Bipartisan economic agenda
The democratic will of the people has been manifest in the new elected Government in Pakistan, the greatest priority of the new incumbents is to come to grips with the rapidly deteriorating economic situation. Pragmatic policies and lofty rhetoric about principles adopted by PPP at the outset of their tenure were waylaid at the altar of greed, mostly by those who were in the Party for convenience or by the circumstances of marriage. In sum total the 20 months of the Benazir Government contributed heavily to the economic tailspin that we are in now but we should not become guilty of tarring everything they did with a broad brush. The PPP, to their credit and in utter contrast to their manifesto, had opted for privatisation, knocking out the main prop of their own socialistic order (and ardour). The journey from the theoretical left brought the PPP to somewhere right of the middle and into line with the economic mainstream of the world. By outright abandonment of her father’s economic philosophy, Ms Benazir exposed Z.A.Bhutto’s serious economic mistake of nationalisation. In actual practice though, lip-service rhetoric did not translate into Thatcherite reality. A consensus on economic issues has, however, evolved which will stand the Nawaz Regime in good stead in coalescing national support for its economic initiatives, unless the Opposition decides to go “opposition for the sake of the opposition” route. Ms Benazir showed no magnanimity in victory 20 months ago, uptill now she has shown amazing lack of grace in defeat.
The Nawaz Sharif Government’s first economic decision, the raising of fuel prices, to the masses, is not going to be palatable. Prudent election politics dictated otherwise for the Caretaker Government, the time has now come to bite the bullet. Holding down the effects of inflation will be a true test of its ability/indicator of the performance to be expected. Leadership demands hard decisions, in the prevailing Gulf crisis the oil price rise has to be directly passed down to the consumer, some sort of fuel rationing being simultaneously put into effect.
The economic agenda’s top priority must be to forthwith stop the free float of the Pakistani Rupee against the US dollar. The US dollar has plunged in the wake of (1) rising oil prices, (2) widening trade deficits and (3) the fear of recession, technically the Pakistani Rupee should have appreciated. Weighted against a basket of strong currencies, speculative tendencies have put further pressure on the Rupee. Instead of our exports becoming more competitive in the world market, the rising cost of imported raw material is driving up the Rupee value of the finished product, thus losing its competitive edge because of declining Rupee value against the US dollar. By commensurate increase of the Rupee value of our acquired loans and interest thereof, we end up paying much more in Debt Servicing, further force-multiplied by resultant inflation. The free float made good economic sense as a temporary measure, to be straitjacketed in its speculative embrace for the last decade is totally unproductive, a financial Catch-22 which can only lead to economic apocalypse. The IJI Government must immediately institute FIXED PARITY to restore confidence in the Pakistani Rupee, to be reviewed periodically every 180 or 270 days.
The Board of Investment (BoI) was Ms Benazir’s finest achievement, she gave it a tremendous fillip by moving it to the PM’s Secretariat.
Syed Mohibullah Shah, Additional Secretary PM’s Secretariat, subsequently Secretary BoI, argued that the concept of ONE-window Operation could never succeed if other concerned Ministries, most of whose Ministers became Members of the BoI, did not feel the thrust of the PM’s authority and intention, precluding inter-ministerial strife. The Ministry of Water and Power would normally drag its feet on providing electricity, the Ministry of Communications in making available roads, telephone and telex lines, etc, the Ministry of Petroleum gas, and so on. Between 1984 and 1988, only 22% of the sanctioned projects actually came to fruition, increasing to beyond 50% after the BoI came into existence. In the 20 months of Bhutto rule sanctions more than doubled over that of the last decade (mainly because of limiting of decision-making to 60 days after sanctions), this was an encouraging economic trend but floundered because of lack of liquidity in nationalised banks. Guess why? And because of whom? The unending frustrations of the Multi-National, Cargill, at the hands of bureaucracy in spite of the blessings of late President Zia downwards for the establishment of their Orange Juice extraction/processing plant, is one terrible and sorry case in point. With influence deep inside the nationalised banks through a Mafia-of-sorts of very senior executives, it takes money and/or influence to penetrate the bureaucracy’s inner sanctum. Factors necessary for economic development are, in priority (1) private foreign investment or transfer of resources (2) reliance on foreign governmental aid and grants and (3) resourcing from commercial banks and Consortiums thereof. Foreign investment has been niggardly, Pakistan has generally avoided loans at higher interest rates from foreign commercial banks, bureaucracy relying heavily on foreign governmental/international credit institutional aid. The crutch of foreign aid has resulted in a major portion of our Budget going into Debt Servicing. A number of Ms Benazir’s aides, friends and near relatives led by her husband (and his appointees/collaborators in financial institutions) waylaid the BoI concept, misusing the PM’s authority for their own greedy purposes. One hopes that the loot of the public till will be ruthlessly punished without any political compromise. The recent move of BoI to the Federal Ministry of Industries is counter-productive to the priority meant to encourage foreign investment, the BoI must come under the PM’s direct purview in the PM’s Secretariat. Nawaz Sharif is inherently qualified to restore investor confidence in Pakistan. His first speech to the nation more than justified this.
Only Rs.16 billion (13%) of the Rs.120 billion government revenues in 1989-1990 was collected through income-tax, being collected through customs duties, sales taxes and excise duties, etc.
Rs 11.5 billion (about 10%) was contributed by Multi-National Corporations and State Owned Enterprises, Rs.3.5 billion (less than 3%) being collected from 1.1 million individual tax payers, approximately 500,000 salaried and 600,000 self-employed persons. According to informed sources fully 96% of our income tax staff (cost around Rs 3-4 billion) are out chasing this 3% (mostly for lining their own pockets). To benefit the individual entrepreneurial psychology and demolish mental restrictions for domestic investment, individual income tax must be ABOLISHED leading to mobilisation of resources through (1) direct individual domestic investment by (2) removing the psychology of fear that tax hounds use to line their own pockets. Without the freedom of investment we cannot hope for economic emancipation. An alternative and innovative scheme to tax credit at source must be instituted.
The bureaucracy has suffocated our tremendous human potential for enterprise in Pakistan while frittering away our great material resources, they must be removed from every single economic control in government, substituted by elected representatives and/or their nominees. No other Third World country can feed and clothe itself like Pakistan, our domestic oil production can well-exceed the present 25% of our normal demands. Pakistan’s economy is in dire need of DE-REGULATION through the whole spectrum of our Industry and Commerce as also Communications including Aviation and Railways. The rich bureaucrats could have hardly become rich without resorting to chicanery at the expense of the people. The public sector, with the exception of rice and cotton exports, must be completely dismantled. Rice and cotton being our main agriculture produce and export must be treated as exceptions, as other countries treat crude oil, etc as a national resource. Private enterprise can be solicited by bringing individual entrepreneurs into government at various levels on contract basis. Bureaucrats are not trained to be businessmen, the resources of public enterprises have been frittered away on various overheads meant to add to their comfort, most of their decisions lack commercial reality or are made with vested interest in collaboration with unscrupulous businessmen. Genuine competition is the essence of commercial practices that make an economy dynamic.
Whenever a new government comes to power, there is hope. Ms Benazir’s ascent to the PM’s post raised a lot of expectations, most hopes were frustrated at the altar of vengeance and/or outright greed, her government fell in a welter of disappointment for some of us. Nawaz Sharif raises aspirations in a less emotive manner (which in retrospect may be a good thing). A consensus exists among the various major parties on economic issues, in the national interest PPP should not opt for partisan politics and hamper Nawaz Sharif’s moves to solve outstanding economic issues. Indeed it behoves the whole nation to support Nawaz Sharif in his (Herculean) efforts to turn the Pakistan economy around, almost to the exclusion of everything else for the time being.
Did you enjoy this post? Why not leave a comment below and continue the conversation, or subscribe to my feed and get articles like this delivered automatically to your feed reader.
Comments
No comments yet.
Leave a comment