Friday December 08, 2023

House in order

October 31, 2021

Public procurement: The federal government and the four provincial governments collectively buy goods and services around Rs10 trillion a year every year. That converts to goods and services worth Rs300,000 a year every year on behalf of each and every Pakistani family. The estimates of ‘leakages’ in this Rs10 trillion worth of public procurements range from a low of 20 percent to a high of 50 percent. That converts to a minimum ‘leakage’ of Rs2 trillion a year every year. That is the equivalent of around $11 billion.

Since 1950, we have signed a total of 23 ‘arrangements’ with the IMF. In 2019, the IMF approved a $6 billion loan package for Pakistan. In 2010, Mohammad Khalid Javed, the founding managing director of the Public Procurement Regulatory Authority, said, “We do not need any borrowings from the World Bank or the IMF if we can save this money….”

The Rs2 trillion a year ‘leakage’ represents six things: collusive behaviour, substandard procurement, bid rigging, over-valuation, lack of competition and gross inefficiencies. Solution: e-procurement. Let’s put our house in order.

Power sector: In August 2018, when the PTI formed the government, the stock of circular debt stood at Rs1.14 trillion. It currently hovers around Rs2.5 trillion – and is projected to hit Rs5 trillion by 2025. Rs2.5 trillion is the equivalent of $14 billion; compare that to $3 billion that we recently borrowed from Saudi Arabia.

This power sector circular debt is part theft, part expensive power purchase agreements and part low recoveries. The circular debt in the gas sector is now Rs350 billion. Make no mistake, the power sector will make or break Pakistan’s economy. Make no mistake, the circular debt will make or break Pakistan’s power sector. Solution: a competitive electricity market. Let’s put our house in order.

Public Sector Enterprises (PSEs): There’s a bloodbath going on inside our so-called 195 PSEs. PSEs' domestic and external debt now exceeds Rs2 trillion. The government continues to dole out around Rs900 billion a year in ‘grants’ and Rs200 billion a year in ‘subsidies’. All put together, PSEs are an annual burden of around Rs1,800 billion. Compare that to our annual defence budget of Rs1,370 billion. Solution: wholesale privatisation. Let’s put our house in order.

Commodity operations: The government fixes the ‘procurement price’ and the ‘issue price’ – in between the two are Rs200 billion worth of ‘incidentals’ and ‘corruption’. The government’s wheat policy has failed. The government’s sugar policy has failed. The federal government and provincial food departments have taken out loans of Rs904 billion – with nothing to show for them. Solution: the $300 million World Bank supported ‘Strengthening Markets for Agriculture and Rural Transformation (SMART)’ programme. Eliminate trade restrictions – and say goodbye to corruption. Disband Pakistan Agricultural Storage & Services Corporation Limited (PASSCO). Begin ‘direct farmer to miller’ initiative. Start ‘targeted input subsidies’. Let’s put our house in order.

I know of no other government on the face of the planet that throws away money like our government does. Public procurement, the power sector, PSEs and commodity operations are all low hanging fruit – fruit worth a trillion rupees a year, every year. We need not borrow – if we put our house in order. We need not beg – if we put our house in order.

The writer is a columnist based in Islamabad.

Email: Twitter: @saleemfarrukh