Pakistan's 'fiscal cliff': We all saw coming

Most of politicians at the helm of affairs hail from agrarian background with a mindset of patronage and kinship. They have firm views on what is good for the people and only pay lip service to contrarian opinion. There may be some rare exceptions, ie, a leader accepting the opinion of his minister from non-agri background.
All successful finance ministers were those whose relationship with their bosses - Presidents or Prime Ministers - was such that they were able to say 'No' to them and their bosses knew that answers in the negative were indeed good for them, their parties and the country. Muhammad Shoaib enjoyed an enviable relationship with Field Marshal Ayub Khan; Ghulam Ishaq Khan always maintained more than cordial ties with General Zia-ul-Haq while Shaukat Aziz-General Pervez Musharraf relations were also like a savoury dish. As Prime Minister, however, Shaukat was often over-ruled on political affairs as the Chaudhrys of Gujrat had the ear of the boss. But Musharraf's faith in his spy masters was even greater than in the two Chaudhry brothers.
The Thursday luncheon meeting between President Asif Ali Zardari and a delegation from the Overseas Chamber of Commerce and Industry (OICC) - the oldest business body in South Asia - is a recent example of a profound and painful disconnect between businessmen or investors and policymakers. Except for throwing the ball back in the OICCI's court to organise an all-party conference to achieve a consensus in combating terrorism and arresting the deteriorating law and order situation, President Zardari, unfortunately, chose to ignore most of OICCI's pleadings.
Responding to OICCI President's argument that "energy and infrastructure are business propositions, which given an appropriate and enabling environment will attract investment from global players", President Zardari, however, felt that the poor energy situation in the country was not as bad and that the investor class was exaggerating the situation. The President also chose not to respond to their demand to create a ministry of energy by merging ministries of Water and Power and Petroleum and Natural Resources. His reluctance comes from the fact that in a parliamentary set-up like ours ministerial cabinets have to be large. These become even larger in coalition politics. But, the existing situation warrants that the President consider merging the power wing into Ministry of Petroleum and Natural Resources because thermal power provides more than half the electricity while hydel power contribution in electricity production is declining at a faster pace.
OICCI commissioned a study to assess relative attractiveness of investment-related policies and practices through an internationally recognised consultant. The study shows that in Pakistan investment-related policies and practices were superior to those in China, India, Thailand, Malaysia and Sri Lanka. But Pakistan fell short on contract implementation. This should not be surprising. Pakistan is not deficient effective legislation and internationally acceptable framework. The weakness, however, lies in implementation. The same was true for India until a few years ago when an FDI contract enforcement required as many as 250 signatures.
This just goes to prove that the starting point of the reform process in the country has to be the civil service. High powered meetings are chaired by the President and Prime Minister while Committees are formed to study key issues. However, when it comes to implementation of Presidential or Cabinet decisions it takes ages. The backhanded compliment from OICCI that the Drug Regulatory Authority law took as many as 10 years to pass only reinforces the argument that implementation is always at a snail's pace. By the time we do the right thing, the damage is done and the world has left us behind. Policies are also not always fully thought through and we usually resort to ad hocism. There is more firefighting in this country and our civil servants normally remain in a reactive mode rather than being proactive.
Business leaders need to connect themselves more with political parties to get their views incorporated in party manifestos by engaging in a dialogue before the elections rather than later. PPP won the 2008 election to regularise daily wage employees and also reemploy laid off workers in the public sector units who were paid back pay for as many as nine years. The PPP has fulfilled this promise at a great cost to taxpayers. The country loses more money in loss-making PSEs than it spends either on Defence or social sectors. The mantra of public-private partnership is yet to translate into a concrete shape and it is no longer possible for people to travel by air or rail without hassle and a great deal of inconvenience.
Transportation of goods within the country is becoming more time-consuming and road network is in a woefully poor shape. OICCI is justified in arguing that the cost of doing business is escalating due to rising energy cost and crumbling infrastructure. Most of our problems are due to our subsequent governments' unbridled profligacy and imprudent fiscal management.
An increase in tax-to-GDP ratio should take place in tandem with a decrease in fiscal deficit. A one percent increase in tax-to-GDP ratio alongside a one percent decrease in fiscal deficit annually will constitute a Rs 400 billion or $ 4 billion swing. This is a 'fiscal cliff' we all saw coming. Our ability to raise funds either from multilaterals or the international bond market rests on our successful response to this challenge. Political leadership in PPP, PML (N), PTI, MQM and ANP as well as religious parties such as Jamaat-e-Islami and JUI are required to rise to the occasion and turn this objective into a reality. All of them need to demonstrate sufficient appreciation of the country's economic woes without any further loss of time. We just cannot afford complacency on perceptibly failing economy.