No more money for white elephants

He may have spoken about the need for developing a “national consensus” but from his speech on the floor of the National Assembly on Tuesday, it appeared that Finance Minister Abdul Hafeez Sheikh has made up his mind about what sort of policies he wants to pursue. For the first time since taking office earlier this month, Mr Sheikh issued a clear statement of policy. And he left little doubt as to which direction he wanted the national economy to move: towards one in which the government plays no direct role in economic affairs and runs no commercial enterprises. For a technocratic minister, Mr Sheikh showed a great deal of political sagacity in addressing lawmakers. Never once did he utter the word “privatisation”. Never once did he state explicitly what he wanted Parliament to do. His address was a recitation of facts — all undeniably true and all leading any rational mind to only one logical conclusion. If this was a tactic designed to minimise the inevitable wailing and gnashing of teeth by economic nationalists anytime privatisation is mentioned, then the minister is to be commended for his shrewdness. It is a marked improvement over his predecessor, Mr Shaukat Tarin, who had his heart in the right place but was unable to reconcile his bankers’ blustering bluntness with the courtly mannerisms common in the political heart of Islamabad.

While he refrained from outlining specifics, Mr Sheikh’s case for privatising most, if not all, of the state-owned enterprises was a convincing one. The companies currently owned by the government tend to be unprofitable and cost the taxpayers upwards of Rs250 billion every year just to be kept afloat. To put this in perspective, this amount constitutes more than a third of the government’s projected total fiscal deficit for the year ending June 30, 2011 – or roughly 1.4 per cent of the country’s GDP. The projected deficit is expected to be 4.1 per cent of the GDP. At a time when the government’s resources are stretched to almost within reach of their breaking points, why on earth would anyone advocate keeping these enterprises on the government’s balance sheet? There are also incredible examples within Pakistan of how privatisation has helped to not only minimise government losses but actually increase tax revenues. For example, between 1997 and 2000, a bank cost the government Rs14 billion in losses. After privatisation, it paid almost Rs15 billion in income tax in the last two years alone — a period during which the country experienced one of its most severe financial crises. The banking sector, in addition to some other sectors, is rife with such examples. Other countries, Mexico most prominent amongst them, have had even more successful models of privatisation.

Corporations are not meant to be run by governments for the purpose of creating jobs. They are meant to be owned by shareholders, managed by professionals and run for the sake of a profit. It is the job of the government to ensure that they do so in a socially and economically responsible manner. It was probably this truism that Mr Sheikh was referring to when he said that “we will have to redefine the government’s economic role.”

Pakistan has always had a significant role played by the state in the economy. Soon after independence, the government created the Pakistan Industrial Development Corporation (PIDC) that was designed to create industrial enterprises, sell them off to the highest bidder when they became profitable and then use the proceeds to keep creating yet more industries. Yet, as with everything in government, corruption soon overcame what sounded like a good idea and PIDC began to run losses, eventually becoming a ghost of its former self. It is pleasantly ironic that the political heirs to the man who did most to ruin private enterprise in Pakistan — Zulfikar Ali Bhutto, through his nationalisation campaign — are now advocating that the government take a more limited role. One hopes this translates into an era where the government sticks to what it should do and leaves the money making to tax-paying businesses.

Published in The Express Tribune, 24^th, 2010.