Finally there is a modicum of consensus between the PPP and PML(N) on fixing the economy. Mr. Ishaq Dar has promised the nation good news on 26th of January when the joint committee of the two parties meets to discuss Nawaz Sharifs ten-point agenda a sine qua non for co-operation with the government.
But given the dire economic straits that we are in, it is easier said then done. As it is, none of the International Financial Institutions, IMF inclusive, are willing to give us a free lunch.
The other day the head of DFID (the UK equivalent to US Aid) met some businessmen and economists in Lahore. He told them plainly that unless Islamabad implements key economic reforms Britain would not be doling out more aid. The U.S. Secretary of State Hillary Clinton is on record saying why should the American taxpayer subsidise Pakistan?
It is another matter that the US spends a very meager amount on foreign aid (one percent of GDP) but a much heftier amount on its military industrial complex to keep its stranglehold on foreign soils. But beggars cannot be choosers.
Right now the conundrum for our policy makers is how to convince the ruling elite that the countrys economy is sick to the core. We have lived far too long beyond our means. And now when the proverbial has hit the fan, we are finding it impossible to implement the reform agenda agreed with the IMF without alienating large sections of the population.
The parliamentary committee has decided to unveil a new formula for transparent fixing of oil prices. With international prices of oil now crossing US$ 100 a barrel, it will be virtually impossible to maintain the present level of POL prices. But this is the issue on which the MQM quit the coalition and only agreed to return sans cabinet posts, after the government withdrew the increases.
This decision irked our donors who want their reform agenda, including withdrawal of subsidies, implemented willy-nilly. In this kind of situation, the ruling party can hardly bank upon the MQM for support. The manner in which the partys supporters ransacked the KESC offices in Karachi does not augur well for acceptability of any kind of reforms, which entail price hikes or further taxation.
Does this mean that the PPP and the PML(N) are inching towards a broader understanding to put the economy back on the rails by having joint ownership of the agreed economic agenda? Of course the PML(N)can take due credit for forcing the governments hands to reform itself. But this will come at a political price. The party already accused of being the friendly opposition will be laid bare by its critics to the charge of bailing out a corrupt government.
Nonetheless Mian Nawaz Sharif has taken a statesman like approach. This has certainly strengthened the hands of the technocratic economic team, which has little clout with its own political masters.
As Dr. Hafeez Sheikh briefed the politicians, including those belonging to other factions of the PML, that in case no measures were taken the fiscal deficit could cross 8 per cent of the GDP. There is little fiscal space to absorb a Rs. 20 billion per month power subsidy and a Rs 5 billion subsidy on petroleum products.
Of course this would lead to hyperinflation, unprecedented in the history of the country with all its social consequences. As it is, the consumer price index (CPI) rose by more than 15 percent from a year earlier. These inflationary pressures can be partly traced back to the unprecedented increase in government purchase prices of agriculture produce when the government assumed power in 2008. Mr. Ishaq Dar as finance minister opposed these measures but Mr. Zardari vetoed him.
This increase has brought unprecedented prosperity in the rural economy but the urban poor and the fixed income group find it virtually impossible to make ends meet. According to a survey, 60 per cent of the population lives on less than $2 a day, much below the subsistence level.
Part of PML(N)s agenda is to reform public sector entities. Some of them can be privatised. But this will take time and can only be considered as a medium term goal. Unfortunately, these corporations have become a sinecure for political patronage and cronyism.
For example, mismanagement, corruption and insider trading have run the Pakistan Steel aground. It was a profitable enterprise during the Musharraf regime ripe for privatisation. But unfortunately, owing to successful lobbying in the media by a retired general who was heading it at the time, its privatization was stopped by the Supreme Court.
WAPDA and Railways are monoliths and a heavy burden on the exchequer contributing substantially to the budget deficit. A beginning has to be made to reform them and partly privatise their functions. Similarly, the national airline is running huge losses. In this era of privatisation and deregulation, the government has no business running an airline. It should sell the airline instead of retaining it for political reasons.
Another thorny problem is the endemic gas and electricity shortage. The committee headed by Petroleum Minister Naveed Qamar has to grapple with sharing these shortages among provinces and different sectors of the economy .It must also devise measures to utilise existing capacity and evolve consensus on how to produce more energy including hydroelectric power.
Reduction in the size of the government is not only necessary but also doable after the eighteenth amendment. But unless it is across the board even for the provinces, it will lose its economic efficacy.
The PML(N) after initially supporting the RGST backed off at crunch time. The economic committee will have to evolve measures to expand the tax net, and to document the economy. It is a shame that our tax-to-GDP ratio is a paltry nine percent of the GDP, whereas in decent economies it should be at least15 percent.
Mr Jahangir Tareen, a former industries minister under Musharraf and a successful entrepreneur and a progressive farmer in his own right, disclosed in a recent seminar on the economy that 15 percent tax on agriculture is hardly collected by the provinces. The reason is obvious. No one wants to annoy the agriculture lobby dominating the assemblies; not even the paragon of good governance, the Chief Minister of Punjab.
Of course the PML(N) should make Punjab a model of good governance for the smaller provinces to follow. But for that to happen, Mian Sahib must have a heart to heart talk with his brother to change some of his policies skewed in favour of populism rather than good governance.
The writer is Editor, Pakistan Today.