ACHIEVING FINANCIAL SOVEREIGNTY
LENDING TERMS DEPEND ON THE DESPERATION OF A BORROWER.
SHABBIR H. KAZMI
Feb 20 - 26, 2012
Over the years, it has been felt that Pakistan has become subservient to the world superpowers as well as the regional powers, only because they extend aids and grants or these countries influence the executive boards of multilateral/international financial institutions.
Experts demand of the government to achieve financial sovereignty. This objective can be achieved by following a homegrown plan rather than the IMF recipes. The plan is based on keeping budget and current account deficit at sustainable levels.
Annual budget is the economic plan of the government expressed in numbers. It shows the proposed expenditures and the ways to finance these including plan to meet the deficit. Similarly, external borrowing is according to a clearly laid down agenda, with primary objective of avoiding default at any point in time. While funds are borrowed from multilateral financial institutions to run the business as usual at time, approaching the lender of last resort also becomes necessary. It is on record that only those countries have emerged successful which had home grown plan and also worked hard to achieve the laid down objectives rather than finding ways to rationalize failures in achieving the targets.
The biggest problem faced by Pakistan is that its policy planners have remained involved in 'fire fighting' rather than coming up with proactive policies. At one time, Pakistan used to prepare 'five-year plans' and come up with policies to achieve the defined targets. As against this, over the last four decades adhocism has become the name of the game. Annual plans are prepared but somewhere in the middle proposed plans are abandoned because of non-availability of funds; the most affected has been public sector development program. It is on record that not more than 30 per cent of allocated amounts are spent on projects. Funds are usually diverted to other more pressing demands, which are nothing but taking care of the lavish spending by the elected representatives.
All and sundry are fully aware of the prevailing energy crisis and its adverse impact on the economy and exports but little has been done to resolve it.
Worst hit by the energy crisis are manufacturers of textiles and clothing, the segment which has the highest share in total exports. Policy planners are also aware of the fact that thermal power generation is expensive but little has been done to create hydropower generation facilities. Experts are of the consensus that the mighty Indus River alone can help in generating 40,000MW of electricity. If mega projects could not be constructed because of political controversies, there can't be any excuse for not constructing run of the river type projects. Similarly, delay in exploitation of Thar coal reserves can only be attributed to ever strong 'oil mafia'.
It is true that oil import bill has swelled because of crude oil prices hovering at record levels. However, the way to overcome this adversity is boosting exports. The first step for boosting exports is restoring competitiveness of the local manufacturers by bringing down cost of doing business. For decades, it has been said that all those taxes, which have to be refunded, should not be collected to begin with. Not only funds of exporters are stuck for months, but they also have to 'grease palms of the bureaucrats' to get the refunds.
One of the common complaints of exporters is that 'foreign buyers are reluctant in coming to Pakistan'. This is a genuine complaint but ways have to be found to overcome this stumbling block. One of the suggestions is the government of Pakistan (GoP) should facilitate the private sector in participation in international trade fairs and exhibitions. In the past, Export Promotion Bureau (EPB) was doing this and now the job has to be done by the Trade Development Authority of Pakistan (TDAP). The Authority gets millions of rupees allocations for promoting trade but participation of Pakistani exporters in the international fairs has gone down.
In the post 9/11 scenario, it has also become increasingly difficult for the Pakistani businesspersons to get visa of many countries. This issue could be overcome by active participation of trade associations. After the phasing out of textile quota regime, most of the trade associations have been reduced to minimum and effectiveness of these associations depends a lot on the office bearers now. Discussion with the office bearers reveals that concerned ministries and/or regulatory authorities try to create hurdles rather than resolving the problems.
The largest export processing zone of Pakistan is located in Karachi. It offers two incentives, uninterrupted supply of electricity and gas, while both the facilities are not available in most of the cities. However, exporters seem more interested in establishing their manufacturing units in other countries. While India has managed to get billions of dollars under 'outsourcing arrangements', Pakistan despite of being among the top four largest cotton producing countries has not achieved much success.
The country has also not been able to contain its imports. Every year, Pakistan exports molasses worth millions of dollars but is not able to use it for the production of E-10 (motor gasoline containing 10 per cent ethyl alcohol). The importance of E-10 has been further highlighted due to weekly closure of CNG stations. The beauty of E-10 is that no alternation has to be done in the car engine as against installation of CNG kit in the vehicles.