Economic agenda for 1993
The far-reaching reforms enacted by the Nawaz Sharif Government are now beginning to take hold through the whole spectrum of the economy but there are warning signals during an extended transition period. The State Bank of Pakistan Report for 1991-92 spells out dangers that must be overcome in 1992-1993, mainly the ever increasing deficit spending and the likelihood of double digit spending. While growth has increased to 6.4% of GDP from the 5.5% recorded in 1991, it would be worthwhile to maintain growth levels while fighting inflation.
The growth in the financial sector has been impressive, even overwhelming, there are those who are rightfully apprehensive that it is too much too soon and that the money bubble might burst. However, the dynamics of free market forces have dampened the upsurge in stock market enthusiasm and brought it down to saner levels before we could be witness to a market crash. The State Bank of Pakistan (SBP) has come out with Prudential regulations to govern the working of Modarabas. As much as these are somewhat restrictive, in our special circumstances where we have repeatedly faced investment company frauds and Coop Scams, it is a must.
The Nawaz Sharif Government has embarked on an ambitious public works programme with special emphasis on motorways, highways, telecommunications, ports and airports. Somewhere along the line, a Bullet Train has also been mentioned. This is basically a revamping of the “New Deal Theory”, that by pumping in money into the public sector we can kick start the economy. While we certainly agree wholeheartedly with the concept, there is the matter of priority, politics must be balanced by economics and a clear-cut order of priorities must be spelt out. There is certainly a need for a North-South Motorway from Landikotal to Karachi, preferably on the west bank of the Indus. The second priority would be to push through a similar motorway along the Pakistan coast from Karachi to Gwadar, as well as a parallel railway line, so as to provide a communications infrastructure for the proposed ports. To open up part of the Northern Areas, the Lowari Tunnel Project must also be renewed. This will give us another access route to Central Asia eventually.
The liberalisation of the economy in which foreign exchange controls have been done away with has resulted in a significant inflow of foreign exchange, though as yet not in substantial quantities. As Pakistanis realize that there is really no control over having foreign currency accounts within the country, more and more exchange will flow in. International institutional investors will not be far behind. At this time we have the largest amount of foreign currency reserves at any time for a decade or so. However, there is a growing dependency on commercial credit as opposed to institutional aid, this would result in quicker and heavier repayments, we may even find ourselves in the same debt trap as the Latin and South American countries were in the 60s. As much as the thought is resented in our official IMF-dominated financial circles, we could ask the international finance institutions for a debt moratorium. Debt servicing eats away a large part of Government of Pakistan (GoP) revenues, we need to get some breathing space.
All said and done, the ultimate solution is to increase revenues collection. Since our taxes and customs duties are extremely high, individuals resort to giving substantial bribes to public officials to evade this. This black money is usually converted into foreign exchange and deposited outside the country, a total loss to the economy. At the same time our agriculturists do not pay income taxes, this means that the revenue burden is borne by only 500,000 salaried and 500,000 self-employed individuals. This is a pitiful figure in a nation having a population of 110 million or even more. The main reason for not getting enough people into the tax net is because (1) the income tax system is centralized and (2) the lawmakers are mainly big agriculturists and they certainly will not allow any laws detrimental to their interest to be enacted. The only way out of this trap is to localise collection and expenditure of revenues, particularly that of income and wealth tax while lowering the tariffs for importables to such levels that it would make more sense to pay them than to evade. Decentralisation down to the Thana level for tax collection is necessary because only the locals would really know the earning capacity and wealth of those in their midst and as such they would correctly assess how much they should share in the expenditures required for the general public good. There is a great need to reform the public revenue system, to bring out a direct relationship between taxation and spending. One of the biggest problems affecting Pakistan economically and socially is the widespread corruption in the civil administration in all sectors. We cannot plug the loopholes by stopgap or punitive measures alone, we have to carry out total reform of the taxation system with special emphasis on revenues collection.
One major move that the government can take is to clamp down on the vulgar display of wealth, what is particularly distressing is the large and endless functions pertaining to weddings. What was once the privileges of Shahzadas and Maharajahs has been adopted by the nouveau riche in an obnoxious exercise of one-upmanship. Weddings in our Islamic religion are supposed to be simple affairs, the current joke is that without a singing session by Nusrat Fateh Ali Khan, Isakhelvi, Sabri Brothers, etc no self-respecting bride will consider herself “properly” married. One would laugh if this were only a joke but the ostentatious display of wealth flouted in the face of poverty that is endemic among the masses, is a source of great concern. There are laws against huge weddings, dowries, etc but how can these be implemented when the highest in the land grace many of these occasions? The parents of the bridegroom and bride do not dare have simple weddings for fear of being socially put down by the others. Another atrocious practice becoming fashionable is to lay down the type (and colour) of dress (for guests) at various functions leading upto the main event. We have forgotten our culture in our search to outdo the others, taking on rituals that do belong to the sub-continent but have nothing to do with Muslim traditions and/or practices. A large segment of our society has thus degenerated into becoming upstarts. GoP must mandate the civil administration to implement the laws of the land.
One of the most effective acts of former PM Junejo was to put all government servants in Suzuki cars. Not only did this hold down administrative costs in capital and recurring expenditures, it acted as a symbolic cut-off point, a psychological incentive to the rest of the country to practice austerity. In stark contrast to Junejo’s austerity programme, there seems to be an open season declared on the public exchequer by both the successive elected governments. The Mitsubishi Pajero, the Toyota Land Cruiser or the Honda Accord is the current rage, every public servant who is anybody must possess one at government expense! While realising that public servants do need cars and their families will certainly need to utilise them, one feels that they should be given a one-time grant for transport after a few years of service and a monthly allowance for driver, fuel and maintenance. This is just one example that illustrates how to cut down non-development costs and lay down the parameters for an effective and practical austerity programme.
The one-window concept should not be confined to foreign or domestic investment but should extend to the whole spectrum of the daily life of a citizen. Every town and city should have a number of Civic Centres that will process applications for electricity, gas, water, telephone and sewerage connections as well as give approval for building plans, do the registration of leases, births, deaths, etc under one roof while coordinating educational and medical institutions in that area. At the moment the common citizen has to run from pillar to post for everything. By decentralisation and bringing everything together under one roof, both efficiency and revenue collection (as leakages are plugged) will be increased. The institutionalisation of the one-window operation will go a long way in encouraging domestic investment in industry and the services sector.
The Services sector has been sorely neglected over the past few decades in Pakistan, it is mostly an unregulated sector. This anomaly must be corrected because the Services sector is a major part of the economies of developed countries. At the moment the financial institutions do not give the same concessions and facilities as given to production. While productivity can never be replaced as the main prop of any economy the support of the Services sector is a must to bolster up the economy. In this respect, the city states of Singapore, Hong Kong, Dubai, etc are examples of how industry and commerce are matched by the Services sector to make for a comprehensive economic model.
While there is no doubt that the political government is sincere about deregulation, denationalisation and disinvestment, nagging doubts do exist about the bureaucracy’s commitment since the privatisation process is only intermittently transparent. The government must reach out to known individual expertise in the private sector and bring them on contract for short periods of time into that part of the public sector which must remain under government control. This must be a bipartisan selection to ensure that the government’s policies are implemented and do not end up in a welter of red tape. The current civil administration is quite reluctant to let loose the controls of government at each level and one does not expect the Pakistani bureaucracy to do that easily. A perfect example is the scandal about violations of civic laws by builders of high-rise buildings in Karachi, after all the hurly burly is done one finds that the bureaucracy had “forgotten” to issue a Gazette Notification about control on the height of the high-rise and as such the builders can now do anything they want, encroachments included. The Sindh Government went so far as to post one of the major violators of city regulations as a “Regulator” in KDA, putting the fox to guard the chicken coop! This only goes to show the recalcitrance of bureaucracy. Unless the bureaucracy is shackled and their capacity to control is restricted, Pakistan’s economy will continue to be straitjacketed and reforms will have lip-service effect.
The major item on the economic agenda for 1993 is to continue to reduce the inter-action of the bureaucracy from the daily life of the nation.
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