Pre-budget Economic Review – Benazir’s Choice – II
(This is the SECOND in a series of THREE articles on the subject)
Statistical indicators clearly show the deep malaise in the economy with inflation, deficit spending, corruption, etc eating away like a bunch of rats at the vitals of our economy. With revenue collection falling way short of projected targets and non-development expenditure on the rise despite Government of Pakistan’s (GoP) best efforts, GoP’s budget makers have to accomplish a Houdini act to get out of this financial Gordian knot. About the only positive indicator for GoP at this time is the blizzard of MoUs that signal the PPP regime’s all-out resolve to get foreign investment into the country at any cost, even by “mortgaging the country’s economic assets” according to a recent statement of the Faisalabad Chamber of Commerce and Industry (FCCI). The MoUs notwithstanding, all other indicators point to a gradual slide to impending economic doom.
Our revenue collection does not even equal the financial outlays required for “Debt Servicing” and “Defence Spending”. We are mired in debt even before we can make any further financial allocation for administrative and/or development. Our first priority should be to reduce both external and internal debt to lessen the recurring burden while searching ways and means to make sure that every penny paid for Defence estimates is fully accountable. IMF has been pressurising GOP to reduce tariffs. A working paper prepared by the IMF for an April 22, 1993 meeting had tacitly agreed to a gradual tariff reduction in order that domestic industry (sometimes enjoying inordinate protection) would not collapse. However Mian Nawaz Sharif’s elected Government was brought down a few days before the agreement was formalised and Ms Benazir’s elected Government were forced into a fait accompli by the slavish acceptance of all conditions by former interim PM (and ex-World Bank employee) Moin Qureshi, who proved more “loyal than the King” in sending Pakistan industry pell mell on the road to disaster. The protection given to our local industry is gone as we rapidly become a Dubai-like haven for foreign consumer products which are almost at par in price but better in quality than the locally manufactured ones. Factories from Khyber to Karachi are closing down as manufacturers cannot sustain recurring losses to match such competition. If it were confined to soap, toothpaste, perfume, chocolates, ice cream (yes, even ice cream), etc we would be apprehensive, given the fact that the continued manufacture of a wide range of products including textiles, garments, towels, shoes, leather goods, bicycles, electric fans, etc is also being badly affected is good cause for absolute alarm. In a final irony (or nail in the economic coffin) there is even a likelihood of dumping of textiles by developed countries in Pakistan. Widespread unemployment is already a major problem for the urban millions, it is going to get much worse. Instead of conserving our precious foreign exchange for machinery, etc, it is being squandered on cosmetics, jewellery, chocolates, etc. On the other hand the developed countries, particularly US, Japan and the European Community have set strong trade barriers against such products and produce that affect their domestic industry as a measure of blatant protectionism. What success has Pakistan had in selling rice to Japan or having textile quotas increased to the US? To protect their industries US has opted for trade sanctions against Japan for resisting free imports of US automobiles and spares. And here we are opening up our markets at disastrous cost to industry and the economy. Why and to please (or benefit) whom?
Instead of encouraging domestic investment by local entrepreneurs by giving them a market-oriented Labour Policy giving employers inherent right to “hire and fire”, it is believed that the proposed Labour Policy (which was not announced as scheduled on May Day) in its unadulterated form takes away that basic right giving dominance to Labour’s right over that of the Employers, an open invitation to a return to the economic environment of the late 60s when “Gherao and Jalao” (are our memories that short?) reduced the economy to shambles before we stumbled into the 1971 crisis. Sufficient effort has not been made to recover outstanding loans. In the textile industry alone, Rs 29 billion is the figure of stuck-up loans. Prominent public figures of all shades of political leaning who form the country’s so-called elite are the major defaulters, GoP has shown enthusiasm in going only after its political “enemies”, thereby undercutting the credibility of the process. In fact recovery has been as low as 1-2%. To the credit of Ms Benazir Government, they have overcome objections to the publishing of names of loan defaulters, this should have good effect. Equal incentives are not being given to industry as for agriculture. Without such incentives there will be no attraction for industry for potential investors, domestic or foreign (except of course the energy and telecommunications gold mine). We keep on talking about taxing agriculture income while conveniently overlooking the fact that all income must be taxable on an equitable basis. Why should the urban population made to bear this burden alone and agriculturists enjoy subsidies and grants paid for by the taxes that urbanites pay? Solutions cannot be hoped far when 90% of those who sit in the legislative Assemblies are agriculturists who do not pay taxes but sit on judgement as to who will pay taxes (and in what quantum?). Another sore point is the low measure of property tax recovery and GoP’s unwillingness to take winding-up action against sick mills. In the face of an expected bumper wheat crop, GoP is gearing upto importing wheat, a tacit acceptance that smuggling of foodgrains to neighbouring countries cannot be controlled. Our infrastructure facilitates such as railways, roads, dams, etc are not able to pay for themselves because of revenue shortages due to leakages. Without drawing the private sector into the country’s socio-economic development, we cannot hope for economic emancipation. On the other hand, what are we achieving by ruining them financially? GoP is increasingly going to rely on General Sales Tax (GST) to make up for its revenues, a Herculean effort steeped in frustration in a society that shuns documentation for the most part.
The blizzard of MoUs signed by the present regime with foreign companies, primarily in the energy sector, have become the subject of macabre humour, nothing more expressive than MAXIM’s cartoon about a beggar asking a passerby to “at least give an MoU” if not some money. There is method to the Federal Government’s seeming madness, not the least being its publicity potential. The general cynicism among the knowledgeable notwithstanding, the real target is the mass perception and the proven gullibility of the general public when their aspirations are titillated by expansive rhetoric. None of the US $ 80 billion in MoUs promised to the Soviet Union during the Gorbachev era ever saw the light of day, the Soviet masses were given a glimpse of Heaven as their country was led to systematic destruction even as Gorbachev’s ego was being stroked by the western media as an “outstanding” leader of his time. The Soviet Union paid the price for Mr Gorbachev’s self-propagation which lasted till the nation he led became economically bankrupt and thereafter the Union self-destructed. Thereafter Gorbachev, having served his purpose, became history. The popular (and unfulfilled) “Roti, Kapra and Makan” slogan of the 70s given by the PM’s late father is another case in point. On the other hand, even if 15-20% of the MoUs come to fruition it would constitute substantial progress in overcoming the present energy deficiency but even then we will be short of the quantum required for accelerated economic growth. Since foreign investment in the other areas of the manufacturing sector of the economy is virtually nil, without increased production where will we get the money to pay our IOUs for our MoUs? The present Catch-22 cycle puts us deeper in debt without adding to the means for meeting our obligations towards debt servicing. Messrs Shahid Hassan Khan, Special Assistant to the PM and Salman Faruki, Secretary Ministry of Water, Power and (now) the Environment, have played yeomen’s role in a calculated policy of creating publicity-oriented statistics which were eminently believable but a year down the road this may be unravelling in a paper trail of promises unfulfilled by potential investors while serious investors have been led merrily down a garden path. Not one big player in world energy has signed an MoU in Pakistan. The much-touted transparency is missing from the process, the process is increasingly mired in nepotism and manipulation except for a few show-piece cases. Unfortunately brilliance is sometimes a cover for intellectual dishonesty, a sorry commentary on the credibility of the whole process. This is a recurring (and not uncommon) phenomenon among those technocrats who willingly compromise their conscience in order to profit materially at the cost of country.
An outstanding advocate for foreign investment in the energy sector, the PM follows an unbelievable confrontational policy with respect to the manufacturing sector. Along with international economic complications GoPs policies have resulted in Pakistan’s primary value-added sector, the garment manufacturing industry to be mired in deep crisis with about 900 out of 1500 units closed. The textile industry is also in a similar crisis with a larger number of units terminally sick while the consumer manufacturing industry faces catastrophe as tariffs are reduced throughout the whole spectrum of imports. The government, with firm control over the financial sector, has adopted a policy that is heavily tilted towards a partnership between the agrarian sector and foreign investment with “loyal” industrialists making up the third pole of the “Triad”. Skeptics say that this is a deliberate policy that is based on PPP’s realisation that the urban vote is forever lost to the PPP and that further PPP rule can only be perpetuated by a deliberate policy of promoting agriculture at the cost of industry. In this manner the urban population will be “punished” for its “disloyalty” in supporting the Opposition. On the face of available evidence about the systematic destruction of the domestic industry even while foreign entrepreneurs are being welcomed in a dual-faced policy, one cannot believe anything else. Analysts seriously believe that the PM is refraining from politically tackling the worsening law and order situation in Karachi as an extension of a deliberate “scorched earth” policy. The law enforcement agencies (LEAs) have brought temporary peace of sorts to Karachi in the past few weeks but credit must also be given to the MQM(A) in acting maturely by holding back its militant cohorts in check. The impotence of the LEAs in Hyderabad has shown up the fact that political problems can only have political solutions, all other measures are but temporary and can only provide “aspirin” relief where deliberate surgery is necessary.
With limited options in the present economic circumstances all indications are that the PM has opted for she perceives to be the lesser of two evils to her politically, choosing agriculture over industry. In the movie “Sophie’s Choice”, when the German Nazis in Poland gave Sophie a choice between which of her two siblings would survive, Sophie was faced with a classic Hobson’s predicament. Not so for the PM, she is willingly to sacrifice domestic industry quite happily at the altar of agriculture (and the rural votes her PPP must rely upon to stay in power).
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