Optimal utilisation of resources

Planning Commission Deputy Chairman Dr Nadeem ul Haque is right in stressing the need for a sustained seven per cent growth rate for two decades in order to keep parity in population growth and employment. Our low-growth-high-unemployment mix is particularly volatile because of the high percentage of youth joblessness. The economy is simply unable to build required capacity to stimulate the job market, perpetuating the vicious circle with low consumer spending, low re-investment and persistent low growth.
This phenomenon is also always intertwined with political and social restlessness as unemployed, frustrated youth can make few positive contributions to the economy. Therefore, there can be little disagreement with the urgency of job creation and healthy growth numbers in the medium to long term.
Hopping onto this growth trajectory, however, is another matter altogether. And relevant authorities realise only too well that in addition to prudent planning, it requires strong political resolve involving the highest echelons of power. Unlocking the growth potential will need painful decisions that do not necessarily sit well with traditionally regressive planners too cautious about upsetting the electorate just one year from the general election. Yet without the necessary overhaul the election will most likely be a vote-out affair anyway, since the government will be unable to meet budget targets.
To initiate meaningful change, the first step must involve changing the prevalent political mindset towards adopting a more progressive economic model. Presently, while our macro and micro indicators remain stuck far below the production possibility frontier, the budgetary exercise was without any meaningful measures to improve the chronically low revenue generation capacity. Till the economy remains deprived of fiscal space, especially if it can be achieved if pursued seriously, job creation measures will be sparse and the growth rate will not improve.
There is an urgent need to broaden tax receipts, which will not be achieved by simply wishing an expansion in the tax base. But we have seen no new taxes, and no new proposals. Despite devolution of considerable powers to the provinces, budgets are tall on targets with no proportional reflection of assuming responsibility. The debate about the agriculture tax was not allowed to gather momentum. It was shot down whenever it was raised. Clearly, those in power have yet to appreciate its centrality in raising government revenues. The finance ministry has made its constitutional inability to tap the agri-tax quite clear since it lies in provincial jurisdiction. And provinces show little signs of movement. With such rigidity, the seven per cent growth for two decades will not be achieved.
The RGST issue, too, exposed government constraints in political lobbying. It was unable to move beyond the paralysis induced by trading lobbies with powerful representation in parliament. These are examples of gross under utilisation of available resources. There is plenty of spare capacity that is not being utilised. The economic machinery is not functioning to its optimal simply because the government lacks the necessary political will to carry out necessary reforms.
Another glaring example is continuing hemorrhaging of billions from public sector enterprises. Even government officials have repeatedly called for their immediate restructuring and privatisation, yet the go-ahead is nowhere in sight. There seems an inherent reluctance to moving out of an economic structure long used for political leverage. Yet till that resolve is found, our economic stagnation will gather pace, making subsequent revitalisation that much more difficult.
Lack of progress on above measures restricts the government’s fiscal ability. With additional reserves not coming, and defence and debt taking up most of the budget, the development sector invariably gets the smallest piece of the pie, and will continue to the way things are going. Our education alloaction is among the most miniscule in the region, landing us in the league of nations like Afghanistan. Authorities seem not to realise that education has a direct correlation with peace and stability in our current security paradigm. Lack of education and youth unemployment fuel extremism and hold back progress in the war against terrorism.
There has also been no meaningful progress with regard to the energy crisis. Despite promises, the government has failed to ensure power to households as well as industry, further stifling growth. It is not so much an issue of enhancing capacity as of fine tuning the existing setup. Our production capability is comfortably in excess of our needs, yet availability is ridiculously scarce.
In conclusion, Dr Haque’s seven per cent growth target is the ideal to be aimed at. The government is well placed to undertake bold reforms that will unlock two-fold advantages – stimulating the economy and pleasing the vote base. But its current posture is indicative of misplaced priorities and lack of necessary will without which the cycle of stagflation will not be broken, high growth being a distant dream.

The writer is Editor, Pakistan Today