Policy inconsistency has had a bigger dent on economic progression and investment climate in Pakistan than any other variable, including sporadic energy shortages or beak law and order. The only element that has hurt as adversely is institutional derailment.
The PMLN government has cemented the legacy of ironic policies and weakening institutions. The government started with verbal plans of lower tax rates, privatization and filling the energy gap. Energy gaps have been thinned but at a cost of excessive capacity payment. This will hurt the economy even after twenty years; just as the ills of IPPs policy is hurting today.
In case of taxation, the GST was raised in the first budget, the WHT and other indirect taxes are imposed across the board, to not only make compliance difficult but also increases the actual incidence of taxpaying businesses. The individual income tax rates have increased while the corporate income tax rates have declined from one side, but super tax and higher dividend taxes have eluded all the benefits. And as elections near, the government is again hinting to lower the tax rates.
Actions speak louder than words Consider the privatization progress, or perhaps the lack of it. The government failed to privatize any of the ailing PSEs including PIA, PSM and DISCOs. Yes, the benefit of doubt can be given to incumbents as dealing with employees union is a tough political choice. But how can the PMLN, especially Punjab government, justify the formation of plethora of new PSEs, for an array of power projects? Yes, with skewed policy framework for government owned projects may work for initial few years; but seeing the history, the eventuality of these new companies may not be different from existing sick public owned companies.
There is no need to mention how brutally economic institutions are molded to favour the sitting government - be it SECP, CCP, SBP or OGRA. Most are headed by ‘yes men’ and independence has been compromised in the process. The only policy institution that is still working its own capacity is NEPRA; of whom, the government have attempted to cut wings through reducing its power.
NEPRA has been raising voice against the arbitrary allocation of power projects and the skewed energy mix; and is criticizing on the policy of ‘take or pay’ on the new projects. There was a so called policy of relying on indigenous power sources for long term while the imported fuel projects are to fill for short to medium term gap.
However, on ground, all the new projects are either on imported RLNG or coal with no groundbreaking work done on indigenous power sources. The government came up with RLNG contract with Qatar on ‘take or pay’ - implying that gas has to be imported or Pakistan pays anyways. Two RLNG terminals are operational with wheeling charges to be paid, irrespective of how much RLNG is re-gasified. Not to mention, three RLNG plants with capacity payments to be made even in case of not running the plants.
Now if the gas is not purchased, we pay Qatar anyways; and even if the terminals are not used, we pay the charges irrespectively. And in turn, if power plants are not working, capacity payment will still be made. In essence, the country is booked to pay RLNG energy chain for next two decades or so, irrespective of how much gas is being used.
How the government is dealing to ensure that gas is being imported and utilized? Two million new domestic gas connections are planned to be installed. The age old policy of using domestic gas for inefficient household connections has long been criticized; and now the government is going one step further. The gas will be imported for inefficient stoves burning at home at subsidized rates. Who will pay the differential?
This may result in the formation of RLNG based circular debt in years to come. But it’s a feather in the PML-N cap for campaigning in upcoming elections. To add to the ado, even after the power policy is changed to ‘take and pay’, the fourth RLNG plant tariff determination still has ‘take or pay’ policy while all the small run of the mill hydro power projects would be supposedly on ‘take and pay’
Last but not the least is the continuity of agriculture support price mechanism despite the fact that international wheat and sugar prices are on a downhill journey since 2014. The country has surplus of wheat and sugar stocks which cannot be exported due to differential in prices. And the commodity financing is stuck at over Rs600 billion, brewing another circular debt.
Sugar is supported to appease the political lobby at the cost of low cotton production which is hurting textile exports. And now that sugar is being exported at subsidized rates. From where will all these subsidies be financed to support foreign sellers/buyers at the cost of low base of tax payers in Pakistan?
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