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PM's concern over economic slow down

  1. PM's concern over economic slow down
  2. Convention on quality improvement
  3. Role of private sector in power generation
  4. Pesticides and their effects on crop ecology

The problem is that government has set wrong priorities and its political agenda always takes precedence over economic imperatives

Oct 11 - 17, 1999

Prime Minister Nawaz Sharif has repeatedly expressed his concern over economic slow down in the country. During the two cabinet meetings in early September he wanted to know from his ministers as to why the economy was not picking up despite all concessions and incentives provided by the government. He felt particularly concerned about the inadequacy of revenue collection, slow down rather stagnancy in investment both domestic and foreign and declining trend in export sector. After a long debate in which almost all participants were invited to express their views freely, a four member Committee was formed to suggest measures to revive the economy which the Prime Minister said was his main concern.

The special cabinet committee was asked to come up with proposals in five areas which may kick-start the stagnant economy. These are tax collection, agriculture, export, investment and sick industries.

The Committee completed its task within one week as was desired by the Prime Minister and the federal cabinet discussed the report of the special committee continuously for two days and approved the report with certain amendments. What the committee has suggested in each of these areas, has not been made public. The government, however, announced an increase of Rs. 40 per maund in the support price of wheat which is reportedly based on the recommendation of the special committee. According to insiders the committee has recommended early revival of all viable sick industries, bringing down interest rates of the banks, removing multiplicity of taxes and removing irritants with international donor agencies by early resolution of IPPs issue etc. For increasing exports the committee has reportedly proposed recruitment of highly proficient staff with requisite expertise, setting up of export cells by commercial banks, shifting of roles of Pakistan missions from politics to economics and improvement in skills of Pakistan work force in export oriented industries.

For streamlining agriculture, the committee suggested starting of one window operation for extension of agriculture credit in all the provinces, revamping of ADBP by inducting professional people both on its board and management, incorporation of provisions for loans to small farmers for acquisition of agricultural technology in the rural agriculture credit scheme.

For attracting foreign direct investment, the committee proposed provision of incentives to foreign investor for 5 years after his undertaking of investment in Pakistan, resolution of IPPs issues, reviewing cash flow problems confronting investors so that foreign firms can get credit facilities to expand their projects. For home remittances the committee proposed to hasten the process of delivery of all remittances to the recipient's door step.

As in the last meeting of the cabinet the Prime Minister expressed his concern over the absence of any visible indicators towards a pick-up in investment activity and export growth. He wanted concrete suggestions from his ministers for a jump-start in economic revival. He also expressed his dismay over the existing slump in the process of privatization of state-owned enterprises and advised the Privatization Commission to take innovative steps including holding of seminars for attracting buyers for disinvestment of public enterprises.

The Prime Minister's concern over the economy's continued lack of response to the government's measures such as incentives to the private sector for industrial investment, is quite understandable. It appears that potential investors, both foreign and local, remain hesitant, their confidence has been shaken badly by the freezing of foreign currency accounts. This has also given way to the belief by investors that the government's promises on vital economic issues could not be relied upon. If seen in this context, a slowdown in the process of privatization also appears to be the result of the private sector's extremely cautious outlook.

Since the PML(N) government came to power its promise of reviving the economy and recovering the looted money of the banks and the stolen wealth of the country appears to have been shelved. Initially a period of three months was specified to reinvigorate the economy and put it back on a course of growth and expansion and for that purpose six or seven reform and incentive packages were worked out and announced by the Prime Minister in quick succession. The period of expected economic revival was later extended to six months, then to a year and then to 18 months. However, 32 months later, the economy hardly shows any signs of revival the recession is intensifying, both making it clear that the supposed life-infusing packages have failed to work.

Now more than half-way through its constitutional tenure of five years, and yet the government has failed to resuscitate the economy, which in fact is in worse shape now than it was in February 1997 when the government came to power. This is despite the very liberal assistance the regime has received from the international community. The reasons for failure of the incentive packages and other related efforts are either the government's flawed or wrong policies or weak enforcement efforts. In the matter of taxation, neither the exempted sections (landlords, etc.) have been netted in, nor have the escape routes (bearer bonds and certificates) been closed, nor indeed could the much talked-about sales tax and documentation of the economy be enforced. In all these areas expediency got the better of financial prudence. In agriculture, reliance has been placed mainly on the easy way of increases in support prices and also in respect of prices of inputs which were stretched to the limits until the law of diminishing return began to operate in the shape of exportable surpluses of cotton, rice and sugar having become out priced in the international market and their disposal proving a burden on the economy. On the other hand, had reliance been placed on higher productivity through quality seed, better water management, expansion of extension services to educate farmers in proper use of fertilizers and pesticides, the problem of disposal of surpluses would not have arisen.

In the area of investment, the government itself has queered the pitch for it. It allowed political considerations to prevail over economic rationalism in the case of independent power producers (IPPs). Since its assumption of office, it is having a running battle with IPPs in which courts and the due process of law have come out in a poor light. This has had a profoundly discouraging effect on foreign investors. As the government has failed in its promise to recover bank loans from defaulters and efforts to this end have been virtually abandoned, financial institutions find it difficult to lower their interest rates or lend liberally. Additionally, widespread unemployment resulting from decreased development expenditure and downsizing of government departments and public enterprises has contributed to the shrinkage of aggregate demand, heightening the downward spin of the economy.

Surely, the real reason why the economy is not picking up and what actually needs to be done to revive it must be known to the host of experts and specialized agencies available for advice to the government, like the planning commission, the State Bank, etc. But these are usually ignored and if at all they are consulted, proper weight is not given to their advice. The problem with this government is that it has set wrong priorities and its political agenda always takes precedence over economic imperatives. The economy will begin to revive only when economic issues are tackled without allowing political or other expedient factors or considerations to influence the process.