Economic woes: Hard times demand courage

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In his interaction with a delegation of the Federation of Pakistan Chambers of Commerce and Industry, President Asif Ali Zardari has asked some members of business community to come up with some out-of-the-box proposals to help government overcome myriad economic challenges. President Zardari has ideas and proposals on how to fix a number of issues confronting the economy. Some of them are indeed good and sound while others are pathologically flawed and problematic.

However, even his good ideas do not often translate into a fool-proof execution reality because the whole system at the micro-level stands shattered. As a consequence, the implementation processes become notoriously weak. The then President, Pervez Musharraf, also faced the same dilemma. Series and series of meetings are held at the top and decisions taken. For their convenience, the executioners only tinker on the margins without proper follow-through. The results, therefore, fall short of substantive legitimate expectations. The system needs to be changed. The way the Economic Co-ordination Committee (ECC) operates or the manners in which projects are sanctioned in Ecnec need an overhaul.

The single biggest challenge facing the country is power sector, which is continuously pushing the national economy on a downward slope. The decision to handover management of four major generating units (Gencos) to the private sector is laudable, provided they are allowed freedom to run it as a business free from politico/ministerial demands and interference. Theoretically, improving the Gencos output will greatly bridge the supply-demand gap. Unfortunately, however, power outages and black or brownouts would continue unless the affairs in the electricity distribution companies (Discos) are set right. At the micro-level, it would be seen that all the technical problems afflicting Discos are financial. The distribution and transmission system needs to be appreciably upgraded. This requires massive investment.

The owner of a business which continues to make losses due to mismanagement coupled with policy decision to give freebees or subsidies is himself to be blamed. In the case of Discos, the owner is the Federal Government. Therefore, Federal Ministry of Finance has to bear the cost. Late or partial payment of Rs 20 billion deficit incurred in power sector every month, has resulted in the circular debt of around Rs 300 billion. This payable amount should have been fully accounted for in the FY12 Federal Budget. Instead, subsidy on account of power was budgeted at Rs 74 billion. This was done to show the fiscal deficit at 4. 0 percent of GDP. We do not need to fool ourselves. The real deficit is 6. 5 percent of GDP or more.

All politicians , including President Zardari s, approach to governance is to run the country as a welfare economy, which is characterised by more government ownership and central planning instead of developmental economy requiring policy-makers and community to make concerted efforts to promote the standard of living and economic health in a variety of areas. In all high-level meetings, President Zardari recounts the BISP programme with a lot of pride. It is reflective of the belief that to gain electoral support in the poll the need is to provide give-aways and handouts rather than through developmental growth, which is a phenomenon of market productivity and rise in GDP. The amount spent on subsidy every year is twice the size of public development programme.

Growth and development approach is only possible if the mindset changes. Are the President and his ministerial colleagues willing to accept this change- over. Will his government allow the Gencos and Discos the autonomy to be free from ministerial control and bureaucratic interference? Will the GoP appoint Board of Directors in the generation, transmission and distribution sector comprising personalities who have the required experience in running the power sector businesses. The BoDs need to be sufficiently empowered to bring a management team to run these companies.

Will the government allow these BoDs and professional managers the power to independently hire and fire? Can surplus pools be created and golden handshake schemes offered to right size these companies? Will the policy of giving free electricity to Wapda staff come to an end? All these are micro issues. Only after tackling them can the macro picture change. The policy of adjusting losses in this sector through tariff hike alone is blatantly wrong and misplaced. It will make Pakistani goods and services uncompetitive in the market. The system requires a change in governance under a fresh institutional arrangement. The present level of subsidy amounting to Rs 400 billion accounts for nearly half of the Rs 900 billion fiscal deficit envisaged in the current budget. Instead of harping on the fiscal deficit, the decision-makers themselves need to think out-of-the-box with a view to changing the entire architecture of governance. At the micro-level, however, it is less about economics and more about conduct. It means supporting the real economy and its underlying growth trends. The situation warrants non-conformal, creative thinking. The government, therefore, will be required to move away in diverging directions so as to involve a variety of aspects that may lead to novel ideas.

Courtesy: Business Recorder

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