By Dr. Sohail Mahmood.
The previous PML N government has left Pakistan in a mess. It was prone to bad governance and poor policy making which had wrecked the country’s economy. An example of bad governance was the constant downward revision of tax targets by the previous PML N government. On April 29, 2017, the Federal Finance Minister had announced that the fiscal year’s tax target of Rs 3.621 trillion had been revised downwards to Rs. 3.5 trillion tax. This wasn’t the first time such a downward revision had been made. Saudi Arabia had given a $1.5 billion grant to Pakistan three years ago, which remained unutilized till April 29, 2017 when the federal finance minister announced that the Nawaz Government would set up a Pakistan Infrastructure Bank with the help of the World Bank and others. Much earlier in April 2017, the FBR had admitted to a revenue collection shortfall of Rs 100 billion. Not only had the FBR then been holding back refunds to the tune of Rs200 billion, there were also off-budget deficits that had then amounted to over Rs 400 billion. Then the real budget deficit had been projected to hit 6% of the GDP as opposed to the budgeted fiscal deficit limit of 3.8% of the GDP. The budgetary deficit at this level was not sustainable, Farrukh Saleem, a noted economist had then argued that “there are five logical consequences: additional debt, higher taxes, higher debt payments, higher rates of interest and higher rates of inflation. Unfortunately, our future will have all five: additional debt, higher taxes, higher debt payments, higher rates of interest and higher rates of inflation”.
“the PML N government had failed to carry out any fundamental energy sector reforms at all and also faced a credibility problem because of a lack of transparency”
Another example of bad governance was the persistent problem of circular debt. In 2013, the last PML N government had paid off a mammoth Rs480 billion outstanding circular debt. By March 2017, circular debt had once again reached Rs 414 billion. In early May 2018 it reached a staggering Rs1,000 billion which was considered as a grave threat to the economy. The unaddressed circular debt had caused power outages in the summer which was contrary to the claims of the last PML N government of production of electricity up to 25,000 MW, more than the total demand. The chronic circular debt had affected the government to buy fuel resulting in a loss of around Rs. 400 billion to the industrial sector. The PML N government had failed to carry out any fundamental energy sector reforms at all. Undoubtedly, the PML N government also faced a credibility problem because of a lack of transparency. Previously, there had been some muted criticism of the CPEC because it suffered from lack of transparency. The official website contained just a list of projects but not enough details about them. This paucity of information about CPEC was bewildering, to say the least.
The need for greater financial transparency was then felt so that CPEC-related changes in the total debt of Pakistan could be properly studied, and correct policy recommendations could be derived to ease the debt burden. Meanwhile, Pakistan’s emphasis on coal-fired power was also criticized. It was argued that the CPEC need not convert Pakistan into an environmental wasteland. The country did not need to dirty its energy landscape with these plants. While, China itself was phasing out coal.
“in 2017 the debt burden carried by Pakistan had reached levels which had then aroused concern in the Asian Development Bank (ADB) and the IMF”
Pakistan was now facing a very serious current account deficit crisis. Earlier, in 2013 when the PML N government came to power the current account deficit was $2bn a year. Today, the current account deficit had increased to a staggering $2bn a month. Asad Umar, future finance minister said on August 2018 that this was a 12-fold increase and was unsustainable. “Given that, the most urgent action required of the government will be to deal with this crisis.”
Today, Pakistan’s current account deficit had increased to an shocking $18 billion. Meanwhile, the foreign currency reserves were only enough to cover less than two months of imports.
Earlier, in 2017 the debt burden carried by Pakistan had reached levels which had then aroused concern in the Asian Development Bank (ADB) and the IMF. In the previous fiscal year (2017-18), the budget deficit had increased to 6.8% of GDP or Rs 2.3 trillion. In absolute terms, it was the highest-ever budget deficit recorded in Pakistan’s history. The previous PML N government had set the budget deficit target at 4.1% of GDP, which had been breached by a wide margin. Historically, the budget deficit and current account deficit were major reasons behind seeking bailout packages from the IMF. For this year, the last parliament had approved a budget deficit target of 4.9% of GDP or Rs1.9 trillion. But, the initial trends were not positive. The budget deficit in the first month of the new fiscal year was close to Rs 150 billion or 0.4% of GDP, significantly higher than the one recorded in the same month of the last fiscal year. Higher interest payments were the main reason for excessive spending in July. Interest payments in July alone had amounted to two-thirds of the total spending, indicating that controlling current expenditures would be an uphill task for the PTI government.
“the most important failures of the previous PML N government was the inability to meaningfully increase the tax-to-GDP ratio”
The last National Assembly had sanctioned Rs1.62 trillion for debt servicing in the ongoing fiscal year and about 15% of that has already been consumed in a single month. Meanwhile, the country’s foreign currency reserves were expected to again fall below $9 billion mark by the end of September, even after Pakistan had secured a $2 billion official inflow from China and arranged $1.4 billion commercial loans over the past two months. One of the most important failures of the previous PML N government was the inability to meaningfully increase the tax-to-GDP ratio which was 10% in 2013 to only to 12.5% in 2017.
Today, the Pakistani rupee is shaky, the tax collection is miserably low. In 2017 , less than a million people had paid any taxes. Meanwhile, the country was only recently returned to the FATF “gray list” for failing to control terrorism financing, which now made foreign transactions more complex and expensive.
Only 2% Pakistanis pay income taxes which was shameful, to say the least. Plus, the economy was expected to grow by a meager 4 % barely enough to cater to the rapid population increase witnessed in the country. Undoubtedly, Pakistan’s economy was facing serious challenges and a crisis persisted. Although since 2005 the GDP had been growing an average 5 percent a year, it was not enough to keep up with the fast population growth. The country’s population was now over 208 million and Pakistan was now the sixth most populated country in the world, its growth rate is reported at 2.03%, which is the highest of the SAARC. The population was projected to reach 210 million by 2020 and to double by 2045. Pakistan’s current GDP was only $313 billion. Thus, the economy of Pakistan was entering a crisis.
“Pakistan was deficient in governance matters as public services were inadequate and there was immense poverty in the country”
Today, Pakistan was political unstable because of poor governance, widespread corruption and lack of law enforcement which had also hampered private investment and foreign aid. Pakistan had a weakened society given to intolerance, extremism and violence. It was an irony that Pakistan is one of the strongest nations in the world as far as military might be concerned yet considerably weak as far as societal and economic development indicators are concerned. Pakistan has achieved a lot in the military field and needs to consolidate its technical accomplishments in building an awesome nuclear arsenal quickly enough. Meanwhile, Pakistan’s leadership had failed to make the nation strong and united to face the terrorism challenges. The national leadership was too much focused on the acquisition of a military edge over India considered as a mortal enemy of Pakistan.
Pakistan was faced with horrendous situation inside the country as rapid population growth was fueling a massive rural to urban migration, strain on the cities, and massive environmental degradation. People were suffering from poor environment, lack of social services and neglect of state institutions to respond to the situation in any coherent manner. Bad governance was the norm, not the exception in state institutions. The poverty gap was striking and was widening in many areas of the country. Pakistan was deficient in governance matters as public services were inadequate and there was immense poverty in the country. The Human Development Index (HDI) was extremely low in Pakistan. The HDI was devised and launched in 1990 and was a statistic which ranked countries into four tiers of human development based on indicators like life expectancy, education and per capita income. A higher lifespan, higher level of education and higher GDP per capita results in a country scoring higher HDI. Earlier, the 2015 Human Development Report (HDR), by the United Nations Development Program (UNDP) declared that with an HDI value of 0.538, Pakistan ranks 147 out of 188 countries and territories. Pakistan ranks 121st out of 155 countries in terms of its Gender Inequality Index: only 19.3 percent of women reach secondary education compared to 46.1 percent of men, while female participation in the labor market is 24.6 percent compared to 82.9 percent for men. Pakistan ranked again at 147 among 188 countries on HDI in 2016 as released by the UNDP.
“the new PTI government must realize that investment and sound policies in health, education and good governance are the only way to create a quality workforce”
Pakistan ranked low on human development indicators because of severe neglect of public health and education. There was an urgent need for the new PTI government to invest in early childhood years through quality schooling, nutrition and healthcare.
It was estimated that there were nearly 25 million children out of school in the country. In Pakistan alone, 800,000 children die annually, more than 35% from malnutrition. With the population growing at the annual rate of almost 2%, the new PTI government must campaign for smaller families with greater vigor across the country and invest in accelerated family planning and female literacy to lower the fertility rate. With its pulse on economic development policies, the new PTI government must realize that investment and sound policies in health, education and good governance are the only way to create a quality workforce. There were 400,000 starving children in Thar and despite international food assistance, malnutrition had deplorably increased in Pakistan.
Plan of Action of the New PTI Government
The PTI government must prepare a Three-Year Action Plan with input from both federal and provincial governments. A council be established for the purpose to be headed by the prime minister and including several key federal ministers. The chief ministers of the provinces should also be part of the council. The council should be supported by a premier think tank. The first draft of the plan be prepared by November 2018. After extensive deliberations the final plan be approved by February 2019. Pakistan must follow the Indian model of such planning. It must reconsider the tools and approaches to the very conceptualization of the process of development. The plan must offer proposals for changes in policy within the stipulated period. It be assumed that most of the projects would indeed be completed in the three-year period, the implementation of the remaining would be continued in the next years. The aim of the plan is to offer a holistic development approach requiring all state departments and agencies to simultaneously progress. Also, the present the plan with great precision utilizing the Next Steps approach. The approach is simple common sense and consists of four logical steps.
Step 1: Assessment of current state through a detailed examination of each sector’s standing and review of shortcomings.
Step 2: Develop a roadmap by identifying the future state and the strategy to attain it.
Step 3: Implementation through detailed Action Plans and mechanisms and processes necessary for them.
Step 4: Feedback mechanism. Evaluation of the program by a third party.
The plan would encompass to cover all govt ministries, attached departments, and agencies. There are 972 government institutions in the country, according to the State Bank of –Pakistan. Plus, there are now 118 non-financial institutions in the country. The PTI government can begin with restructuring of the federal government by merging and consolidation into the following ministries:
- Ministry of Agriculture
- Ministry of Commerce and Industry
- Ministry of Communications
- Ministry of Culture
- Ministry of Defense
- Ministry of Education and Skill Development
- Ministry of Energy
- Ministry of Housing and Urban Development
- Ministry of Environment, Forest and Climate Change
- Ministry of Finance
- Ministry of Foreign Affairs
- Ministry of Public Enterprises
- Ministry of Postal Services
- Ministry of Housing and Urban Affairs
- Ministry of Human Resource Development
- Ministry of National Security
- Ministry of Law and Justice
- Ministry of Transportation
- Ministry of Parliamentary Affairs
- Ministry of Science and Technology
- Ministry of Shipping and Ports
- Ministry of Tourism
- Ministry of Water Resources
- Ministry of Women and Child Development
- Ministry of Youth Affairs and Sports
- Ministry of Information, Technology and Telecommunication
- Ministry of Kashmir Affairs and Gilgit Baltistan
- Ministry of National Food Security and Research
- Ministry of National Health Services, Regulations and Coordination
- Ministry of National Health Services, Regulations and Coordination
- Ministry of Planning, Development and Reform
- Ministry of Privatization
- Ministry of Religious Affairs and Interfaith Harmony
- Ministry of Statistics
A scrutiny of the entire federal government is needed now. Proper planning can result in rapid development of Pakistan. Much depends on the PTI government taking up the challenge immediately upon assuming office.
Dr Sohail Mahmood is an independent global affairs analyst and the author of several books, monographs and research articles on Middle East and South Asian politics, governance and development issues. He has taught for about 30 years in various universities of Pakistan and US and has worked as a consultant for the World Bank, CIDA, SDC, IUCN and UNDP. Sohail lives in Chapel Hill, North Carolina, United States. He can be reached at firstname.lastname@example.org.