The government took some steps to deal with some of the long-enduring economic issues. It used government finance to pay off a good part of the circular debt. With the independent power producers having been paid the amounts they were owed, they should bring back the capacity that was not being used for generating electricity. However, by picking up the debt burden, the government has added to the fiscal deficit, increasing it to an unsustainable level but this is likely to be a temporary rise. Finance Minister Ishaq Dar has committed himself to reducing the fiscal deficit to 4.5 per cent of GDP over a three-year period. A sharp reduction in the fiscal deficit will require several actions. Political capital will have to be used by the new administration to collect more taxes from those who have managed to escape for years the tax man or have grossly underpaid the amounts they owe the government. Expanding the tax base will require documenting the economy that remains outside the government’s reach.
Controlling the runaway fiscal deficit will also require action on the energy front. At a meeting of the Council of Common Interests (CCI), it was agreed to reform the structure of electricity tariffs. The new system of tariffs will increase the rates for all consumers excepting those who consume less than 200 units a month. There will also be some differentiation in the amounts paid by different types of consumers. Those contributing to economic output will pay a bit less than those using power purely for consumption. After the CCI meeting, the prime minister announced that his government was preparing a long-term plan aimed at adding 50,000MW to the generation capacity. This will be done by using mostly indigenous resources — hydro, coal, wind and the sun.
Bringing the budget under control will also need a sharp reduction in large deficits being incurred by the public sector enterprise (PSEs). These entities, under the Zardari regime, had performed at levels of unprecedented inefficiency and had employed tens of thousands of party workers who did little productive work. So far, the government has not indicated how it will manage the PSEs other than announcing that all appointments to senior positions will be done in a transparent way.
The government also needs to deal with the relations that Islamabad has with the provinces. There are provisions in the 1973 Constitution that allow the provinces the first use of natural gas extracted from the deposits located in their territories. This could disrupt the economy. The extensive pipeline network for distribution was built under the assumption that natural gas was a national rather than a provincial resource. Also, the Eighteenth Amendment has given many new responsibilities to the provinces, which can only be carried out if they have adequate expertise and resources. These will have to be provided. In sum, there is a large unfinished agenda to be dealt with. The government has made only a small start.
Published in The Express Tribune, August 12th, 2013.
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COMMENTS (8)
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Your civilian govt doesn't control your army which maybe the heart of many of the economic and diplomatic problems facing Pakistan. Without civilian control your never going to control foreign policy or permanently repair relations with India, Afghanistan etc. Your also never going to control where your limited resources are spent or have any meaningful chance of re-directing funds from needless nukes/cruise missiles into dams, power plants, schools or basic sanitation.
Seems to be written by an A-Level Economics student. This piece did nothing except stating facts.
What about the income stream of the government: the number of people paying taxes has to be increased and FBR has to be massively reformed to collect more due taxes.Unless this is done Pakistan will be playing footsies
You can judge somebody on two months performance?
One would expect a more insightful analysis of the Pakistani economy from an ex VP at the WB.
The Government has paid out about Rs. 400 billion as part of the outstanding circular debt to reduce the energy crisis confronting the country. This is good. However as Mr. Burki points out this has caused the fiscal deficit to rise to unsustainable levels.
Secondly, since the unit capital cost of installing a one Megawatt oil fired power plant is around US$400,000 to US$500,000 this amount would have financed the installation of between 8000 to 10000 mega watts of oil fired power capacity. This is essentially equal to almost all the of the oil fired power plants in Pakistan put up by the IPPs.
Now in lay man terms if the remaining amount on your home mortgage exceeds the value of your house despite payments being made for years, then one option is just to walk away and sell the mortgage on the open market at a fraction of the cost.
I have two questions, first was the option of walking away explored and if so why was it rejected.
Second, and this is more important, have these pay outs been audited to ensure that these payments are accurate.
This Mr. Burki is simply amusing!!!
"The current government has been in office now for over two months." You cant really surmise anything after 2 months. Unless you really want to.