REALITY IS NOT AS BLEAK AS BEING PAINTED

SHABBIR H. KAZMI
(feedback@pgeconomist.com)
Dec 6 - 12, 20
10

It goes without saying that Pakistan suffers from bad perception, mainly because the local and international media has been printing/airing bad news rather than highlighting the achievements made by the country. At present it is said that the country suffers due to bad governance, mismanagement and corruption but Pakistan is not the only country suffering from these contentious problems. Similar stories have also hit the headlines in India.

Before, forming any opinion it is necessary to look at the achievements made and also the failures. This dispassionate analysis can help in evolving future strategy to attract fresh investment for boosting GDP growth rate.

Despite all the odds, Pakistan has been successful in boosting per capita incomes. This is remarkable keeping in view the failure to contain population growth rate. The incidence of poverty has also been reduced significantly although the number of absolute poor remains astoundingly high.

Food production has not only kept pace with the rise in population but often supply exceeds demand.

Leaving aside annual fluctuations due to weather conditions, the country has remained near self-sufficient in food. Pakistan has been exporting rice in large quantities and also achieved exportable surplus wheat. Food self-sufficiency has been accompanied by improved nutritional status. Daily caloric and protein intake per capita has shown constant improvement but malnourishment among children is still high.

The cracks in the dualistic nature of the economy are evident from some well-developed sectors and others still backward. A buoyant middle class has emerged. The use of better inputs and mechanization of agriculture has contributed in boosting share of the sector in total GDP but policies have not always been consistent or supportive.

The relatively inward-looking economic policies and high protection to domestic industries has not allowed integration of Pakistan with the world economy. Though, the situation has changed significantly over the last two decades the mindset of the politicians and the bureaucrats has not changed. A relatively inefficient private sector has thrived more on contacts, bribes, lobbying, tax evasion and rent seeking rather than attaining competitive and comparative advantages.

The situation can be changed by promoting domestic and international competition, reducing tariff and non-tariff barriers and removing constraints to entry for newcomers.

In terms of fiscal management, the record has been less than stellar. Higher fiscal deficit as a percentage of GDP has persisted for long periods and affected private capital formation. Defense expenditures and debt servicing still eat into a large chunk of revenues leaving a little to be spent on maintenance and expansion of infrastructure, basic social services and other essential services.

The state of financial sector indicates certain weaknesses. The nationalisation of commercial banks in seventies, the neglect of credit quality in allocation decisions, lack of competition and inadequate prudential regulations and supervision have kept the system under severe pressure and contributed to non-performing assets of the banks. The financial intermediation role in mobilising and efficiently allocating domestic savings has been often compromised.

One of the factors responsible for lower tax to GDP ratio has been the corrupt and inefficient taxation collection regime. While the policies have been driven by selected elites, masses have been forced to pay taxes through their nose, thanks to indirect taxation system. Elites have also enjoyed tax exemptions, worst being income from agriculture tax exempt. On top of this non-disclosure and tax evasion have proliferated due to introduction 'money whitening schemes' with regular intervals.

According to some experts, per capita income ranges from 1000 to 25,000 dollars and in case of feudal lords often touches 50,000 dollars. This is partly because of certain groups enjoying tax exemptions for ages. Be it capital gains made in the equities markets or all sorts of income clubbed under agriculture income has created 'blue eyed kids'. Enjoying ample wealth these groups also control legislative directly or indirectly.

The numbers often create an illusion that 200 million people are leading a comfortable life. However, gulf between rich and poor is widening with the passage of time, mainly because of distorted policies, particularly the taxation system in force in the country. Some of the experts say that the government hardly offers an incentive for investment, particularly, for the creation of productive facilities.

Though, the successive governments have been holding 'investment conferences' around the world and have been spending millions of dollars the response has been disappointing. The government knows very well that persistent load shedding of electricity and gas is the biggest hurdle in establishing new industrial units but little has been done to ensure uninterrupted supply at affordable cost. Though, some rental power plants have been granted permission, the whole process has run into controversy. The bottom line is that power to be purchased from these plants is unaffordable and therefore, does not provide a sustainable solution.

A factor really affecting investment is growing militancy and fragile law and order situation in the country. Some of the experts have been saying openly that 'fighting the US war' for nearly three decades is the reason for growing militancy in the country. Funding of various extremists groups by some of the neighboring countries, to achieve their own ulterior motives often results in armed clashed with law enforcing agencies and even army. There is a growing perception among Pakistanis that the sole aim of the groups receiving funds from outside is to destabilise the country. Attacks on the places of worship and educational institutions are aimed at creating anarchy in the country.

The imperatives of globalisation and integration with the world economy dictate that the countries that are not agile and do not seize the opportunities at the right time are likely to be losers. The encouraging factor is that the economic policy stance of Pakistan is based on liberalisation of the economy. Pakistan had made a head start and let it not be distracted by those having vested interests. Pakistan's destiny depends on the hard work, discipline and internal cohesion of its people and the vision of its leaders. Let our future generations not blame the leaders for failing to create a legacy of prosperity and hope for them.