Ugly preponderance of politics

The subordination of economics to politics is evident in some decisions taken by governments around the world however unfortunately in Pakistan political considerations trumping economic considerations have become routine; and account for decisions that provide direct relief to the general public through subsidies which remain largely untargeted and/or granting new gas/electricity connections during severe shortages without considering the negative outcome on productive/household sectors as well as support to loyalists through award of contracts/appointments not based on merit.
There are a number of flawed economic decisions taken for purely political reasons that the Pakistani people have been subjected to during the three most recent administrations: Pervez Musahrraf, Asif Ali Zardari and Nawaz Sharif. The most destructive decision taken by Musharraf was to keep domestic petroleum and product prices constant at a time when they were rising internationally - peaking at a little over 140 dollars per barrel. His objective: not to alienate the public prior to the scheduled elections of 2008. The outcome: an unsustainable deficit of over 8 percent that had negative implications on the general price level, particularly food prices that rose by 24 percent, and compelled the newly elected Zardari government to go on an International Monetary Fund (IMF) programme.
Zardari, following party practice, began to use state owned entities (SOEs) as recruitment centres for political supporters that led to their further hemorrhaging requiring over 500 billion rupees per annum budgetary injections to keep them afloat. The Sharif administration during its three and a half years has been unable to improve governance of SOEs, one estimate not challenged by the government reveals that Pakistan International Airlines, Pakistan Steel Mills and Pakistan Railways are in the red to the tune of a bit over 700 billion rupees. And even though Nawaz Sharif has been maintaining that governance of these entities has improved since he took over power in 2013, he mentioned PIA in particular in recent weeks, yet perhaps he is unaware that Pakistan State Oil this week past warned PIA of fuel suspension unless it paid its past dues.
Subsidies to the power sector, more targeted, continue to be significant - budgeted at 95.4 billion rupees for Wapda/Pepco and 22.6 billion rupees for K-electric in the current year (in spite of 66 percent share ownership of Abraaj Group). The bulk of the subsidy is earmarked for inter-disco tariff differential. However the government taxes this sector significantly and earns more from it (including on fuel used by the transportation sector) than it releases as subsidy. This contention is borne out by the fact that the current year's budget envisions revenue from petroleum development levy at 150 billion rupees alone though sales tax, excise duty are also significant components of the fuel and electricity price. The Sharif administration has attempted to improve governance of this sector through linking hours of load shedding to dues owed to a specific feeder, and efforts are underway to enhance generation capacity but the consensus is that the more urgent need is to improve the transmission network that has a capacity of only 16500MW at best.
Higher rates proposed by regulatory authorities, notably Oil and gas Development Authority and Pakistan Electric Power Company (Pepco) are routinely dismissed during times of political uncertainty triggered by periods of opposition jalsas and/or civilian military leadership not being on the same page. The economy was able to absorb such flawed decisions during periods of falling international fuel prices (during the past three years) however this trend in oil prices is unlikely to continue and requires economic decision making to prevail over politics.
Subsidies also continue to be extended on some essential items through PASSCO (for wheat and freight subsidy on sugar export by TDAP) to the tune of 15.3 billion rupees in the current year with 10 billion rupees disbursed last year, and 7 billion rupees budgeted for Utility Stores Corporation as the Ramazan package which is untargeted. Disturbingly sugar mill owners in this country reflect a who's who of our political leaders and the government is in arrears here too (reminiscent of the sales tax refund arrears to our exporters) and allocated 5 billion rupees for the payment of past sugar arrears in the current year as opposed to releasing 2 billion rupees last year (though 4 billion rupees were budgeted for the purpose). Additionally, the federal budget 2016-17 envisaged 46 billion rupee subsidy for fertiliser - urea and DAP - to be shared equally with provincial governments, however, so far no province has disbursed the amount due though Punjab has approved it.
Contracts awarded to domestic private parties with political affiliations as well as signing long-term deals with foreign governments/private sector continue to raise questions of financial integrity at worst and conflict of interest at best. Examples of the former include Hajj and ephedrine scandal, to name just two during the PPP government's tenure, and the Pindi-Islamabad Metrobus awarded to a Rawalpindi-based PML-N leader during the Sharif administration. Examples of the latter include the power rental deals during the PPP government and the LNG deal of the present government. And it is telling that while the PPP led cabinet agreed to a third part audit of the rental deals the incumbent government has failed to upload the LNG deal signed with Qatar ten months ago in spite of repeated assurances by the relevant Minister that he would do so.
The status quo parties - PPP and the PML-N - support more gas and electricity connections in spite of the existing shortfall - which is economically not a viable policy. Prime Minister Nawaz Sharif has been announcing new gas connections in jalsas as his legal team struggles to defend his family in the Panama papers; additionally, if funding is disbursed and new connections given as per the Prime Minister's commitment in recent jalsas the deficit would be considerably higher than what has been budgeted which would have repercussions on the rate of inflation and take us one step closer to yet another IMF programme.
And perhaps the most serious charge that can be levelled on both the Zardari and the Sharif administrations is their penchant for supporting the provincial government controlled by their party when in power in the centre. During the Zardari tenure K-Electric was given a contract allowing 650MW from the national grid while at present there is an obvious pro-Punjab bias in allocating federal resources for road construction, new energy projects and other infrastructure development projects to the chagrin of provinces governed by other parties.
Today prominent members of the cabinet as well as Punjab cabinet ministers are not only using the state's resources (our tax money) and time on defending the Prime Minister and his three children in legal matters that are entirely of a personal nature rather than on improving the appalling governance in their respective ministries. During the PPP tenure cabinet members also spent evenings defending their leaders' past and ongoing financial misdemeanours.
To conclude, the system in place supported by the status quo parties - PPP and PML-N - is to favour subsidies and populist policies for example new connections/appointments/laptop/tractor schemes etc as a means to get elected and to protect allegations against their leaders inside and out of the courts. Unless this mindset changes there will be little improvement in the quality of life of the general public.