The only way forward

As intense speculation about the success or failure of the opposition's drive to oust the present dispensation prior to the Senate elections scheduled for March gathers momentum the question that is increasingly being heard in this country, plush drawing-rooms and roadside tea stalls alike, is whether the government should be allowed to complete its term, its democratic right, or whether an additional year and a bit of the current set of rulers would sound the death knell of the economy with direct implications on the quality of life of the people of this country.
The PPP is understandably focused on its right to complete its term and argues that it must be allowed that right as a necessary step towards strengthening the nascent Pakistani democracy. Many examples given today's global economic crisis can be cited by the PPP to support its contention: the continuing crippling strikes by the Greek public sector unions which have spread to other Eurozone countries forced to tighten their belts and reduce public sector programmes as well as lay off public sector works in an effort to tackle their debt crisis has not derailed their democratic process. Or in other words, governments have fallen only after elections were held and the voters opted for a change, based on perhaps their mistaken belief that belt-tightening would be resisted by a new set of rulers.
The PML (N) as well as Tehrik-e-Insaaf argue that corruption has reached new heights, that the mechanism to detect/identify and proactively pursue corruption is under the control of the federal government (Federal Investigation Agency, National Accountability Bureau come under carefully selected Zardari loyalists) and the Supreme Court's suo motu notice of specific corruption cases highlighted by an independent media are routinely and effortlessly derailed by the investigative arm of the government. In other words, investigative journalism that is unearthing massive irregularities implicating PPP leadership and its coalition partners is being taken up by the judiciary but due to lack of evidence presented in the court the case has to be dismissed.
Be that as it may, the Supreme Court has made some landmark judgements that have led to the return of billions of rupees to the state treasury, however, even return of the money, a tacit acknowledgement of wrongdoing, has not led to any resignations. The reference is to Makhdoom Amin Fahim, the Commerce Minister, who has returned the money from the NICL scam but has not tendered his resignation to the Prime Minister nor has he been dismissed. Thus it is the contention of PML (N), Tehrik-e-Insaaf and the religious parties outside the parliament that another year and a bit of the present dispensation would cost the exchequer billions of rupees in corruption.
Estimates of actual corruption range from 700 to 800 billion rupees per annum and are sourced to the following routine activities: (i) commissions are the easiest to collect and the granting of financially unviable contracts to rental power plants (RPPs) is cited as a prime example. The RPP case reflects a double-edged sword as the country is compelled to not only pay for optimum capacity when the RPP is operating well below capacity due to the failure of the government to provide fuel as a consequence of the inter-circular debt but also compromises national output given the continuing energy shortfall; (ii) the routine invocation of the exemption clause contained in public procurement rules which allows the rulers to define national interest subjectively; and (iii) the corruption in Federal Board of Revenue estimated at 5,000 billion rupees per month by former Finance Minister Shaukat Tarin.
To add further spice to this charge is the collapse of one state-owned entity (SOE) after another (Pakistan Steel, Pakistan International Airlines, National Insurance Company Limited, Pakistan Railways to name just a few) requiring large annual bailout packages that the cash-strapped economy can ill-afford. The reason for the SOEs collapse is attributed to senior appointments made routinely on the basis of nepotism (and not on merit) and using these entities as recruitment centres for the PPP loyalists, that has led to a salary bill that is simply untenable. The government has remained blithely indifferent to this steady collapse of SOEs and the Opposition contends that another year of this set of rulers would make revival of these entities all the more difficult and time-consuming. It has been estimated that the government has been injecting at least 300 billion rupees to these SOEs per annum.
The above two issues namely corruption and declining financial fortunes of SOEs, account for over one trillion rupees a year, or so allege critics. Another year of this amount being drained from the economy would render our already fragile economy simply untenable. Few would disagree with this assessment.
Economists, however, also point to a directionless economic policy. Dr Hafeez Sheikh, there is agreement, understands the reforms that have been identified by bilateral and multilaterals (sector specific as well as overall macroeconomic reforms) and agrees that they are critical to turning the economy around. Unfortunately, however, he has failed to implement those reforms. The result: rising budget deficit, heavier reliance on domestic borrowing that is crowding out private sector credit and the two fuelling inflationary pressures.
A look at this year's budget, dismissed by all as a wish list that even its framers are not expecting to see realised, provides some indication of Sheikh's economic direction and acumen. The budget does not in any way change the expenditure priorities from past budgets. Thus rising current expenditure trend is to continue. Sheikh envisages a decline in subsidies to the energy sector amounting to a total budgetary outlay of 122.7 billion rupees for Wapda/Pepco and 24.5 billion rupees for KESC. Contrast this with 2010-11 budgetary estimate of 84 billion rupees as subsidy for Wapda/Pepco and 3.3 billion rupees for KESC while actual disbursement was 296 billion rupees for Wapda/KESC and 47 billion rupees for KESC or a total energy subsidy bill 256 billion rupees in excess of what was budgeted. It is improbable that the government would be able to keep energy costs down for several reasons, including the high international price of furnace oil and rising gas loadshedding. Heavy subsidies, therefore, would have to continue to the energy sector if the government is to ease the resulting political discontent. Thus subsidies alone may well raise the current expenditure bill by over 200 billion rupees. Of course, the decision attributed to the Prime Minister to raise salaries of civil servants by 15 percent (over and above last year's rise of 50 percent) and the establishment of four new ministries/divisions makes further mockery of the budgetary current expenditure figures.
Revenue side is the mirror image of current expenditure. Thus while all items under current expenditure registered a rise, all items under revenue collections (be it income tax or customs or federal excise collections) registered a decline from 2010-11 budgetary targets. The current year's budgetary estimates for tax collections under various heads are therefore not likely to be realised if past precedence is anything to go by. More specifically, revenue target has already been compromised as the growth figures have been downgraded by 1.5 percentage points (with an obvious fallout on tax collections), the 125 billion rupees provincial surplus regarded as an impossibility and donors expected not to extend assistance under the programme loans (budgetary support) until and unless the country is on the road to implementing reforms.
Thus none of the budgetary data reflects the thought process of a qualified economist or a visionary or indeed a man who is focused on ensuring home-grown remedies. In this context, it appears that the loss to the economy would be significant if the current dispensation goes on with business as usual. Repeated exhortations by stakeholders to implement reforms have fallen on deaf ears, or such is the public perception. One would still hope however that better sense prevails and the government begins to implement reforms on an emergent basis. That is the only way forward - be it for the PPP-led coalition government or any other.