers make it mandatory for all exporting industries to comply with all national laws in addition to conditions on environment, workers safety, workers welfare, double overtime that are imposed by them (foreign buyers). This way the exporters are fully compliant but the departments deputed to ensure their compliance and certify at a cost. Otherwise they create hurdles and issue notices that keep exporters busy in explaining their innocence in courts and government offices.

The cost becomes unbearable in a country where 22 government departments visit industries and demand rent at every step that needs a bureaucratic nod. This is not all, the exporters fear confiscation of their shipping containers by the state whenever opposition organises protest rallies.

They have to bribe the customs so that the goods are cleared for exports before the departure of the ship. Once a ship is missed they have to airlift the consignment at their own cost for timely delivery of goods. The state should work to remove these hurdles to lower the cost of exporters besides making the power sector efficient to global level. This stands true for domestic industries as well.