ECONOMIC IMPLICATIONS OF BAD GOVERNANCE
Jan 3 - 9, 2011
Pakistan's economy is virtually in recession for many reasons which also include bad governance. In a country, where up to 40 per cent of 170 million population lives below poverty line on one dollar a day or less, the critics say, the ruling elite want to keep its perks and privileges at all costs. The officials feel no hesitation in involving financial scams, slashing the country's development expenditure, eliminating subsidies, begging to 'friendly' countries and borrowing from international lenders.
The strife-battered economy, combined with higher than usual prices for staples such as sugar due to alleged hoarding by producers, has drastically weakened the purchasing power of the country's largely impoverished population of 170 million. The hoarding of flour, sugar and other food items is also an issue of governance, as the bad governance creates artificial shortage of commodities in the market. The bad governance promotes the growth of cartels in food-supply chain. The main issues in the economic development of Pakistan have been the good governance and proper utilization of funds.
It is undeniable fact that economic growth is an important factor in reducing poverty and releasing resources for human resource development. There is a strong correlation between per capita income and indicators of human development such as adult literacy, life expectancy, infant mortality, political and civil rights. The quality of governance is essential for the development of human resources.
The good governance ensures the transparency, efficiency and rationality in the utilization of public funds and national resources, encourages growth of the private sector, promotes effective delivery of public services and helps establish the rule of law. Along with good governance, the people friendly policies, and sound macroeconomic management are also of immense importance in this context. It is bad governance that promotes a culture of corruption in the national institutions.
The bad governance erodes transparency and efficiency in the work of public departments. For instance, Pakistan delayed the signing of an energy deal, which was due to be signed on April 15, with a French company after the Supreme Court took a suo moto notice of irregularities in the award of a multi-billion-dollar contract to the foreign firm. GDF Suez of France won the contract in February for LNG to be imported from Qatar at a price of $1.8 billion in the first six years. The LNG scam came to surface following local media reports that the deal cost the country a loss of $1 billion, as senior Petroleum Ministry officials ignored the lowest bid by Fauji Foundation, an investment group run by former Pakistan military officers, and European company Vitol, for a 3.5 million-tonnes-a-year contract. Lack of transparency in national institutions remained the cause of concern for Supreme Court during its probe into the process lapse in awarding multi-billion-dollars contract to the French firm for import of LNG.
Misuse and underutilization of development funds is also an issue of bad governance. The governance involves from setting priorities for development schemes to their funding and completion of schemes in the target area. There has been rampant corruption in utilization of development budget in the country. The governance institutions themselves ignore merit while awarding a contract for a project to the contractor.
It is because of the bad governance that public institutions do not provide credible economic data for launching a development project. For example, poverty reduction has been a major official development objective in the country over the past many years. Critics blame the former government of Prime Minister Shaukat Aziz for downplaying the figures related to poverty incidence to cover up its respective acts of omission or commission. Former government claimed the figure to be around 30 per cent, which was further revised down to 26.5 using a new measurement formula that relied on caloric intake rather than per day income.
A poverty census was recently conducted by the Planning Commission's Centre for Poverty Reduction and Social Policy Development (CPRSPD). The CPRSPD however lacks capacity as well as human resource to meet its objective of coming up with latest poverty figures as internal politics have compelled competent high-ups to leave the organization. With the existing workforce, the CPRSPD is not in a position to come up with the latest analysis of poverty. The good governance is essential for the development of human resources.
The country's tax system still needs to be reformed and more sectors need to be brought into the tax net to achieve a tax-to-GDP ratio at 16 to 17 per cent, which is currently one of the lowest in the world. The low tax base actually poses a governance challenge to bring non-taxpayers into the tax net. Massive evasion of tax needs to be checked through good governance ensuring transparency in the system.
The Pakistan's ailing economy is virtually living on cash injections from international lenders and donors. Majority of country's population is at the mercy of a few people who have and control the resources of the state. The deepening economic crisis may convert into a political crisis leading to social chaos and political anarchy in the nuclear-armed country- a nightmare haunting the international community.
The acute energy crisis in Pakistan has virtually suffocated the industry, causing widespread discontentment in the business circles. This could result in closure of more industrial units and increase in the unemployment rate in the war-torn country. The critics say that even the foreign assistance could not prevent the deterioration of the economy, as irrationally high interest rates and tight monetary policy of the central bank is holding back its growth.
The experts believe that the country's entry into an IMF program has caused a significant economic slowdown and the government is facing a major challenge in managing a slowing economy. Though the central bank has so far raised its discount rate to 14 per cent, which is highest in Asia and it is not enough to reduce the bank's lending rate and to stimulate the country's economy. The high interest rates are the main reason behind the fall in the country's industrial output. The reduction in discount rate to single digit can provide some relief to the ailing industry and trade.