Friday May 20, 2022

Pulling at the seams

January 20, 2022

LAHORE: No industrial policy in Pakistan would work until all the economic ministries work in cohesion. The Ministries of Finance, Environment, Water and Power and Petroleum and Natural Resources should be on the same page to achieve accelerated industrialisation.

These ministries would be on the same page if a transparent and fair industrial policy was in vogue. The heads of these ministries need to be appointed on merit and not as political favour.

Unfortunately, our political system provides opportunities to all politicians to protect their vested interest including the businessmen politicians.

We have not developed a policy that checks promotion of vested interest. There should be a transparent policy that puts checks on all politicians particularly those in power to ensure that their decisions do not promote their personal/business interests.

In the absence of proper checks and balances, we have seen not only businessmen entering politics but also the politicians becoming successful businessmen while actively participating in politics.

There is no doubt that a businessman is aware of the bottlenecks created by flawed policies for the entrepreneurs. There is no harm in benefitting from this experience.

However, a transparent system of check and balance is essential to check any excesses by such a person to promote his business interest. This is done world over and the checks are so strong that only persons with national dedication and integrity dare to accept assignments in economic ministries.

Fortunately, we have more businessmen-politicians or politician-businessmen in our ranks than other countries. Many among them enjoyed stints in economic ministries, but our economic policies remain flawed. Moneyed elite is enjoying life as ever, while the downtrodden see their standard of living deteriorating. Ministers do not feel shame while obtaining government contracts on the plea that everything was done on merit.

Ethics demand that while in power, the minister or his immediate family do not take advantage of their position in obtaining undue official favours. Merely resigning from the board of a firm is not enough.

Competent economic ministers consult closely to ensure implementation of government economic policies. Economic ministries must work in cohesion to ensure smooth running of the economy.

They should not be pulling each other’s leg as is practiced in Pakistan. The ministry of finance controls all the resources and releases even the budgeted amounts on its will.

The export development fund is out of reach of the Ministry of finance. The Ministries of Industries and Commerce announce facilitation for entrepreneurs, but the implementation is subject to timely release of funds by the Ministry of Finance.

Exporting sectors remain on their toes for the promised subsidised power or smooth supply of gas as the announced subsidy is not paid timely to the utility companies. When stretched to limits, these companies have no option but to squeeze supplies.

The cost of gas and electricity is dependent on the global rates of LNG and petroleum products in the global markets. When rates go up, the amount of subsidy also increases and exceeds the budgeted amount.

Subsidies are announced in haste without linking them to the prices of inputs that the state imports from global markets. Another factor that puts pressure on government finances is that the subsidies on exports are calculated based on last year's exports plus natural growth. If the exports grow much above natural growth, the subsidy exceeds the budgeted amount.

The Ministry of Water and Power was caught unprepared when the government asked industries to shift from gas to grid power. It was done on the assumption that we have spare power available in the system.

But they never knew that transmission would be a problem. The exporting sectors producing power from gas had long stopped using grid power.

In the meantime, these industries added capacities as well. The transmission and distribution system was not in good shape because of lack of use for years. Thus, it was not possible to ensure smooth supplies.

The Commerce Ministry insisted on gas for the entire textile sector. In case of shortage, it should have recommended discontinuation of gas to basic textiles that consume 80 percent of the subsidised gas.

Gas supplies to apparel industries that account for over 65 percent of total textile exports could then be managed. The ministry never realised that the export of yarn and fabric (that consumed 80 percent of subsidised gas) was on the rise, while there was a yarn shortage in the country.

In other words, we promoted the apparel sectors of competing economies on our subsidy, while depriving the local apparel sector of yarn that is its basic raw material. This is the reason that now the apparel sector is demanding a ban on export of yarn as was done in 2010.