Disturbing facts: The details of huge non-productive expenditures of Rs 13,029,701 million, reproduced below from Demands for Grants and Appropriations for Budget 2015-16, must be an eye-opener for all:
Employees Related Expenses (Rs 556,957 million), Project Pre-investment Analysis (Rs 107 million), Operating Expenses (Rs 652,595 million), Employees Retirement Benefits (Rs 252,891 million), Grants, Subsidies & Write off Loans (Rs 752,904 million), Transfers(Rs 5,928 million), Interest Payment (Rs 1,280,245 million), Loans and Advances (Rs 400,757 million), Physical Assets (Rs 180,141 million), Principal Repayments of loans (Rs 8,764,035 million), Investments (Rs 53,573 million), Civil Works (Rs 115,718 million) &Repairs and Maintenance (Rs 13,850 million).
Dr Farrukh Saleem in an op-ed, published in the News, revealed that. "Purely political costs of running the state of Pakistan now stand at a staggering Rs 1,000,000,000,000 (a trillion rupees). On March 25, 2008, the day that Syed Yousuf Raza Gilani took oath of the prime ministerial office the cost of running the PM Secretariat stood at six lakh rupees per day every day of the year. Over the past three years, the cost of running the PM Secretariat is up a hefty 137 percent to Rs 15 lakh a day every day of the year". Three years ago, the cabinet division swallowed Rs 40 lakh a day. Today, the cabinet division costs Pakistani taxpayers Rs 80 lakh a day; that's an increase of 100 percent in three years. In 2009-2010, allowances at the cabinet division stood at seven crore rupees which have now gone up by 170 percent to Rs20 crore. Intriguingly, written off loans at the cabinet division that stood at Rs 10 lakh two years ago have now gone up by 2,000 percent to Rs 2.5 crore. To be certain, President House spending at Rs 13 lakh a day is not sustainable. PM Secretariat spending at Rs 15 lakh a day is not sustainable. And the cabinet division gobbling up an astonishing Rs80 lakh a day every day of the year, is not sustainable. Imagine; the power sector now manages to eat up an amount equivalent to 2.5 percent of Pakistan's annual GDP - and that's Rs360 billion a year or Rs100 crore a day.
Other members of the Cosa Nostra that collectively manage to lose an additional Rs100 crore a day are: Pakistan Steel Mills, Pakistan Railways, National Insurance Corporation, Heavy Electrical Complex, Machine Tool Factory, Sindh Engineering, Lakhra Coal Mine, Khewra Salt Mine, Services International, National Power Construction Company, National Fertilizers Corporation, State Engineering Corporation, National Construction Limited, Pakistan Steel Fabricating Company Limited, Pakistan Mineral Development Corporation, Ghee Corporation of Pakistan, Republic Motors, Pakistan National Shipping Corporation, State Cement Corporation of Pakistan, State Petroleum Refining & Petrochemicals Corporation, Pakistan Industries Development Corporation, Trading Corporation of Pakistan, Cotton Export Corporation of Pakistan, Rice Export Corporation of Pakistan, Pakistan Industrial and Technical Training Center, Pakistan Engineering Company, Tomato Paste Plant, Roti Corporation of Pakistan, Pakistan Stone Development Company, Pakistan Hunting and Sporting Arms Development Company, National Institute of Oceanography, Pakistan Gems & Jewellery Development Company, Technology Commercialisation Corporation of Pakistan, National Industrial Parks Development & Management Company, Technology Up-Gradation and Skill Development Company, National Productivity Organisation, Center for Applied & Molecular Biology, Council for Work and Housing Research, National Institute of Electronics, Pakistan Council for Science and Technology, Pakistan Council of Research in Water Technology, Pakistan Council of Scientific and Industrial Research, Pakistan Standards and Quality Control Authority and the Central Inspectorate of Mines. Look at PIA. For the third quarter ending September 30, 2011, the directors of Pakistan International Airlines (PIA) were "pleased" to report a loss of Rs8.3 billion or Rs 10 crore a day ever day of that quarter. At Emirates, an airline that PIA helped build, profits this year stand at $1.5 billion or Rs 35 crore a day, up 51.9 percent from last year. The big black hole - the President House, PM Secretariat, Cabinet Secretariat, the power sector and public sector enterprises - now takes in Rs 1,000,000,000,000 a year. Imagine; no politics for two years.
M Ali Kemal, noted economist, highlighted in his op-ed, in The Nation:
"Services sectors contributed more than 50 percent to GDP but it is totally neglected once again. Services sector is neglected and the major emphasis is on the commodity producing sector, ie manufacturing and agriculture....Although the components of services sectors are inter-linked with the production of industry and agriculture thus making policies for commodity producing sector will enhance growth of services sectors as well nonetheless, services sector has its own significance through domestic commerce (at term introduced by Dr Nadeem-ul-Haque, former deputy chairman Planning and Development Division and former Vice Chancellor PIDE in 2006 in Pakistan). Increase in domestic commerce leads to more employment opportunities for the people, local competition in open market will increase which helps in generating innovative ideas; these ideas thus result in expansion in business and eventually increase in exports. These local industries which look for the demand of local buyers are known as organic industries. The domestic commerce will increase the need for space in the market as well as create new cities. Therefore, budget should bring certain reforms which helps domestic commerce to flourish. This would also reduce the income inequality and poverty in the country. It's been more than 2 and half decades when wrote an article on endogenous growth. It is among the most quoted articles since then. It says that investment in human capital innovation and knowledge are drivers of economic growth not the external forces which are in general known as exogenous factors. Moreover, the outcome of this investment will have spillover affect which results in better economic development. However, the budget makers may not know the importance of investment in innovation and knowledge. This seems to be the only reason that even after 20 years the allocation of budget on research and development in all the sectors is negligible. I am sure that out of thousand billion budget government may allocate few billions to the research and development and grant it to various universities depending on the research projects they are running. It is very much possible that dues to this allocation they may not have to introduce billion rupees incentive structure to the industries".
Dr Akmal Hussain in an article in Express Tribune, observed:
Even when elected governments have been in power, governance in Pakistan has been by the elite and for the elite. It is now apparent that this elite-based social order has failed to provide even the minimum material conditions of civilised existence to the majority of the people. At the same time, the paradigm within which foreign and security policies have been conducted has led to the emergence of violent non-state actors, who now threaten the state as well as the security of citizens. It is time to address the structural features of governance and the economy which underlies this crisis. Since the word 'structure' has been loosely used in the current debate in Pakistan, one may venture to define it in the present context as follows: Structure means the design features of Pakistan's economy which have shaped the pattern and pace of economic growth. At the level of governance, it is the premise of the paradigm within which strategic decisions are taken. In terms of this definition, it can be shown that the observed failure to sustain economic growth without large injections of foreign aid, and the acute interpersonal and inter-regional economic inequalities originate in the economic structure. This structure consists of an institutional framework which generates unearned income (rents) for the elite by systematically excluding the majority of the people from the process of economic growth. Structural change in Pakistan's economy would involve a change in the institutional framework whereby the middle classes and the poor can begin to participate in the process of economic growth as subjects, rather than as mere recipients of a 'trickle-down effect'. In terms of fiscal policy, governance for the people would require substantially reducing unproductive current expenditure of the government through the following initiatives: (I) Twenty-five ministries can be either dissolved or rationalised, thereby saving Rs91.5 billion. (II) The Rs 140 billion expenditure on financing the losses of public sector corporations can be eliminated by restructuring and privatising those entities. (III) Badly targeted subsidies, on which about Rs329 billion is being spent, should be withdrawn and some part of the money saved can be directed to expand the coverage of the social protection programme for the poor. (IV) The total public debt at Rs9.47 trillion is unsustainable. The debt servicing cost has reached Rs839 billion, which is over 40 per cent of total government revenue. Drastic measures need to be taken to reduce the debt stock by retiring some of the debt with the proceeds of the privatisation of public sector corporations such as PIA, Pakistan Railways and the Pakistan Steel Mills; sale of some of the state-owned real estate which is being used for unproductive purposes as perks for government officials. On the revenue side, the following measures should be undertaken with the aim of increasing the tax-to-GDP ratio from the present 9 percent to 16 percent, over the next three years: (I) A substantial property tax on the rich. (II) A presumptive agriculture income tax of Rs 1,000 per acre on irrigated agriculture holdings above 25 acres and Rs 500 per acre on un-irrigated holdings above 50 acres. (III) A capital gains tax. (IV) A presumptive income tax on retail outlets in affluent localities. (V) Imposition of the revised generalised sales tax on services. The fiscal space afforded by these measures would enable the government to focus on providing safe drinking water, health and education for the people. Funds would also then be available to build infrastructure, facilitate the growth of small and medium sized firms in the industrial sector and small farms in the agriculture sector for an employment intensive and equitable economic growth process. At the same time, large corporations with equity stakes for the poor can be established through public-private partnerships. This would set the stage for a structural change that could help achieve economic growth for the people and by the people.
The above facts and recommendations to the government by noted scholars would certainly fall on deaf ears. In a series of article from April to June 2015, we proposed ways to revamp tax system for economic growth. The issues and solutions discussed above as noted do not suit the elites ruling Pakistan. They will keep on drowning the country in Debt Sea in which it is sinking deeper and deeper with each passing moment. The situation needs to be remedied on a war footing but there is complete apathy. On 30th June 2013, the federal government's total domestic debt was Rs 14 trillion which as of today stands at Rs 17 trillion. Increase of three trillion in just two years is terrifying. So if USA says "you should not dare close any NGO run by us", our so-called beggar-bowl-breakers bow down to their knees. Obviously, the beggars cannot be the choosers. One needs to remind them Allama Iqbal's famous verse:
Taqdeer Ke Qazi Ka Ye Fatwa Hai Azal Se
Hai Jurm-e-Zaeefi Ki Saza Marg-e-Mafajat!
[T'is the immutable decree of the Judge of destinies-that weakness is a crime, punishable by death].
When the PPP government was borrowing on an average of Rs 3-4 billion a day, Senator Ishaq Dar was very critical and now as Finance Minister he is resorting to Rs 9-10 billion a day, still he keeps on accusing his predecessors for all the ills!
Nobody in the National Assembly or Senate is worried about erosion of our resources consumed largely by debt servicing and how to come out of 'debt prison' that is main cause of political subjugation. They are wasting words and energies on non-issues and engaged in mudslinging. This monstrous debt burden is requiring unbearable allocation for debt servicing. In the budget2015-16 it is Rs 1280 billion, nearly 42%of target assigned to FBR and more than Rs 570 billion of the defence budget. The only way to come out of prevalent mess is to accelerate growth, generate employment, enhance tax revenues, and stop financing luxuries of elites and losses of public sector enterprises (PSEs). But the present government, like that of PPP-coalition government, is not serious about it.
All the governments-civil or military alike-have failed to end debt enslavement by raising revenues even to the extent of Rs 6 trillion, though actual potential is not less than Rs 8 trillion [see our article 'FBR's Year Book 2012-13', Business Recorder, September 27, 2013]. Unless it is done, Pakistan can never come out of the 'debt prison'. The Senate was informed way back on January 23, 2013 that over 3.39 million individuals had National Tax Numbers (NTNs), but only 885,999 filed their returns. The former Finance Minister, Abdul Hafeez Sheikh admitted that the number of income tax filers had drastically reduced to 1.6 million by 31 December 2012. Now the number in 2014 is just 856,229. The Senate was told that "a large number of businesses and individuals, who were regularly filing their income tax returns, are now avoiding their legal obligations by either under-declaring or incorrectly declaring their assets and incomes". The situation has not improved under Ishaq Dar. After admitting widespread tax non-compliance, no action has been taken against any official of FBR. There is also no will to eliminate wasteful spending on monstrous government machinery and inefficient PSEs. The way the government is behaving, our foreign debt might reach US $65 billion and domestic debt to Rs 16 trillion by 2018.
The policies of wasting national resources on luxuries of the elites, appeasement towards the corrupt, tax evaders, money launderers and plunderers of national wealth and monopolisation of resources by Riasti Ashrafiya (State Aristocracy) have pushed the country towards debt enslavement. The word 'austerity' is not in the dictionary of the State Aristocracy. The habit of living beyond means, our national addiction, has turned the nuclear-powered Pakistanis into a nation with a beggar's bowl. When foreign lenders see the lifestyle of our ruling elites, they immediately show indignation-it is hard to believe for them that the rulers of a nation surviving on borrowed funds are capable of such displaying such flamboyance.
Reluctance to collect taxes from the rich and mighty, rather giving them free benefits and perquisites at State's expense, is worsening the miseries of the poor. There is no scarcity of resources as propagated by the rulers to shift blame on others, but the real cause is outlandish living of the elites off taxpayers' money. Look at residences of judges, generals and high-ranking civil officials with army of servants and fleet of cars. Wasteful spending on State Aristocracy and unwillingness to tax the rich is playing havoc with the economy. Behind the present chaotic socio-economic and political situation in Pakistan, amongst other factors, is an ever widening gulf between the rich and the poor. With every passing day more and more people are being pushed below the poverty line, our rulers unashamedly waste billions on their comforts and personal security.
The present crisis testifies to the failure of power-hungry, money-greedy politicians and incompetent, inefficient and corrupt bureaucrats. Even the so-called technocrats always take the first flight to Washington after creating a mess and tearing apart the economic fabric of the country. Where are Shaukat Aziz and Abdul Hafeez now? In this bleak scenario, Riasti Ashrafiya is not ready to surrender extraordinary perks and privileges enjoyed by them at the cost of taxpayers' money. How can rulers and bureaucrats living in fortified containments, completely oblivious of the ordinary people's plight, feel the pinch of life's hardships?
We cannot come out of debt-enslavement unless there is a complete change in the style of governance-the President, Governors, Prime Minister, Chief Ministers, ministers, parliamentarians, and high-ranking government officials should be given 'Consolidated Pay' liable to tax just like the income of an ordinary citizen. Palatial residences occupied by them should be sold or converted into income-yielding assets, and all perquisites of civil servants and public office-holders should be monetized to remove the burden off our country's broken financial back.
Since independence, all efforts to reform civil service have utterly failed. Numerous committees and commissions were constituted to suggest ways and means-including rationalising pays and perquisites of employees-to bring fundamental reform in this important institution, but their recommendations remained on paper. There has always been strong resistance from bureaucracy for change-essentially it is pro status quo and mediocrity. Change and innovation threatens rule of mediocrity and sycophancy, which are bureaucrats are famous for.
The other day, a powerful officer in FBR was complaining about the "rude behaviour of politicians". He was unhappy about the financial deal (double salary) given to him vis-à-vis "large sums of money" spent on elected members of parliament. According to him, the total expense of salary, allowances, perquisite and benefits for an MNA is around Rs 32 million and for the entire house about Rs 85.44 billion per year. He was of the view that corrupt, incompetent and inefficient politicians are responsible for the present state of affairs in the country.
The politicians on the other hand think that bureaucracy is the root cause of all ills. They claim that a secretary of government costs at least Rs 500,000 per month to the national exchequer with lots of other facilities and perquisites in kind. If rent-free accommodation given to him in Islamabad alone is evaluated on market basis, the benefit is not less than worth Rs 150,000 per month. In addition, he exercises unfettered powers and defies the orders of elected members of parliament and sometimes even those of ministers.
There is an urgent need for right-sizing-closing down of all the unnecessary departments, divisions, sub-divisions and allied paraphernalia of government apparatus [see detailed list of such offices in an article by Dr Farrukh Saleem in The News]. The list is long and astonishing. At Constitution Avenue, Islamabad, one can count 30-50 useless government establishments that are doing nothing but have imposing buildings and huge staff. The same is true everywhere-in all parts of the country one finds government offices, overstaffed, wasting money and time and making the lives of the citizens difficult. This is in a nutshell the story of our civil service-the worst remnant of colonial legacy not ready to surrender its power, perquisites and benefits.
Living in sprawling bungalows with an army of servants, the top bureaucrats are least pushed to know how the common man is living-even totally indifferent towards fellow low-paid employees. They make policies while sitting in their air-conditioned rooms for poverty alleviation! Look that FBR has issued rules making mandatory e-filing of statements and returns for small business houses without realising the non-existence of internet facility at remote places and even in cities for want of electricity supply! Such measures indicate that the democratic form of governance is an alien concept in our peculiar milieu. State is run and controlled by a civil-military bureaucracy that has evolved for the worst-crueler than the colonial masters-since independence and political elite least concerned for democratisation of governance. Our bureaucratic structure is worst than many developing countries where decentralised governance has brought tremendous benefits for the people at grass root level. In many Latin American countries eg government officials get their emoluments in cash, share accommodation with fellow citizens, use public transport and their children attending public schools. Our elitist system has made civil servants masters. On the one hand, low-paid government employees hardly meet both ends and on the other, their bosses live like kings!
Democratisation of governance is the solution if we have to progress. The first and foremost step should be doing away with huge government machinery [see the detailed recommendations by Dr Ishrat Husain, Shahid Kardar, Nadeem Ul Haque and many others]. Complete overhauling of civil service is a prerequisite for democratic governance. The reforms should be all pervasive, but as a necessary step all perquisites and benefits of government employees should be monetized. The State must withdraw all facilities like houses, cars, servants and telephones etc. The perquisites in kind should be monetized. Let the government servants-especially the senior bureaucrats-live amongst the ordinary citizens of Pakistan and not in privileged enclaves like the GORs. This will give them real insight for formulating pro-people policies. They will comprehend the real problems of the ordinary folk. By living in separate colonies and bungalows they are alienate from the common people. This culture has to be changed. The purpose is not only saving billions of rupees on the maintenance of colonial-styled huge bungalows, but also utilization of these lucrative and expensive properties for some productive purposes. There is no need to maintain huge transport pools and army of drivers. Civil servants must use public transport, and if it is not worthy of them why should the masses be condemned and compelled to use the same?
Government servants should take residences on rent just as other citizens do after their entire pay structure is revised accordingly and fringe benefits/perquisites are monetized. They should get cars on lease or go to offices by public transport if they cannot afford lease rentals. This will be the starting point of change in society-dawn of democratisation of governance, making all the citizens at par having access to equal opportunities or equal sense of deprivation. Those who manage and perform State functions-civil servants-must be made part of the masses. Once this is done, the politicians will also have no excuse or justification to fund their luxurious living from taxpayers' money.
There are no two opinions that the entire budget making process is an epitome of apathy of parliamentarians towards the masses of this country, who vote them into power with the hope that they would do something for their socio-economic uplifting or at least provide them basic essential services-housing, transport, education and health, to say the least. Even the Standing Committees on Finance of both the Houses do not know what policies and tax measures would be presented. Mr. Dar even did not bother to give them any briefing before during and before the presentation of the budget. The worthy MNAs never bother to ponder about the impact of regressive taxation on the ailing economy and its devastating burden on the poor of this Land of the Pure. Time and again, we have been emphasising that democracy is not electioneering per se. Establishment of a responsible government caring for the needs of its people is a prerequisite for true democratic dispensation which is only possible if the Parliament performs its Constitutional role, implements flawless process of accountability and ensures good governance. Theoretically, the Cabinet is answerable to the Parliament! But the stark reality is that MNAs merely run after ministers for personal favours and gains.
In every civilised and democratic society, it is the sole prerogative of elected members to initiate the process of law-making and devising of national policies after taking public input. It is the prime rule of a democratic process that no law or policy should be made unless a thorough debate is held in the parliament. In Pakistan, the rulers, military and civilian alike, always try to bypass parliamentary processes and then complain about lack of "democratic behaviour and culture" on the part of the opposition. Every year, budget-making exercise is entrusted to bureaucrats sitting in the Ministry of Finance and FBR while the Parliament conveniently restricts its role to a silent approver. Due to non-participation of public representatives in budget-making, the financial managers and tax collectors have persistently failed to overcome fiscal deficit and remove fiscal imbalances as their tax policies are narrowly based on collecting taxes at source, without bringing mighty sections of society within the tax net or collecting what is actually due from them. They will never recommend reduction in wasteful expenses as Riasti Ashrafiya enjoys life of luxury at taxpayers' money. Our budgets and economy is only for them!
(Concluded)
(The writers, authors of many books and partners in HUZAIMA IKRAM & IJAZ, are Adjunct Faculty Members at Lahore University of Management Sciences)
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