Will provinces shoulder Pakistan’s debt burden?

As we finalise the details of the next International Monetary Fund (IMF) facility to secure economic stability, pertinent questions and concerns arise.

IMF support is vital for the country to address internal challenges and chart its path to prosperity. Amidst this, various discussions are emerging, stirring political scrutiny. A significant issue at hand is ensuring the federal government’s financial sustainability.

Predictably, given the high interest rates, almost all tax revenues are diverted to servicing loan “interest,” making us net borrowers from day one and exacerbating bankruptcy. Inaction is simply not viable. Major decisions are imperative to halt this drain on resources.

The current political landscape intertwines long-standing political dynasties, obliging them to safeguard both their own interests and the state’s simultaneously. Debates regarding the National Finance Commission (NFC) award and wealth distribution between the federal and provincial levels are entirely justified.

Upon close observation, the current NFC structure has disproportionately empowered provinces, to the extent that a mere two years of poor governance at the federal level can propel the country towards the brink of default.

Despite the earlier enactment of fiscal debt restraining laws, persistent breaches have occurred without repercussions, reflecting a lack of remorse or urgency among policymakers. This apathy persists as the elite class manipulates the lives of the remaining 99%.

While the revenue side of the equation may remain unchanged, expenses must be jointly shared.

Hence, it is imperative for provinces to shoulder their own burdens independently. Joint responsibilities should only be shared at the federal level, akin to parental guidance.

The provinces, as mature entities, must bear the expenses of their own households. This includes areas such as Public Sector Development Programme (PSDP), Benazir Income Support Programme (BISP), education, healthcare, DISCO losses, agricultural tube well subsidy, impact of minimum crop support prices, and lending via National Bank of Pakistan (NBP), all of which should be managed through provincial banks.

In their defence, provinces should impose taxes on provincial matters and services to ensure self-sufficiency and foster bottom-up growth.

Political parties will undoubtedly resist such measures as they disrupt the status quo of free lunches and lavish spending. Historically, the federal government would impose taxes and allocate a significant portion to reckless endeavours, resulting in wasteful job creation and unnecessary development splurges.

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There must be transparency for voters to track the allocation of funds designated for development/sustainable development goals (SDGs). Every expenditure by public offices should be mirrored by private sector involvement to enhance efficiency, promote meritocracy, and ensure mutually beneficial project outcomes.

Public sector investment should primarily serve as a catalyst for long-term sustainable growth in the country.

Pakistan might manage to sustain a nominal 1-2% per capita GDP growth over the next three to four years, accompanied by a marginal reduction in domestic and external debt. However, such an outcome would signify a disgraceful failure for a country abundant in talent, determination, and resources.

Frankly, we do not require additional motorways, vast universities, or grandiose infrastructure projects merely aimed at garnering votes from the emotionally patriotic yet undereducated segments of Pakistani society.

To truly make progress, we must prioritise investment in mass education and healthcare. The IMF’s medium-term bailout is akin to providing a village with roads and electricity – while beneficial, it’s insufficient for sustainable prosperity.

It’s imperative to educate and equip men and women working in agriculture with basic digital skills, enabling them to access exportable “data entry” level jobs and earn above the barely enforced minimum wage of Rs30,000-Rs35,000 per month.

We must focus on increasing exports in IT-related services and other value-added industries such as pharmaceuticals, dairy, meat, and cell phones, fostering job creation and economic growth at a rate of 15-20% annually.

Ending the cycle of free money in real estate for the privileged few will unlock the potential. Only through exports can we ensure a sustainable 15-25% return on equity for investors in the long run.

The spiralling currency, shocking interest rates, and exorbitant taxes on compliant documented sectors have stifled Pakistan’s growth for a decade. This is not acceptable, nor deserved by Pakistanis.

Another one or two years of poor governance in the current account/fiscal debt could lead to an economic tailspin akin to situations seen in Venezuela, Argentina, Lebanon, and some poorer African countries.

We cannot rely on the IMF to show us how to thrive; their role is to provide support as we stand on our own feet. It’s up to us to pave our path to prosperity.

THE WRITER IS AN INDEPENDENT ECONOMIC ANALYST

Published in The Express Tribune, March 25^th, 2024.

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