SHABBIR H. KAZMI (feedback@pgeconomist.com)
Feb 15 - 21, 2010

A fact has been established beyond doubt that the policy of keeping interest rate high has failed in containing inflation. In fact the policy has subdued fresh investment, raised cost of doing business, eroded competitiveness of the local manufacturers and above all created discontent among the business community.

It is said that the policymakers are not only incapable of understanding the issues facing the country but also lack the capacity to make timely and prudent decisions. Keeping interest rate high, persistent hike in energy cost, running power plants at lower capacity to contain circular debts, taxing the already taxed and above all extravaganzas of the elected representatives are some of the factors plunging the economy into the recession.

The policy framework has emerged faulty because the basic premise is incorrect. While economic analysts have been screaming that inflation in Pakistan is cost-pushed hardly any deliberate effort has been made in bringing down the cost of doing business. All the measures taken by the economic managers have fueled inflation: be it hike in energy cost or withdrawal of subsidies under the dictation of IMF.

One of the reasons behind the success of the previous regimes was that it came up with 'homegrown' policies to avert the economic crisis triggered by imposition of economic sanctions. Though, the IMF allowed standby financing arrangement reluctantly, the successful completion encouraged the fund to extend further supports. However, Shaukat-Musharraf duo very politely declined the offer and chose instead to mobilize debts from the global markets on the competitive rates.

In contrast, having got the breathing space through substantial commitments and disbursements from the IMF, the present regime has not come up with any of its very own policy framework to put the economy on the track. Instead of introducing homegrown policies that attract fresh investments and thereby creating new job opportunities and enhancing purchasing power of the people, present regime is adding to the burden of debt servicing.

Rising inflation and eroding purchasing power is pushing more and more people below the poverty line. Economic slowdown is also affecting revenue collection but lavish spending by the public representatives has broken all the previous records.

Interestingly, leader of the opposition in the national assembly belonging to PML-N and also heading the Public Accounts Committee has not gone beyond offering lip service. Most of his time is spent on criticizing the present regime but his party seems to be having no plans to bring the country out of the economic malice.

For a considerably longtime sugar crisis is prevailing in the country. Neither the National Assembly nor any of its sub-committees have come up with a solution to resolve it. Though, many of the politicians owning sugar mills in the country, fully aware of the acute shortage of sugarcane in the country have not resisted import of refined sugar. Their motive was simple, let the government import sugar at landed cost above Rs75/kg so that they could also sell sugar produced at their mills at a higher rate.

The average comprehension of the issue by the elected representatives can be gauged from the fact that they even did not invite representatives of the Sugar Board for explaining the reasons for the crisis and also the solutions. They kept their eyes and ears closed when the government rejected proposal of the sugar industry to allow import of raw sugar by the mills and approve import of refined sugar.

Elected representatives are fully aware of the fact that hike in electricity and gas tariffs is bad for the industries, particularly export oriented ones. Opposition's role has been more than disappointing because it has been condoning massive electricity theft and allowing the government to persistently increase electricity tariff in the name of improving cash flow of the electric utilities. According to a critic, money being spent by Pepco on media campaign for saving electricity should have been spent on buying fuel or resolving circular debt issue.

The same is also true about load shedding of gas. Many of the gas fields could not be developed due to ongoing litigation. Closure of CNG stations has not only increased import bill of motor gasoline but also affected profitability of these outlets, resulting in retrenchment. On top of every thing, certain quarters are suggesting to abolish the difference in price of CNG and motor gasoline.

Pakistan could import natural gas either through pipeline or in the form of LNG. Each option has merits and demerits but one point is very clear that to augment supply not only domestic exploration activities have to be enhanced but other options also have to be explored to ensure uninterrupted supply of gas at affordable price. However, it goes without saying that import of natural gas from Iran through pipeline is a better option as compared to import of LNG. Pakistan already has an elaborate gas transmission and distribution network and injecting additional gas into the system will be less capital intensive.