CAUSES OF DISMAL GROWTH
EXPERTS FEAR MASSES MAY TURN VIOLENT IF STATUS QUO PREVAILS.
SHABBIR H. KAZMI
Feb 28 - Mar 6, 2011
This year Pakistan's GDP growth is likely to remain below three per cent, which is very low when compared to India aiming to achieve 10 per cent growth rate. The factors responsible for this dismal growth rare include acute shortage of energy, high cost of doing business including high interest rate, poor capacity utilization, hardly any fresh investment, declining job opportunities and shrinking purchasing power.
Poor law and order situation also hints at growing discontent among the masses and many experts fear outburst of anarchy and civil war. All these factors prove lack of capacity of the present economic managers to put the economy back on track. Added to this is the menace of growing circular debt impairing profitability of the entire energy chain, but worst is the budget deficit.
According to the experts, only the government could be held responsible for the prevailing situation failing in addressing two key issues 1) huge losses posted by the state owned enterprise (SoEs) and 2) leakage at the federal board of revenue. Reportedly, SoEs posted Rs300 billion losses annually that can be attributed to gross mismanagement and corruption of top management as well as the employees. It is also being said that the nepotism and favoritism in selection of chief executive of these enterprises and induction of jialas has made these entities virtually bankrupt. Most of the SoEs are kept alive by injecting billion of rupees every year. The losses posted by many a SoEs over the last three years have been unprecedented and the worst performing entities identified are National Insurance Corporation, PIA, Pakistan Steel, and Pakistan Railways. Therefore, the government's claim that global recession and the current internal security challenges are the reasons for poor performance of SoEs is far from reality.
The second but more contentious issue has been the steady drain of nearly half a trillion rupees attributed to the corruption within the FBR due to the failure of the government to reform the tax collection regime. The reason for failure in expanding the existing income tax base is overwhelming majority of the feudal landlords in the national and provincial assemblies. In addition, anomalies in the tax system continue with the public and private sector engaged in the same economic activity paying a different tax rate that is effectively providing an incentive to the inefficiently run public sector.
One may put all the blames on the ruling party/coalition for the bad management of the economy, but can all other political parties deny that they have been reluctant in reforming the tax system that could force them to pay income tax. In this context, it is critical for the government to introduce reforms that are premised on developing a tax system that is equitable and free from all types of anomalies.
A political consensus is necessary for putting the country on the road to economic recovery. In this context, the federal government's decision to present the value added tax, under the guise of the reformed general sales tax, as well as the one-off taxes to deal with the aftermath of the summer floods seems anti public unless the government itself opts for austerity drive.
It has been noted that the imposition of a new tax or the enhancement of an old one has been resented through demonstrations and some of the coalition partners are going to the extent of deciding to sit on the opposition benches. This has compelled the government to withdraw increase in POL prices. However, sooner or later POL prices have to be increased due to the hike in international prices of crude oil. It is necessary to point out that time has come to withdraw many of the exemptions enjoyed by elite of the elites.
The overwhelming consensus is that it may be true that the country faces terrorism and associated security concerns. Rehabilitation of people affected from devastating floods poses serious challenge but the challenge is to manage the economy prudently. With the next general elections due after two years, it is necessary to remind the two leading political parties that the yardstick of success and failure will be the two critical indicators: inflation and unemployment.
It is beyond any doubt that Pakistan faces cost pushed inflation, which cannot be contained simply by keeping inertest rate high. In fact, this practice has marred investment prospects and also increased cost of doing business in the country. Last time, State Bank gave a pleasant shock by keeping the interest rate unchanged, contrary to the general expectation of half a percent increase. However, one has to see, will it decide to cut the rate in forthcoming monetary policy statement?
Like its predecessors, the present government has been prompt in cutting developmental expenditure rather than opting for austerity drive. On top of this, persistent increase in electricity and tariffs along with long hours of load shedding is not only adding to the inflation in the country but also reducing employment opportunities. Benazir Income Support Scheme may be good but is a big drain on national exchequer because it does not increase employment opportunities.
Let this point be very clear that fiddling with one or the other option has not helped the country in boosting GDP growth rate. In fact, more and more people are pushed below the poverty line. The difference between haves and have-nots is increasing. According to some experts, a new breed of rich has emerged and is also growing at a very fast pace. Experts have also been warning that the rising feeling of discontentment among the have-nots is creating dislike for those at the helm of affairs.
Pakistan should not be compared with the countries experiencing turmoil at present but things appear similar if authorities continue to overlook the sufferings of masses. Lately, people have opted for demonstration but have remained peaceful. They may turn violent if situation persists for long.