Lack of policy leadership

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Pakistan is facing a very difficult economic situation. Our growth has slowed down. We are running large deficits and are printing money, and/or borrowing, nationally and internationally, to cover the deficit. The consequences of that, in terms of inflation on one hand and accumulated debt burden (which our future generations will have to pay for) on the other are obvious. The poor growth performance and prospects are tied to this too.

We raise only 8-9 percent of GDP as tax, while our current expenditures are around 20 percent. And these expenses are after we have cut our development expenditures and other expenditures a lot. We need to, in fact, spend a lot more on education, health, social services, infrastructure and development. If we do not spend more, growth will remain slow and we will not be able to tackle poverty and unemployment efficiently either.

Our industry, agriculture and commercial activity are facing severe electricity cuts. And so are the domestic consumers but that is less worrying. What is more worrying is that we are still keeping commercial and industrial usage rates higher than domestic rates and are punishing our industry and commercial activity to subsidise the consumer. How can this be sensible when we need growth and employment generation in the economy? And we are also not giving priority access to hospitals and schools. Instead it is government offices, army, the rich and top politicians and officials who are getting privileged access.

The same is true of other areas as well. Whether oil prices should go up or not, and by how much, when international prices rise? Should prices rise for everyone or for a few? There is lack of leadership on that too. Government of Pakistan has taken steps and then gone back on them when there was pressure from coalition partners, opposition and/or from business community.

Gas load-shedding is also managed in a similar way. Those who are politically and economically powerful get gas, others do not. Again it is not the economic benefit of the country and its medium to long term or even short term goals that drive the allocations but self-interest of lobbies and groups and their political power.

It seems that the government is not able to exercise leadership in policymaking and implementation. Or to put it more starkly, the government is trying to play a very short term game and its leadership is all about ensuring survival till end of term and maybe some face saving for going into the next election, it is not about the medium to long term growth and development prospects of the country.

Clearly, we need to raise more tax revenue. But the government has been, despite promises to local as well as international players, dithering about it. And so have the political leadership from other parties. City based parties have been opposing RGST because it purportedly hurts their constituents, parties that depend on support from landlords and/or rural areas oppose imposition and expansion of agricultural tax.

The same lack of leadership is clear in other areas. We need to supply electricity to industry, agriculture and for commercial activity. If that means giving less to the army, the government, the top officials and even the households, the government should have the guts to be able to take tough decisions in the interest of the country. But we continue to mollycoddle the urban consumer. Clearly people need access to electricity for basics, and if there is a need the government should make the first 50-100 units, needed for basic lighting and fans and so on, even cheaper if need be. But as soon as households switch on air conditioners, there should be a sharp increase in tariff rates. People respond to incentives. And there is no incentive like relative prices. Raising prices for richer consumers and government should be the way to get electricity for the industry/commercial activity.

In access to gas, we should have similar considerations. And in raising oil prices, there are ways of discriminating between public and goods transport on one had and government and private transport on the other. Public and goods transport need to be protected but private transport should not be. And look at the number of government (civilian and military) vehicles that ply the roads in Pakistan. There should be some way of imposing price incentives on them. But of course, since this will hurt powerful and rich people we are not going to do that. Instead we are going to continue to tax the poor and the vulnerable.

The problem seems to be embedded in the way our political system is structured. Politicians do not feel they are accountable to the people, are responsible to them and/or depend on their support for being re-elected. The same is true of political parties as well. They are too concerned about support from ‘establishment’ and looking after the interests of the establishment, and/or the interests of powerful groups. That is why public health, public education and public transport are ignored but private education and private health for the elites is not even regulated and where underpasses are being built everyday, even in these difficult times, it is hard to argue for new schools and facilities for the larger populace. The only hope is that the next few elections will establish the supremacy of the people more and there would be a way to break the stranglehold of special interest groups in Pakistani politics or at least loosen it a little.

 

The writer is an Associate Professor of Economics at LUMS (currently on leave) and a Senior Advisor at Open Society Foundation (OSF). He can be reached at [email protected]