More than fundamental and structural issues, most of Pakistan’s current economic problems stem from lack of governance. Matters of inadequate tax collection, checking damaging leakages from state enterprises, low private sector investment in crucial sectors, etc, owe mostly to lack of proper governance and subsequently corruption.
To make any sort of progress, the government must fulfill its promise of promoting a merit based system. Institutions that are incurring losses should not only be led by able, dynamic and respected individuals from the private sector, but their heads should be given autonomy to meet mandated turnaround targets that are not possible in the presence of persistent high-level interference.
The Sindh Coal Authority is a good example. With a budget of Rs740 million, it has set up five offices but we have yet to see any credible work being initiated. If leveraged judiciously, this project, along with others like it, has the potential to solve our energy crisis to a great extent.
This brings us to matters of corruption and official bottlenecks that retard progress. Our economy – unable to snap out of low growth while high inflation and unemployment erode consumer spending – simply cannot afford the existing cramped fiscal posture any longer. Every year, public sector organisations alone lose to the tune of Rs400 billion, pushing the government to fund non-development heads from the PSDP and continue with debt monetisation, squeezing the life out of private sector investment and hence a possible bottoming out of low growth.
While the argument for their turnaround and privatisation, as often advocated in budget debates in these pages, is credible and will free the government’s spending constraints to no small extent, such decisions should be made in light of existing local as well as international developments. Much of the world is still experiencing a disturbing hangover of the international recession, so attracting potential buyers will be no easy task. Middle Eastern countries have surplus capital resources though, but they have expressed interest in the financial sector and oil and gas, implying that the biggest irritants like the steel mills are more likely to be left out.
A more prudent policy would aim at effective restructuring that can prevent unnecessary losses and engineer a much needed turnaround in these entities. For that, the first step must be checking rampant corruption and nepotism. Corporations have long served as the ideal venue for politicians to appease benefactors through political appointments. If that is not bad enough, we have also been witness to the spectacle of reinstatement of old employees that were not given the best treatment during previous governments.
Before any talk of privatisation, they should be made sustainable, for which unnecessary drains will have to be removed. Also, even if sold, the one-off gains should not take as much high-level attention as promoting fresh investment, the main driver of growth in our present position.
In terms of investment, a lot more focus needs to be placed on large scale manufacturing to stimulate production, exports and eventually growth. So far, our biggest crisis has been in the manufacturing sector. Considering the present environment, authorities have a good opportunity to exploit in agriculture, especially agri-industry.
This is where Middle Eastern investment can also be attracted to the benefit of both parties, as they are looking for stable food supplies.
Recent spikes in international commodity prices also open windows of opportunity for Pakistan to incorporate investments that drive value addition in the agriculture sector to match existing demand with adequate supply. To utilise such opportunities, the government should initiate an accommodating expansionary fiscal policy aimed at upgrading social overhead capital and infrastructure that links the rural agriculture heartland to the urban marketplace.
In addition to boosting agri-industry, it will create jobs and promote consumer culture, driving up sales and overall economic activity. The SMEs, too, continue to be neglected. A large chunk of our private sector investment is in this sector, which has immense employment generating capacity. The government should aid SMEs by providing financial and credit facilities, besides marketing and outreach.
The above measures have the potential to free government resources as well as attract much needed investment, but they require energy that we are running chronically short of. Again, continuing to produce energy well below our production capability runs into management and organisational failures. We must upgrade the existing infrastructure and modernise transmission and distribution companies.
The target should be expanding electricity generation at a rate lower than average cost. If it exceeds average cost, like relying on rental power, we only end up adding to the circular debt, driving yet more nails in our power generation coffin. So, while the government goes about generating tax revenues that it is banking on to meet the growth target, there are ample avenues of freeing resources and attracting investment.
But so long as governance is not improved and corruption free access not provided to foreign investment, we will remain caught in stagflation. Relevant authorities must display the necessary political will to incorporate bold governance reforms.
The writer is a former finance minister