IN THE NEWS: PAKISTAN – BUILDING A NEW ORDER (MARCH 14, 2019)

Written by admin on Thursday, March 14th, 2019

Selected by Olivier Immig & Jan van Heugten

Building a new order
SOURCE: Dawn
Thursday, March 14, 2019
By KHURRAM HUSAIN

THE prime minister’s promising to build a “new FBR” as a response to disappointing revenue collection figures is an example of his government’s growing helplessness before the massive dysfunctions that he promised he would fix with a magic bullet. The promise is absurd because building a whole new institution from the ground up is almost as illogical an idea as financing a mega dam through public donations.

If the FBR were a faulty washing machine that one was fed up of trying to keep functional it would be rational to talk of discarding it and buying a new one (provided one was in a position to afford it). But public policy choices are not like consumer choices in this regard. If the prime minister is frustrated with the FBR to the point where he is willing to talk publicly about scrapping it, what will be his approach when someone brings to his attention the developing situation in the power sector and the circular debt? Throw it all away too?

There is a sense, that is getting stronger now, that this government came in thinking that the chronic and intractable problems of our economy (and society) have simple solutions. Foreign exchange reserves declining? No problem, grab those Swiss bank accounts, bring back Ishaq Dar and shake him down since he knows where the “looted wealth” is buried. Fiscal deficit? No problem, auction off the PM House fixtures and buffaloes, appeal to people to pay their taxes as a “national duty” and back up the appeal with a personal, emotional commitment that “I will personally watch over the money to ensure that it is not misappropriated”.

In the meantime, the two mini budgets announced by the prime minister’s finance team — the one in September and the other January — are better known for their tax breaks and handouts to the rich (and development budget cuts) than for any innovative revenue measures.

In one area after another, we are seeing a magic-bullet approach to tackling chronic and intractable problems.

Exports falling? Call in a delegation of exporters and ask them what they need and give them what they ask for: a large extra budgetary subsidy on gas price (Rs26 billion to be exact). This at a time when moving towards deregulated and market pricing of natural gas is critical to ensuring future investment in the gas sector comes in on terms that are sustainable for the government, meaning the investment will not end up costing more than the benefits it produces.

Foreign investors citing security as a concern for investing in exploration? Create a new security force on the pattern of the CPEC security force to provide them with targeted protection. Fair enough, until they see the bills that came with the CPEC security force. Should we expect to see this allocation in the June budget?

In one area after another, we are seeing a magic-bullet approach to tackling chronic and intractable problems of the economy. From broadening the tax base to diversifying exports, improving power-sector recoveries, stemming the bleeding in the loss-making enterprises, keeping the deficit under control, and through it all, reviving growth and investment.

There is no magic bullet, unfortunately. Emotional appeals to the leadership of the business community to pay more tax are a lousy way to raise revenues. Asking for donations to fund a dam in the hopes that overseas Pakistanis will step forward in huge droves is a lousy way to build foreign exchange reserves.

The subsidy given to exporters on gas price is a case in point. It is unaffordable given the state of the government’s finances (place your bets on whether or not it will be renewed with a full-year allocation in the June budget) and costs more than the benefits it brings in. So far, no appreciable increase in exports can be seen since it began to be disbursed in January. And knowing the business community, and how cunning it can be, it is entirely possible that its members have talked the government into disbursing these funds against outlandish promises of boosting exports, but when the promised boost fails to materialise, they will offer up clever excuses.

‘The sales tax refunds that are stuck at the FBR inhibited our working capital and ate away our liquidity’ they might say. Or ‘there is a recession in international markets, look at what Brexit has done to two of our top markets: Britain and the EU, look at what Trump’s trade war has done to our largest market: the US. How can we grow our exports under these conditions?’

Fact is, in government, if you have no ideas of your own your policy agenda will be hijacked by narrow special interests. These narrow special interests exist within the state itself as well as in the private sector and within the political parties. Each pulls the leadership in a different direction, and when you see the leadership acting in response to the pull of these narrow special interests alone, you know that you have a government that is adrift, that is being milked by everyone in its proximity.

The losers in this bargain are the people. Because the situation yields either policy paralysis or capture of the policy agenda by narrow special interests. And when this happens, the resultant costs are passed on to the people in various forms. Power-sector failure means higher tariffs and surcharges. Gas-pricing reform failure means higher gas prices.

Higher subsidies and tax breaks for billionaire investors mean more taxes imposed on the poor (through taxes on fuel and mobile phone cards for example). Failure to increase remittances or exports means more devaluation, more inflation. And so on.

In fact, this is the oldest policy story in Pakistan. Whether its growth or adjustment the costs always land up with the poor, the working classes, the middle class, in short those without a seat at the table.

So, thus far, this ship does not seem to be sailing for any new shores.

 

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