Dr Shah was the Minister for Finance and Revenue in the caretaker government of 2007-08. He also served as an advisor to then Prime Minister on finance and revenue (2004-07). Previously, he served as Associate Dean at Lahore University of Management Sciences (1986-94). Dr Shah did his MBA and Ph. D from the Kelley School of Business at Indiana University (1984). He is currently the CEO of Bridge Asia Financial Services.
BRR: In your view, what exercisable options does the government have to strategically tackle the energy crisis?
SS: We have a clear window of opportunity in the form of respite in international oil prices. FY13 will see international crude oil rates at significantly lower levels than the recent past. So even overcoming load shedding of electricity in the short-run is quite possible, if the government shows resolve. But we must start Kalabagh Dam because our dependency on oil imports is the raison deter behind the persistent current account deficit. It is the only project of such scale that can be completed within four years. Start today and by 2016, we can chop the oil import bill by half.
BRR: Even if the government were to reach consensus on the construction of new hydel projects such as Kalabagh Dam, how would it be able to finance such a big project?
SS: The requisite sum total of funds for that project would be about $8 billion which would be required over a period of four years. The GoP could secure at least half of this tally through supplier credit. Whoever builds the dam brings the credit. Collecting the remaining amount is not an insurmountable task; even an additional levy of Rs 0.25 on electricity bills can generate enough funds to bridge this gap.
On the other hand, the Dam would be able to store about 6-7 million acre feet. But the real boon would be that it would improve water availability in the country by 10 million acre feet; that's about up to $10 billion worth of water.
We are ripe for a green revolution. Large dams such as this can boost the agriculture sector of the country and wipe out poverty and deprivation in Pakistan. The opportunity cost pales in comparison to the potential benefits. The issue is not financing, but the pygmies sitting in decision making positions. Brazil has built so many dams on the Amazon River that they are generating more than 90 percent of their total electricity from this natural resource. Despite the Indus River, Pakistan is still nowhere on the map of the world in terms of generating electricity from hydel power.
BRR: What should the role of the Government be in the power sector?
SS: I am simply questioning, how can anyone condone the dereliction of the abundant natural resources in the country in favor of rental power projects? The government has to get out of the power sector. Twenty years ago, when the government was the only player in the telecommunications sector, no one could get a landline connection without calling in contacts or paying a bribe. Today cellular service providers are running after the whole population, offering lower rates than the next firm, to dole out connections.
Deregulation and privatisation of the sector attracted significant foreign investment to the country, developed communications infrastructure throughout the land; all this without reaching further into the pockets of Pakistanis. Electricity generation and distribution in the country is today stuck in the same dilemma as the telecom industry faced twenty years ago. Private parties should be allowed to produce electric power, sell and buy it on agreed terms without Nepra or some other government body in the middle.
BRR: Given the fiscal restraints, how can the Government improve spending on development?
SS: The Public Sector Development Program should not be funded through taxpayers' money. Instead they should be looking towards the capital markets to raise funds. The Planning Commission has a role to play here. Across the globe, numerous economies have opted for such alternatives and we also need to think along similar lines.
Corruption and misappropriation of funds are two major causes of our economic woes. The Auditor General has to be made more independent and powerful to be able to clamp down on abuse, corruption and inefficiency. Then the provinces are now getting billions of rupees in additional funding. Unfortunately there is no real system in place that makes public exactly where these funds have gone and what has been accomplished by these allocations.
The government has to be able to benchmark the performance of its own arms so that it becomes clear where it is effective and efficient, and where it is not. Based on this learning, it should only remain in areas where the government is proven to perform better than the private sector.
Governance is getting worse and the growing vacuum of leadership in the country is the emergent threat. The budget is a non-entity because the governments, Federal and Provincial have no intent to stick to the aggregates targeted in that document. The real story is of misuse, abuse and corruption. An end to the politics of nepotism, rent seeking and corruption is a prerequisite for an end to this sad tale. In my personal opinion, general elections should be conducted soon to renew the social contract between the people and the government.
BRR: What impact do you perceive international economic conditions having on the country in coming months?
SS: The international price of crude oil has now dropped significantly below $100 per barrel and other commodities are fetching much lower prices globally, compared to a couple of years back. So I think that going forward, inflation will drop in to single digits. This is a real window of opportunity for our economy, but I consider the current regime to be inept in capitalising upon it. Only a Neanderthal would not revisit the tight monetary policy stand that the central bank has stuck to so far.
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