Economic challanges yesterday and today (The News)

Coming back to the economic pages of The News as a columnist is the return of the native for me. When this paper was launched its first Economic pages Editor, the erstwhile Khalique Zuberi asked me to write for his weekly page and thus my column Business Talk started in February 1991. I continued to contribute till October 1994. Why I stopped the column, honestly I don’t remember. Anyway I am back.

Wondering where to start I decided to look back in the file and see what were the economic and business challenges then (1991-94) and where we stand today. The question on my mind was to reflect on whether we have moved on; or are we stuck in the same grooves? Here are some comparisons:

In February 1991 the businessmen were worried about the Gulf War’s impact on Pakistan and the expatriates working for the MNCs started curtailing their activities and sending their families away. After 19 years we have a War against terrorism at home and next door in Afghanistan. The business is seriously affected, economy is burdened by the war expenses in spite of part financing by the Americans. And very few expats are left in the country. Pakistan has been declared as a non-family destination. As if this is not enough even the foreign buyers are reluctant to visit the country, which has affected our tourism and exports business. Fresh foreign investment has been consistently falling because of the rising terrorist activities of the Jihadi groups.

The challenge in 1991 was resistance to the privatisation of the nationalised banks. MCB was privatized after a heated debate in the media. At that point over 80% of banking was in the public sector, today it is otherwise. The banking industry has grown by leaps and bound in the last 19 years. The progress should be measured from the fact that today the banks compete with each other even for securing small and medium enterprises business; individual loans are available; the credit & debit cards market has grown to nine million; micro-finance banks have been created and over 2 million people are benefitted by it. However, high lending rates, low deposit rates and rising non-performing loans are still posing difficulties for the banks and customers. On the whole progress in this sector has grown.

Public sector corporations are still bleeding the country’s revenues, Steel Mill was a problem then, it is a nightmare now. Back in 1991 PIA was fighting to maintain its monopoly in the domestic market and on Gulf business, while Mian Nawaz Sharif was for opening up the airways. After about two decades we still find it crusading through its employees to protect its market share against the gulf airlines. PIA’s demand that it should be given a level playing field with the gulf airlines is just. But we have seen that competition in domestic and other markets is always good for the consumer, and that is something which should have priority over other considerations.

Ironically, the recent report that Finance Minister Dr. Hafeez Shaikh has “cautioned” the PM “on the state of economy” is not comforting either. In August 1991 I had stated that Finance Minister “Sartaj Aziz’s dilemma is how to cut down further (government) borrowings and the growing deficit.” He also made attempts to “to raise the revenue by plugging the leakages which were struck down by the business community.”

When I broached the issue that we are where we were 19 years ago, former Finance Minister Sartaj Aziz lamented “economic situation is worst now.” He thinks that the real shortfall of the revenue must be higher last year than the stated Rs60 billion, because the government was holding back refunds of around Rs40 billion. “Added with the provincial shortfall,” Sartaj Aziz says “the budget deficit last year was over 6%.” For the current year he is not hopeful that the government would be able to meet the revenue target of Rs1657 billion. So what is to be done? Answer “control government expenditure, as its size along with the quasi-fiscal deficit – public sector losses and circular debt is astronomical.”

Dr. Hafiz Pasha, who has been advising the government on the economy, says that “the quickest way to bring down expenditure is by cutting the extra government fat.” On the basis of his study done some 10 years ago, he pointed out that “there were around 500 government entities which are getting fatter every day.” So the fastest solution, he thinks “would be to save atleast Rs300 billion by cutting the expenditure on these 500 entities.” He is not hopeful that his fellow economist Dr. Hafeez Shaikh would be able to collect Rs1657 billion taxes in the current year when the economic growth is slow. That means higher budget deficit and for the common man higher inflation.

Today in 2010 Dr. Hafeez Shaikh stands in a more precarious economic situation and with the same conundrum which could not be solved by all his predecessor technocrat finance ministers. The business community is all out to resist the ‘reformed GST’ a euphemism for VAT. The government, I am told by Islamabad bureaucrats, is not listening to him seriously on the issue of cutting expenditure, going all out for tax evaders and is by-passing him in many crucial decisions. My fear is that like Shaukat Tarin he may not last long and may return to his development banking career to protect his unblemished reputation. (ayazbabar@gmail.com)

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