The PSM example

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The Rs6 billion bailout package for Pakistan Steel Mills violates one too many essential economic principles to warrant any appreciation – throws good money after bad, encourages moral hazard, rewards incompetence, sets bailout precedents even in this environment and only delays the inevitable. What happens when this bucket dries, and the family silver needs polishing again? How long will the government keep providing last minute lifelines to sick and hemorrhaging enterprises.
Time and again, we have stressed the need to ease the government’s fiscal burden, a sizable bunch of which springs from inefficient institutions. PSM should actually lead the way in the government’s final turn-around initiative that restructures these organiastions in preparation for strategic privatisation. Short of that, there is no way this particular black hole can be plugged.
Presently, the government’s cramped spending space has severely compromised bottoming out of stagflation. With monetary policy also compromised, again because of inexcusable government borrowing, inability to incorporate targeted expansionary fiscal policy has ruled out the option of stimulating infrastructural expansion and job creation at the same time. With these inefficient, sick giants in need of constant fiscal support, there is no way financial managers can engineer an uptick in investment and consumerism.
Such patterns are indicative of the overall direction the finance ministry is posturing in. With exports slowing, no signs of FBR restructuring, and available resources increasingly channeled towards non-productive compulsions, there is little possibility of important statistics entering safe zones. At the end of the day, the tax paying middle and lower income groups are squeezed for government inefficiency. With elections not very far off now, the government should at least be prudent enough to prepare itself for a vote-out surprise unless a significant shift in direction takes place. Steel Mills must be made an example of, but a positive, beneficial one.