Sunday November 27, 2022

Murky situation

July 26, 2022

LAHORE: Current economic model of Pakistan is not sustainable. There is a structural problem with the economy as successive governments have failed to control expenditures, increasing them at a much faster pace than its revenues; most of it is non-development expenditure.

All blames cannot be put on the present regime. Economic mismanagement of the past four years cannot be ignored.

Governance deteriorated to a low level during that period as bureaucrats stopped taking day to day decisions fearing that the National Accountability Bureau would haunt them on administrative decisions taken in good faith.

The confidence of the bureaucracy is still low because of political instability and threats of opposition stalwarts to take them to task for acting on the orders of the incumbent government.

Fiscal deficit due to economic mismanagement remained very high in the past four years and is likely to shoot up further under the present government.

Investment during the past four years has declined to a trickle.

Government priorities in almost all economic spheres were flawed. Look at the energy crisis. It has worsened with the passage of time.

No government, including the present regime has tried to eliminate mismanagement and corruption in the power sector. Instead, they have assumed that the corruption level would remain the same or deteriorate; and they must recover the cost of inefficiencies from the consumers.

Power and fertiliser shortages that we face are because of governments’ failure to honour their sovereign commitments. As a result, there is a general loss of confidence among the investors. They are not sure which way the country is moving.

The way the government is borrowing, nothing is left for the private sector. Statistics show that 93 percent of the borrowing is by the government.

Credit to SMEs – the engine of growth in any economy has been squeezed. Revenues continue to decline as a percentage of GDP because the tax reforms were not given priority. Provinces fail to collect agriculture tax and property tax recovery is far below its potential.

The size of the federal cabinet is enormous, general expenditure is on steep rise and the losses of the public sector enterprises are mind-blowing.

There is no desire to cut down expenses where it is possible. Take the example of the power sector: the public sector thermal plants operate at 20-22 percent efficiency while the IPPs operate at 50-53 percent efficiency. Both are starved of fuel after the increase in global fossil fuel rates.

Debt servicing has now become the fastest growing area of expense causing inflation and high interest rates; both of which impede growth. Under these circumstances we must give priority to governance.

Governance reforms are not a big challenge. We can start by ensuring merit-based appointments.

In recent years there has been capacity erosion in the bureaucracy.

However, this is still not a major hurdle in governance.

There are many capable and upright bureaucrats available who have been side-lined, they simply need the assurance that they would not be pressed to violate rules and regulations.

Reforming and where possible privatising the bleeding public sector companies is essential.

This impression is incorrect that over-employment in the public sector entities is the root cause of losses. Mismanagement is due to incompetence of the upper level staff posted against merit.