The recent Annual Portfolio Review of the Asian Development Bank (ADB) blames the performance of Pakistani contractors and project execution supervising agencies for delayed completion of the projects, and consequent escalation of their costs - ills whose repeated highlighting couldn't trigger corrective government action. Multilateral agencies provide funding in foreign currencies in the government's escrow accounts and interest thereon is charged from the date of disbursement; delays in using these funds by not disbursing equivalent Pak Rupee funds for bulk of the expenditure escalates project cost equal to the interest paid on these loans until they remain unutilised.
The more worrisome conclusion about last year's performance of all ADB-funded projects points to capacity inadequacies and corruption in project execution supervising agencies as the causes of low fund absorbing capacity, and exposes the 'reality' of the Prime Minister's routine directives for completing the projects before their scheduled completion dates.
These comments reflect the PML-N regime's concern about shunning a governance profile that escalates the fiscal deficit, induces reckless taxation, and mandates ever-higher borrowing. Is this the profile based whereon the Prime Minister forecasts that, after the 2018 general elections, besides the federation, PML-N will also be in power in the provinces?
Besides the above negatives and controversies over the development projects (whose completion the PML-N regime keeps promising in 2018), another continuing yet virtually ignored damaging trend is the three-year-long slide in exports, consequent ballooning of trade deficit, and continued external borrowing, all promising a dark future for Pakistan.
Last week, Finance Ministry's Director General Debt informed the Senate's Standing Committee on Finance, Revenue & Privatisation that, since 2013, Pakistan borrowed $24.93 billion, though after repaying the maturing debt, net increase in Pakistan's external debt was $12.990 billion and, in the coming years, annual interest cost alone would be $2.748 billion.
He denied that external debt is now $73 billion, saying it was $58 billion, but admitted that total debt now equals 66.5 percent of the GDP, exceeding the 60 percent limit set by the Fiscal Responsibility & Debt Limitation Act, 2005. Besides declining exports, the drop in remittances by Pakistanis working in the Arab Gulf states will compound the fiscal strains.
Pointing to this developing scenario, some in the media recalled a December 2008 (the year wherein Pakistan recorded its highest trade deficit until then) article in the Wall Street Journal titled "Let us buy Pakistan's nukes" because Pakistan's becoming over-indebted was inevitable, and countries bent upon denuclearizing it could buy its nuclear weapons to help Pakistan repay its external debt.
Pakistan's over-indebtedness - an undeniable reality - finally forced the Commerce Minister to announce a relief package for the export sector. The size of this relief package (whose details are yet to be announced) could be between Rs 120 billion and Rs 180 billion - an uncertainty tag that exposes the government's concern for reviving the troubled export sector.
During the current demand-squeezing recession, "balancing" the books of account (which our chartered account Finance Minister kept doing by cutting the fiscal deficit to IMF's liking) induced resorting to hugely damaging options - increasing indirect taxes (instead of cutting current expenditures), and continued outlay on projects with marginal benefits instead of supporting the export sector's revival.
Winding-up the Pakistan Textile City Ltd at Port Qasim (being "developed" since 2004) because, despite spending Rs 2.4 billion thereon, its infrastructure couldn't be developed, is a monumental governance failure; of these Rs 2.4 billion borrowed from NBP, Rs 1.3 billion represents land acquisition cost and Rs 1.1 billion, the accrued mark-up.
Equally astonishing were the revelations that due to "adverse" climate change (in fact, due to low grade seeds, pesticides, and fertilisers) cotton crop in Punjab was adversely affected inducing farmers to switch over to sugarcane and maize but, courtesy 'conducive' climatic conditions in Sindh, yield and cotton cultivation area increased. Ironically, both provinces are located on the same land mass.
These baffling affairs reflect the importance the government - self-proclaimed as "a responsibility-conscious regime" - attaches to reviving the textile sector, which is Pakistan's largest export-oriented sector. By saying that "Pakistan has become expensive", the Commerce Minister admitted loss of Pakistan's export competitiveness while India's recorded a sustained upward trend.
Fuel cost is one of the most important cost components of every business because it impacts the transport cost of workers, raw materials, inputs, and finished goods. Currently, sales tax on high speed diesel is 36.5 percent; in 2013, it was 17 percent. But the Director General Debt insisted that increasing tax revenue justified this hike, and doing so was the government's "right". Vow!
The Commerce Minister promised that, to cut the cost of doing business, government will allow the export sector drawback of taxes in the gas and power tariff, GDIC, and sales tax. Let us not forget that, as of June 30, 2016 unpaid duty drawbacks to the export sector amounted to Rs 133 billion and the logic offered for their non-payment was "fiscal deficit containment strategy".
Let us hope that this relief package - discussed with the Prime Minister who gave his consent thereto - isn't side-lined again by the Finance Ministry and the Federal Board of Revenue (who are scrutinising it) for limiting the 2016-17 fiscal deficit because Finance Ministry believes in withholding payment of tax rebates, even low-ranking state employees' salaries, to reduce the fiscal deficit.
This self-deluding deficit-cutting strategy failed miserably. That's why public debt is soaring, pushing Pakistan into a bottomless pit while the regime remains focused on Metro Bus and Orange Rail projects and plugging gaps in the energy and power sectors via overly expensive imports (eg LNG) or via projects (Neelum Jehlum, Nandipur, etc) that won't deliver on their rosy promises.
Making the essentials overly expensive or denying their requisite supply is the other flawed strategy. Earlier this month, it was announced that natural gas tariff will be increased by 36 percent, but after countrywide criticism thereof, the government opted for daily gas load-shedding this winter from 10pm to 5 am. How people in the Northern provinces will confront the intensity of the winter doesn't bother the regime.
Suddenly, the Prime Minister has promised to build 50 hospitals; is it the belated realisation of a long-ignored need or, like other controversial development projects, building these hospitals too will become a self-enrichment venue? What about improving the state of technology and Medicare in the existing hospital?
Undeniably, this governance profile that prioritises projects of marginal economic benefits instead of plugging the critical infrastructure gaps reflects incompetence and apathy, and disclosures about over-pricing of such projects and the Prime Minister's dilly-dallying of accountability over the Panama Leaks, has irreparably damaged the regime's image.