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Saturday December 04, 2021

Silver clouds, dark lining

November 26, 2021

LAHORE: Consensus is broad that economy is in the direst of straits with pessimists seeing no revival whatsoever anytime soon, while optimists see light at the end of the tunnel given reforms are executed as planned.

The current economic situation with the way policies are being implemented is not sustainable. Total blame for the current economic debacle cannot be passed on to the present regime. However, its incompetence certainly accelerated the economic decline.

We have not built domestic capacities the other regional economies have achieved. This has resulted in dismal growth in revenues, which almost always remained short of our needs, forcing us to bridge the gap with national and international debt. This has been going on at a rapid pace for the last 30-35 years.

Initially our friends were gladly supporting us through grants and credits to bail us out of each economic crisis. Slowly they realised the economic crises are of our own making. They observed none of our governments was serious in reforming the economy.

Seeing our ruling elite living like billionaires, while the country was going broke, world leaders taunted us as international beggars. Back in the day, former US foreign minister Hillary Clinton, without mincing words, had publicly advised the then rulers to exploit Pakistan’s taxation potential before asking for help from others. As a result, over the years, the multilateral lenders tightened their preconditions for acquiring funding to painful levels, which compromised our sovereignty and economic independence.

Still, our rulers continue to laugh it off and are unwilling to mend their ways. Instead they started accumulating debt at higher markup and accepting harsh conditionalities attached with these loans without any qualms. As the time passed by, the appetite for loans increased. No government tried to curtail the expenses.

Every new budget was larger than the previous one. No government ever achieved its budgetary targets. Each budget contained a deficit that at the end of the year the widened because the budgeted expenses outgrew the revenues by a huge margin that remained behind the fixed targets. And the revenue collection remained much behind the increase in yearly expenses. One of its most painful aspects is the development budget becomes the first casualty when the governments curtail spending.

The accumulation of debt increased in the last 12 years. The PPP government amassed more debt during 2008-13 than in the previous 64 years. The PML-N government during 2013-18 took even higher loans than the PPP government. And now the PTI government in its first three years has exceeded the loans taken by all the previous regimes.

The most unfortunate fact is PPP and PTI utilised most of the loans for consumption. The PML-N government spent loans on building CPEC infrastructure (including power projects) and some on consumption. Loans are acquired by prudent countries for nation building. They improve infrastructure, strengthen institutions, and enhance their capacities. They introduce broad-based reforms that ensure inclusive growth. These measures boost economic activities and the revenues that enable the country to service loans.

Pessimists have a point in seeing the gloom increasing. The governance has deteriorated in the last 12 years more so during the past 3.5 years. Corruption is on the rise; the government writ is at its thinnest. The tax to GDP ratio remains stubbornly low.

The institutions are deteriorating with some swearing to have made progress in terms of performance without any documentary evidence to back their claims.

The NAB (National Accountability Bureau) for instance claims to have recovered over Rs500 billion in the last four years but the Ministry of Finance that should have been rich by Rs500 billion says it has received less than Rs10 billion from the accountability board. The CCP (Competition Commission of Pakistan) has slapped over Rs120 billion in fines on anticompetitive practices but has not been able to collect more than a few million.

The circular debt in the power sector has continued to increase rapidly in the last three years even though the power tariff has been doubled. The distribution losses have not declined, and the power distribution companies are unable to collect 100 percent billed amount.

No economy in the world could operate smoothly under these circumstances. There is no accountability of the state officials. They enjoy vast powers and in the absence of accountability they use these powers for rent seeking. Optimists hope the rule of law would ultimately prevail in our country which could take our economy to new heights.

This, given the ground realities, looks like wishful thinking but a single sincere person at the top could change the destiny of this nation.