Promised lion, delivered lamb

LAHORE: There’s a huge disconnect between what the government promised and how much it delivered so far and a case in point is that its claims of creating a job boom ended up in a bust as its economic "Pied Pipers" led the nation into pauperisation and indebtedness.

It promised to reduce national debt but winded up accumulating the highest ever debt in 18 months. It promised 5 million new houses for the poor in its five-year tenure and has not handed over a single house to anyone to date under that scheme.

The houses under construction in the scheme right now are less than half the houses promised in one year. The worst thing that happened for the housing sector in Pakistan is that the cost of construction almost doubled in a short span of time.

The rates of cement, bricks, and steel are at their historic high. It vowed to keep the sizes of federal and provincial governments very short. In reality the PTI-led governments in the center, Punjab, and Khyber Pakhtunkhwa are one of the largest in our history. It promised to reduce the power bills but landed up almost doubling them in the period under review. The gas rates have inflated two-fold. It promised merit in appointments but in reality it was otherwise. Its aim to eradicate corruption culminated in increasing the rate of bribe. It undertook the task of reforming Federal Board of Revenue actually made it more bureaucratic.

The assurance of eliminating theft and inefficiencies in power sector was thwarted by the vested interests that saw higher opportunities after massive increase in power rates. There was no improvement in agricultural production that in fact declined for major crops like cotton, sugar and wheat. The wish to take exports to new height did not materialise in first eighteen months.

However, it would be injustice if we did not mention some positives achieved by this regime. One of them is reducing imports that narrowed current account deficit. Though, this objective of import compression was achieved in haste and without proper homework.

The regulatory duties were indiscriminately imposed even on basic raw materials of the domestic industries that impacted the cost of production. This coupled with high cost of power and energy intensified deindustrialisation in the country.

The current account could have been easily reduced by completely banning the luxury imports and imported processed foods. After this ban the government could have increased the duties on finished products substantially. Current account deficit could have been effectively eliminated only through exports that unfortunately did not pick up. This government also succeeded in shoring up the foreign exchange reserves of the country mostly through hot money ($3.3 billion in last six months). Again the foreign exchange reserves should have been built through higher exports.

Analysis of government’s achievements and policy failures reveals that on policymakers went to any length to achieve their aims on issues they were genuinely serious about. The tax revenues increased mainly from existing taxpayers by increasing the rates or slapping indirect taxes.

Tax evaders are seriously not on their radar so they are still operating without fear. The foreign exchange reserves increased after careful planning to lure foreign funds to invest in Pakistan’s Treasury Bills. For this purpose the rupee was allowed to decline against the dollar beyond reasonable limit. Then the policy rate was increased to the highest ever in two decades making them attractive for the foreign funds. They are currently getting a guaranteed rate of return of 13.25 percent or little higher for short-term bills maturing in 3 to 6 months. They cannot get such high rate of return on dollar anywhere in the world. And they can take back or continue reinvesting the original amount till the interest rates are high. They could also take back the entire invested amount after maturity of Treasury Bills in foreign exchange along with interest.

Since the planners were serious about attracting this hot money they planned everything very carefully. The interest rate had no relation with the inflation in the country (that even otherwise was cost push). The interest rate was 13.25 percent when the inflation was less than 11 percent. The interest rate remained the same when inflation reached 12, 13 and then 14.6 percent.

And now it is the same when the inflation has come down to 12.5 percent. It is because this high interest rate is attractive for foreign funds. The rupee was over devalued deliberately to attract foreign funds. Its gradual strength to realistic value benefited those that invested in first few months.