Fault lines in the economy

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A city developed on fault lines will always be vulnerable to tremors of earthquakes. Similarly, an economy developed without removing the fault lines will always be on the verge of default. Consider this: How would you rate a performance that fails at 83 out of the 89 targets to be obtained? Or to put it the other way around achieves six out of 89 targets, making a pass percentage of 6.74. By any stretch of imagination this is a dismal performance and would raise grave concerns. In its latest ninth tracking report evaluating government performance, Policy Research Institute of Market Economy (PRIME) titles it ‘PML-N Four Years and Under Performing’, and thus is self-explanatory. PRIME is an independent policy research institute that has undertaken a project which reviews Pakistan’s economic performance by tracking the progress made on the implementation of economic manifesto announced by the party in power in Islamabad.

This report is in sharp contrast to the claims of the government on fulfilling its 2013 promises. The PRIME report takes a view on the manifesto items of the PML-N and measures their four year progress on a scale from zero to 10. The report takes the main two items of economic revival and energy security and divides it into many subcomponents to do an in-depth rating of the progress made or reversed on these areas. The average score on economic revival is a mere 4.66 out of 10, while on energy security it is 5.43 out of 10. These are seriously low achievements, however, the area of greater concern is the subcomponents’ ratings within these areas that indicate a further slide in future if corrective actions are not taken. In 12 components of economic revival only two areas, ie, reforms in financial and capital markets and decreasing tax rates got a score above five, while some very key manifesto promises scored zero only because negative scoring was not allowed.

The government has announced its fifth budget and thus there is little likelihood of any miraculous changes in these ratings happening in its last year. This report talks about nominal improvement in GDP growth rate, inflation control, reduction of budget deficit but these are neither on target nor sustainable given that the fault lines in reforms, legislative changes and institutional strengthening have not been addressed. The two areas where the government has scored a zero are elimination of VIP culture by reducing expenditures of presidency, prime minister, chief ministers and governors and improving the regulatory environment at the national level. These may seem side issues but they are central to a governance system which sets up systems of merit and accountability regardless of rank or file. A small but bizarre example of the VIP culture was the expenditures on the protocol of the family of the ex-prime minister on their presentation before the Joint Investigation Team. A total amount of Rs6.4 million was spent on security and Islamabad was almost shut down for public the day the ex-prime minister’s daughter went for the investigation.

Similarly the feud, legal and political, going on between the institutions and the government has created deep chasms in service delivery and performance. Nepra, Ogra, are all fighting for their independence and the Securities and Exchange Commission of Pakistan which is supposed to catch companies violating company ordinances is itself caught in violating all laws to accommodate the government.

The IMF in its latest report has warned the government that without fundamental changes in tax and energy reforms the economy will risk a downward spiral. The problem lies on a lack of focus on policy and programmes, and more on projects. Every now and then projects are announced, inaugurated, re-inaugurated and advertised only to become dysfunctional in a short period of time. They incur massive sunk costs, loans, interest expense and create more debt burden. Nandipur, Quaid-e-Azam Solar Park and latest Sahiwal coal power project are living examples of this waste of public funds.

This short-term, quick fix, focus is dangerous not only in financial terms but in security terms as well. Lahore which was the safest city in Pakistan, this year has become more unsafe than Karachi and many other cities. The recent bomb blast in the heart of Lahore was a reminder of how creating a shiny veneer is not a permanent solution to the cracks beneath. Lahore as a city has been allocated 58 per cent of the total budget of Punjab. Pick up any newspaper and we will see half page advertisements of a new project being announced daily. One such project was the Safe City Project. Initiated in 2011 it was supposed to be completed in a year but is still incomplete. It was inaugurated in 2016 and spent Rs12 billion for buying 8,000 surveillance cameras to help the police trace and track crimes. Come 2017 and they are still not completely installed and those that were installed were not working on the day of the blast.

The principle of no roots no fruits holds true. Unless there is a fundamental shift in thinking and focus, there will never be a fundamental shift in the economy. The rise in stock markets will never be able to cover up for the fall in literacy rates, health services, tax collection, exports and employment. Ultimately, the fault lines in the mindsets get transferred to fault lines in security and sustainability.

Published in The Express Tribune, August 6th, 2017.

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