analysis: Pakistan’s dependency syndrome

[fatman17]

analysis: Pakistan’s dependency syndrome —Rasul Bakhsh Rais

We can double our revenues if we have an honest and efficient tax collection set-up and governance that delivers, earning the confidence of citizens. This is the difficult task that, if accomplished, would break our begging bowl

Remember how our ruling classes bragged about having ‘broken the begging bowl’ without mending the structural problems of Pakistan? The routine panhandling before friendly states and international institutions — followed by repudiation for political mileage — is an indicator of the monumental failure to manage the financial resources of the state.

The economic crisis — some are calling it a meltdown — that Pakistanis are witnessing helplessly is due to the structural flaws of the economics and governance practiced by the Musharraf regime for almost a decade. A few pleasant macroeconomic indicators that suggested steady growth in visible sectors hid the weaknesses of other vital sectors.

There was phenomenal growth in telecommunications, banking and consumer finance, spurring the production of consumer items. These are the areas where the previous regime can take credit. But that had more to do with turning the economy into a consumer market of goods and services, provided largely by foreign firms, instead of building our own capacity to pay for these items through value-added exports.

Some troubling questions about economic planning remain. For example, could telecommunications, car manufacturing (or its financing through banks) in a weak foreign oil-dependent economy sustain growth in the long-term? Not really, and we saw the crumbling of the Musharraf-Aziz economy last summer well in advance of the elected government taking over in February this year.

The situation has since worsened, and the economic slide continues. Who is responsible? Even the present regime, an elected one at that, seems confused and unwilling to address the structural problems of the economy.

Our ruling classes — the military, the bureaucracy and the shape-shifting politicians — have always taken the easier route, one less costly in political terms, instead of taking the difficult decisions in the national interest. Borrowing from internal and external sources is a lot easier than generating resources indigenously, which requires efficient, law-bound and politically responsive governance. In such a system, taxpayers would also question the allocation of state resources, forcing power holders to be accountable and transparent. These are the last political virtues our ruling classes wish to embrace.

The main reason why the public is not willing to pay taxes happily, if at all, is the trust deficit of the government. Service delivery is so poor that most feel cheated while filing tax returns or paying indirect taxes on almost everything.

That the tax regime is loaded against the poor is evident from the fact that most taxes are consumption-based and apply on almost everything purchased by the poor. Affluent sections of society — professional groups, businesses, agriculturists and property owners — are hardly taxed.

The result is obvious: the ruling classes resort to easy finance, i.e. they borrow to fund expenditures. And both the administrative and development sections of the budget are misused due to lack of transparency and accountability. Pakistanis really don’t get bang for their buck.

Sadly, the budget deficit has remained unbridgeable. We have yet to see any politician, party or official even think about a balanced budget. The habit of borrowing, developed over decades, has added to our deficit because the mark-ups and debt retirement schedules drain a massive portion of the budget. This bitter fact is presented in such a diluted manner that after spending hours going through economic surveys and government documents, it is not possible to figure out the exact percentage of the national budget allotted to debt servicing.

And the hunger for easy debt remains strong, mostly due to wasteful projects. Often, large portions of loans from the World Bank, ADB and other sources is plundered by project managers and bureaucrats.

Have billions of rupees in loans from the ADB made a difference in improving our judicial system or, say, the environment of Rawalpindi? What about procuring World Bank loans to send rusty bureaucrats in their last few years of service to ‘upgrade their skills’ at foreign institutions? Can anyone justify obtaining foreign loans for tree plantation drives? What a greedy, unaccountable and anti-people lot we have as our rulers.

Pakistan will continue to pay back these loans for decades, while consultants, project managers, banks and bureaucrats continue to sit pretty. The nexus among these forces is strong, and national and international accountability institutions are took weak to hold them responsible for their malpractices. Our civil society and media, though developing faster than anyone expected, are not strong enough to question fishy deals or follow up on reports of corruption.

As we debate on how to get ourselves out of this economic mess, we must consider our resources and strengths and how best we can utilise them to reduce our dependence on donors to restore some semblance of national honour and sovereignty. It is not that we are a resource-poor country, the issue is how we utilise these resources.

Let us consider just two natural resources: our hydroelectric potential and coal deposits, one of the largest in the world. Each can generate nearly fifty thousand megawatts of electricity, or together over six times the power we are currently generating. Why have these resources not been tapped, and why are we loath to planning and executing projects of such high national importance?

Indigenous resource development in the energy sector would have given our industry a greater competitive edge as compared to the heavy burden placed on us by the independent power producers. There is more bad news: the new democratic government wants more of the same with IPPs setting up offshore units to feed our national grid.

Finally, bad governance and dependency go hand in hand. Our tax-to-GDP ratio is around 10 percent, while the average for developing countries is 18 percent. We can double our revenues if we have an honest and efficient tax collection set-up and governance that delivers, earning the confidence of citizens. This is the difficult task that, if accomplished, would break our begging bowl.

Dr Rasul Bakhsh Rais is author of Recovering the Frontier State: War, Ethnicity and State in Afghanistan (Lanham, Maryland: Lexington Books 2008) and a professor of Political Science at the Lahore University of Management Sciences. He can be reached at rasul@lums.edu.pk