Tuesday, 1 October 2013

PML-N Government: A Long Way to Go

Article is published on 30 September 2013 in Money Matters


 A long way to go
Before the govt of PML-N took charge of the office I wrote an article on economic revival based on the manifestos of four major parties including PML-N, PTI, PPP and PML-Q. One of the major points was that the economy desperately needs stronger actions, which will fix things in the short to medium run. Meanwhile, in the long run certain reforms are needed for the stabilisation of the growth process.

Investment, which is crucial for growth, is being constrained by terrorism and energy shortages. Other constraints include lack of skilled labour and the high cost of doing business. For the removal of the constraints and dealing with other obstacles it is necessary to facilitate investment.

From the manifesto of each political party, all of them seek economic revival, and the PML-N suggested a good strategy for curbing of energy shortage, which is a topmost constraint in investment. The manifestos advocate formal and technical education, but the policies suggested were directionless. The cost of doing business can be reduced through provision of incentives. But this is not good for the economy because incentives in the form of tax holidays and tax exemptions can be abused by seekers of rent and revenue. Loopholes in the system are used by these elements because of weaknesses in our tax system, tax administration and excessive discretionary powers given to tax officials. Without any doubt, we need reforms in all departments concerned, including the ministry of commerce and industry, the FBR, and Smeda.

Before the elections, all parties, especially the PML-N, pledged that the energy crisis would be eradicated within two years. But they soon realised that the solution is not that simple. But those parties which came to power or share power are in the process of trying to make a strong energy policy. Meanwhile, the shortage of electricity has been mitigated and some other projects will ensure continuous electricity supply for the next 10-13 years.

As for policies on eradication of terrorism set out in the parties’ manifestoes, in each case they were only vaguely discussed, with none of the document clearly indicating the root cause of terrorism, or suggesting a viable solution to the problem. Therefore, despite the fact that terrorism is under the government’s consideration since the formation of the new governments, no workable policy is in place yet. The APC discussed the issue and came up with the unanimous decision of talking to the Taliban. We avoided doing any kind of analysis before the talks started. Karachi, Pakistan’s business hub, has witness a large number of targeted killings for many months. The Rangers are deployed and their charge has been given to the Chief Minister of Sindh, but whether this will benefit the economic situation in Karachi is a big question mark.

The budget was the first major policy of the government after they took charge. Could we leave budget-making to the bureaucracy and its team of accountants? Budget-making is not an exercise in accountancy. The first budget was brutally criticised by analysts since everyone was expecting some relief resulting from it. The budget is supportive of economic revival since the government gave some exemptions to the industries. The budget deficit is huge and we need more revenues to overcome problems of piling public debt. More taxes on the salaried class and the one percent increase in GST created havoc for the government, and afterwards the increase in taxes on prepaid cards had a devastating effect, especially on the social media, even though the tax on prepaid cards is a progressive tax.

I put some question to people belonging to the educated working class. Almost everyone said he or she believed that the PML-N has not clearly spelled out the direction the party intends to take. The government is in the process of making “Vision 2025,” which has some new points that were absent in “Vision 2030.” The think tanks and the Planning Commission are working on “Vision 2025.” which will elucidate the main points of the policies and plan of action for achievement of the vision.

Due to the circular debt payment and other measures taken by the government, the duration of load-shedding has come by a significant number of hours. On the performance of the current government the respondents were clueless about what the government actually wanted to do. They said that the policies of the government are directionless. This is because the Prime Minister did not mention the policies his government will adopt during the next five years. He should have taken the nation into confidence on the current situation and the policies the government is going to implement. In the first three months of the government, most people have faith that the policies of economic revival, the energy policy and development of better relations with India will have positive long-term outcomes on the economy.

In order to get an idea of how people perceive the performance of the current government everyone was asked to rank the performance on a scale of 0 to 10, with zero implying the worst and 10 implying the best. The average score is 4.3, which is below average. This implies that even though load-shedding has mitigated and some other policy measures are taken, the performance is not satisfactory.

From their speeches made at rallies before the elections, people were expecting that things will change overnight and some of the old ministers will be imprisoned by the new government, but these did not happen. This kind of expectations are too emotional. Moreover, expectation of a pro-poor budget wasn’t unconventional but the budget was definitely not pro-poor. Corruption eradication, police reforms, judiciary reforms, civil bureaucracy reforms and tax reforms were among the top priorities of the educated class which are not addressed by the current government and there is a hunch that they might take some measures to eradicate corruption. However, they are not in a mood to work on reforms to make the overall system better so that it facilitates the common man.
- See more at: http://magazine.thenews.com.pk/mag/moneymatter_detail.asp?id=6258&magId=10&catId=171#sthash.GkOaY54k.dpuf

Free Trade-Unemployment-Terrorism

World is pro free trade but it is not beneficial for everyone. Some will be gainers and some will be losers. The gainers will compensate the losers. But How...? Under WTO safety nets program is designed to distribute resources among losers after getting from gainers. Who will do it...? Are we looking towards the government who is very inefficient due to high transaction cost including corruption and high maintained status quo and hierarchy? In the corruption index we are among the list of corrupt countries, though improved in the last few years.
This is one problem which we might face under free trade. Another problem is that the losers will lose the job as well as money. If they get do not get required amount of money to live their standard life they’ll be deprived off what they were having without free trade. Moreover, we are ignoring the component of satisfaction here. A person who was previously working is either unemployed or working at some place where he does not want to work. In other words his job satisfaction is zero compare to his/her previous job, hence the overall satisfaction. If the person remains unemployed for a longer period of time he thinks of many different thing including shake hands with the extremist element, become a thief or a dacoit. Thus unemployment is definitely a social evil which is very high right now in our country.

From the above can we conclude that unemployment or dissatisfaction from employment could be a big cause of terrorism? After all this do we need blind eye free trade or we need to see pros and cons of free trade for our own country, first solve those issues and then pursue for free trade. 

P.S. During the last one decade of low growth and higher unemployment, inequality has increased. Moreover, unfortunately frustration has increased which leads to intolerance. Unemployment and several other factors has increased the possibilities of terrorits activities