LAHORE: Fiscal mismanagement has forced the economic planners to look for short-term solutions instead of putting the country on a sustained growth path.
Every growing economy borrows to finance its development strategy. Fiscal deficit is good if the borrowed money is consumed on sustainable development work that after completion creates resources to pay back loans. Fiscal deficit is dangerous if we borrow to finance our running expenses that we are doing currently.
When a country is unable to raise enough revenues to finance its current expenditures it is better to curtail all unnecessary expenses. In our case we have seen the current expenditure regularly increasing while the revenues remain stagnant (there is some growth in revenue this year). We are taking loans for consumption which we have to pay back with interest. The development has been neglected.
At the same time the economic policies are such that at best encourage investors instead of entrepreneurs. Pakistan’s lopsided economic growth would keep the economy under stress if instead of long-term strategy planners continue to prefer short-term growth objectives.
Our past history shows that economic growth accelerates when external resources are available and stagnates when there is a squeeze in foreign inflows. This time around our growth remains flat despite historic foreign inflows in the last three years.
We tend to approve development projects on political grounds without analysing its benefit on the economy. In Lahore for instance we spent a fortune on building cricket stadium that was hardly used once or twice a year. The national stadium in Karachi is also sporadically used. We have built Allama Iqbal Complex – an impressive structure in Lahore while we fail to market its huge auditorium to generate regular revenues for its maintenance.
We need projects that facilitate citizens, while generating regular revenues as well. The Lahore-Islamabad Motorway has paid back its loans from the toll tax collected on its use and it generates finances for new motorways besides being self-sufficient in its maintenance. The Mangla Dam generates more revenues annually from the electricity and irrigation water that is more than its total construction cost.
Now we pay lip service to such projects. The groundbreaking ceremony of Basha Dam was performed by General Pervez Musharaf, Yusuf Raza Gilani, Nawaz Sharif and now Imran Khan in their tenures without any visible progress on the project. The finances needed to build the dam are not available with the state.
We have inefficient markets with government presence everywhere. It has almost a monopoly in the power sector (KE is an exception). The gas distribution is in its hands. It is in the banking sector, in the life insurance sector and many others. The government should not enter the market but act as a prudent regulator to provide a level playing field to the private sector entrepreneurs and not investors.
Public sector entities are eating up state resources due to gross mismanagement. The circular debt is because some public sector plants are operating at 17 percent efficiency. The average theft plus no recovery of the billed amount is around 25 percent. Remove these flaws and the power problem both in terms of supply and revenues would be resolved. To absorb three million workforces that enter the job market annually Pakistan needs to grow at 8 percent per year for at least a decade.
Our average growth in the last 13 years is around 3 percent (lesser in the last three years). We have added a huge backlog of unemployed youth. Even eight percent sustained growth would not be enough. The planners must realise that growth would come through increased productivity and innovation. For sustainable growth the government would have to formulate responsible fiscal and monetary policy, restructure public sector enterprises and prioritize the public sector development program.
Bad governance accompanied with weak state institutions has kept productivity and growth at bay in Pakistan. We have two mega cities, Karachi and Lahore. They are industrial and commercial hubs of the country. Still both are not generating output in line with other 40 similar cities in the world that generate 70 percent of total global output.
Entrepreneurship has been discouraged in Pakistan as the state continues to facilitate investors on project to project basis. Entrepreneurs do not need any monetary support from the state.
They simply need a level playing field, fair play and corruption free competent bureaucracy. Investors have funds on the basis of which they get concessions from the state. Entrepreneurs have ideas on the basis of which they innovate and disrupt the status quo only if the additional concessions to investors are withdrawn.
