While the budget was reasonably well prepared and most targets and allocations were in tune with present requirements, the government will have to move beyond the business-as-usual model to achieve credible results. Fortunately, there are visible signs that some of our more prominent economic managers are lobbying to implement progressive reforms aimed at removing price distortions and enhancing exports urgently.
However, there is just as active resistance to these initiatives for political concerns. This being the government’s fourth year, the other bloc advocates putting off difficult decisions like privatisation till after the elections, citing political practicality. But the fact that surgical reforms are being advocated aggressively at the top level is encouraging in itself.
More than technical sectoral issues, our problem is one of structural distortions that just require political will to set the process of reforms in motion.
The economy’s most urgent concern is unlocking indigenous resources to stimulate stagnant growth. For that, it must quickly identify and remove irregularities that have long caused unnecessary leakages to the resource base. State Owned Enterprises (SOEs), incurring billions in losses, are a good starting point. It seems our top decision makers have yet to realise the true benefits of privatisation, especially since the privatisation commission boasts an impressive record of transparency. Recent bottlenecks owe not as much to lack of investors as political hesitation.
Privatisation will not only free fiscal space that SOE funding occupies, but also raise tax revenues. In a surgical operation, all SOEs should be transferred to the privatisation commission immediately. With just one top-level go-ahead, this initiative will save billions already hemorrhaging from the system, in addition to bolstering the revenue base.
Similar surgical cleansing is needed in the energy sector to safeguard production. Our present cost structure does not charge real costs, which creates government debt and reinforces high inflation and low re-investment. Also, when gas comprises 48 per cent of our energy mix, we remain well below our production possibility frontier by expanding the pipeline network when its supply is short and promoting CNG.
Presently, Pakistan has the most vehicles powered by natural gas in the world. There are major distortions in gas pricing. There is an urgent need to remove these distortions, bringing the end price closer to prices of other forms of energy. To utilise this limited resource optimally, gas resources need to be allocated to more industry use, increasing production, revenue and employment. Once again, these measures can show visible results within months if proper steps are taken at the decision making level.
Certain foreign policy positions also need to be revisited. We must move beyond our traditional equation with India. Both countries have to realise that the epicenter of the world is shifting to our part of the world, and China and India will be among the main drivers of the world economy in the next two decades. Pakistan should leverage the fact that India is one of the world’s fastest growing economies. Opening borders can give a shot in the arm of Pakistan’s economy in numerous ways. Real estate prices here can move to parity with India. Every major across-the-border investment will generate hundreds of transactions and relationships in spillovers.
Interdependence and people-to-people contacts will boost trade and tourism, besides doing a world of good to our international perception. Pakistan and India together represent 80 per cent of the SARRC economy. It is unfortunate that their current trade level hovers around a paltry $2 billion formally and $5-7 billion through informal channels. These measures do not require long time frames to accomplish. To achieve them, all that is required is political will at the top and effective management. To start, it is a good idea to consolidate resources like oil, gas, coal, water and power under one ministry. There must be integrated planning where industry is taken on board.
There are some pertinent examples to follow. By 1992, India was practically bankrupt. Then Finance Minister Manmohan Singh managed to convince Prime Minister Narasima Rao of the necessity of pushing through difficult free market reforms aimed at removing structural irritants from a rapidly deteriorating economy. Rao’s boldness in embracing the reform agenda, despite the fragility of his minority government, stimulated the high growth trajectory from which India never looked back. The PM’s appreciation of the need for change, and his determination in carrying it out, earned him the title ‘Father of Indian Economic Reforms’ from many.
China, too, faced bankruptcy in 1979. The communist party’s recall of Deng Xiaoping from exile prompted fundamental economic reforms that introduced China into the global market and opened it to foreign investment. The resulting socialist-market-economy model set the stage for 30 years of high growth, from which China also never looked back. Let us face facts. Pakistan is also on the verge of bankruptcy. The longer these necessary reforms are put off in favour of political correctness, the longer we will languish in stagflation, and the more difficult subsequent restructuring will become. We stand at a crucial point in our history. Still, much progress can be made by taking bold decisions aimed at surgical removal of economic rigidities. The sooner we become proactive, the sooner we can generate enough resources to fund our own progress.
The writer is Chairman, Nishat Group