Challenges of sustaining the growth trajectory | By M Ziauddin


Challenges of sustaining the growth trajectory

THE budget season has begun. The due date is June 11. The growth rate for the next year is being estimated at a modest 4.8 per cent against a sharp acceleration of 3.94 per cent (from a low base of 2019-2020) projected for the out-going year.

One hopes the new growth trajectory is sustainable and would not lose steam as suddenly as it has emerged.

Pakistan has experienced annual average growth rates of around six per cent in the decade between 1958-68, then between 1980-90 and recently between 2000-2007.

But at the end of each of these high growth periods we have slipped back into the rut, running from pillar to post seeking concessional loans and at times loans carrying crushing interests just to avert the ignominy of default.

The reason being during these periods of high growth rates funded by American free lunches—Tarbela dam construction, free wheat under PL480, weapons at concession cost; the first Afghan war of 1980s and the second one of the 2000s— instead of using the available financial space to restructure our economy to make it self-sustaining we had wasted the resources on consumption and buying sophisticated weapon systems.

Pakistan’s economy needs to grow at an annual average rate of at least seven to eight per cent over the next 10 to 15 years to be able to generate enough to fund affordable educational facilities, affordable health cover, affordable public transport, affordable telecommunication facilities, affordable housing and affordable bank loans to all its citizens.

But in order to grow at this rate, the economy would need investment to the tune of at least 25 per cent of the GDP at an annual average for the next 10 to 15 years.

However, our current rate of savings has been stagnating at around 14 per cent of the GDP over the last several years.

This leaves a gap of almost about 11 per cent between the required rate of investment and the existing rate of savings.

Since we have consistently failed to mobilize enough resources from within the national economy to bridge this gap, we have resorted to borrowings, which while never enough, have now accumulated into a mountain under whose weight a default would appear imminent at times.

Macroeconomic stability is a highly desirable goal but by the time a country succeeds in achieving this goal, it invariably ends up with resource constraints becoming even more chronic, the unemployment rate shooting through the ceiling and inflation spiraling out of control.

Therefore, instead of seeking ways to return to the IMF for help we should be doing some creative thinking on this matter.

For example, a big chunk of unnecessary financial losses that the public sector entities are incurring currently can be eliminated by cutting down on waste and replacing inefficient managements with efficient ones.

Also, their burden on the budget could be significantly eased if the government were to collect the taxes that are due to it from all its citizens who earn taxable incomes.

Only a business-minded government would know the importance of enforcing tax laws strictly across the board without exception and exemption.

A government has no business doing business. Sounds logical. But a government devoid of the necessary instincts of a sharp businessman would find it almost impossible to frame socio-economic policies that ensure progress with equity.

Such governments either end up widening the gap between the rich and the poor, or failing them both miserably.

Governments in poor countries, especially those which are totally dependent on imported fuel, need to be necessarily business-minded to be able to not only rationalize the dependence, but also reduce the burden on the import bill by being an expert of the market as are the international oil sharks, racking in millions on price fluctuations of as little as a minimal most fraction of a cent.

Donor-driven poor countries need business-minded governments even more because if you are not well versed in what is happening in international trade, more likely than not you are going to end up returning almost the entire aid back to the donor country in import bills.

Also, it is only a business-minded government, which can make a distinction between an enterprise that yields profits of immense social value and those that yield purely financial profits.

The problem to understand in a nutshell is that not everything that is profitable is of social value and not everything of social value is profitable.

Reality TV, fashion and gambling are all of questionable social value, but each is quite profitable and exists in the private sector.

On the other hand, a few would argue that the Army, Navy, Air Force, Coast Guard, police department, fire department, libraries, parks, public hospitals and public schools are of no social value, and yet, they could not exist if they were required to be profitable.

Take for instance, the Steel Mill. No matter how you run it, at the production capacity of 1.1 million metric tons, it can never be financially profitable even if you cut its fat to bare bones.

Its social value is too dubious to merit any consideration. So sell it today. This is true for most of the items earmarked by the government for privatization and disinvestment.

However, this will never be true for PIA, Pakistan Railways, public transport, power generation and distribution entities, Oil and Gas Development Company Limited, Pakistan State Oil, Utility Stores, National Bank of Pakistan, Civil Aviation Authority, Pakistan National Shipping Corporation, Karachi Port Trust and Port Qasim, etc. In rich countries, perhaps, these entities would be better off in the private sector.

But in poor countries like Pakistan, these entities have as much social value as the defence forces, security agencies.

A government without business know-how would hardly be able to maximize social benefits of a public sector entity at a minimum financial cost.

In most developed societies, this is done by letting the public sector compete with the private sector but with keeping the latter’s profit motive within reasonable bounds by establishing legally sound autonomous statutory regulatory mechanisms.

And even after such mechanisms are developed, air, road and rail transport, energy-related units, public schools and public health institutions, at least up to primary levels, would need to be kept under government control, no matter how much the cost.

— The writer is veteran journalist and a former editor based in Islamabad.

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