The only way is up: Inheriting an opportunity, not a lemon

For once an incoming government is not inheriting an economy on the verge of collapse.

Khurram Baig April 07, 2013
Stop being populist. There has to be strict accountability. If banks lend, the lender has to repay. Control power theft. Do away with grey traffic in telecom.

KARACHI: Traditionally, incoming governments have always started off by saying that they have been handed an economy that is in tatters, on its last legs and that the country is on the verge of default and that they will need a few years just to get things back on track before any recovery can be expected.

It is an argument that successive governments use whenever they are asked why things are not getting better. Usually there is no solid economic rationale behind this, mostly political rhetoric and populist jingoism. It’s pretty much like telling the people to not expect anything, and then it becomes a self-fulfilling prophecy.

But while the economy is not doing great and we are not about to become the next Asian tiger, it is not exactly in danger of collapsing either. And if the next government is smart, it can actually use this as an opportunity instead of continuing to whine that it inherited a lemon.

So we have already made it clear, with adequate economic rationale that the economy is on fairly solid ground.

This is where the opportunity lies, that is, if the incoming government can plays its cards right.

Fiscal tightening

A lot of tough decisions need to be made however if this is to happen. For a start it has to maintain the extremely tight monetary policy that the State Bank of Pakistan has been pushing for the last few years. Banks should not be allowed to live off the spread or off lending to the government. Make them work. Put simply, force them to lend to the private sector. That is what they are there for.

If there is readily available financing for the private sector we should see industrial growth which will be the biggest catalyst for kick-starting the economy.

Power generation

Power issues are solvable. For one thing there needs to be a complete and strictly enforced ban on all power plants except those coal, hydro and alternative energy generating units.

The country needs to stem the gradual shift in the energy mix towards furnace oil and gas. Furnace oil is too expensive and we are just running out of gas. We need to build dams, big dams, small dams, and we need to get the political squabbles out of the way and make this happen.

Nation of thieves?

Pakistan has one of the lowest tax-to-GDP ratios in the world. This is disheartening. Not paying tax is pretty much akin to theft. Are we a nation of thieves? Pretty much so. The majority pays no taxes. A lot don’t pay for the power they use – mostly government entities – and a lot steal power outright. The current power theft ratio is 25%.

Now wonder we have a critical circular debt issue that is threatening to cripple the entire economy. This is simply not sustainable. It is not sustainable for even the most vibrant economies in the world, and certainly not for an economy like Pakistan.

Cheaper inland transport

We may hate the British for ruling us for so long, but there are some things that they gave us which were a blessing. One of these is the railway. Even with all the technological advancements of the 21st century, railroad remains the cheapest for of overland transport. And we had a thriving railroad that we have literally run into the ground. Trust me, we can do without a white elephant like Pakistan International Airlines, but we need the Pakistan Railways. And it will not to do to make a transport tycoon the minster for railways. Such a conflict of interest will never work – as we just saw with Bilour.

Finances and insecurity don’t go together

The law and order situation has to be brought under control. Right now Balochistan is pretty much off the economic grid because of political and ethnic strife. This has to change. Karachi is a fertile hunting ground for extortionists, for mobile snatchers and has been leaking investment to other parts of the country as for a long time now. It is a cyclical thing. Economic stagnancy breeds crime, crime breeds economic decay.

The buck has to stop somewhere. Let the police do its job and keep it away from escorting bigwigs and politicians. This will be a tough call but it has to be made.

Make the tough decisions

No more subsidies. People need to pay for what they use. Stop writing off taxes, stop giving generous tax regimes and stop giving people tax holidays. There is money to be made here, which is why they are investing; they can pay tax, so make them.

We have large land holdings which are basically generating nothing. Put this land to good use. If the land is agricultural, cultivate, if not, industialise! Implement a non-utilisation tax for large land holdings.

And above all, stop being populist. There has to be strict accountability. If banks lend, the lender has to repay. Control power theft. Do away with grey traffic in telecom.

Published in The Express Tribune, April 8th, 2013.

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Dad | 8 years ago | Reply

@Mia: It is the geopolitics, dear, that have brought us to this very point. Do not misunderstand the causality of our predicament.

As for those who believe that the PPP is liked by the ET, consider what you're smoking. This article is brilliant in the sense that it has separated fearmongering pessimists from patriotic optimists.

@Author: The Pakistani economy is affected by a multitude of exogenous factors; trying to identify them, and endogenise them, would require a strong (united - majority rule) government only focused on the stabilisation and growth of our economy (in the short, medium and long run). While I share your optimism, it is far more reserved.

Mohammad Mohsin | 8 years ago | Reply

And I thought the writer would give some genuine reasons to elaborate his title further by talking about the current growth rate, GDP, FDI.

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