Pakistan’s Economic Mismanagement By Irresponsible Elites
In Pakistan, the poor are subjected to heavy and harsh taxation to finance luxuries of the elite enjoying free perquisites, benefits, including purchase of valuable state-owned plots in prime locations at throw-away prices. The way they waste and plunder taxpayers’ money is no secret.
The other day while launching the health insurance scheme Prime Minister Imran Khan said his government was giving incentives to industries and allowing investors to create wealth. That, he added, would create job opportunities and eventually reduce or alleviate poverty. To prove the validity of his ‘trickle-down’ theory, the PM referred to the wealth creation by China which he claimed lifted millions out of poverty.
Well, China did create a lot of wealth but not by incentivizing the private sector. It was the public sector that was assigned the job of creating wealth in China. And it was a long journey of over 30 years of severe belt-tightening. The government looked after its citizens from cradle to grave with two square frugal meals a day, a couple of unisex uniforms, each couple restricted to one child only while, the wealth that was being created was being spent on creating huge social and physical infrastructure. The money each citizen made went into saving as there was nothing in the shops to buy. And when in 1979 China opened up to investors from Hong Kong, they came in by the scores bringing with them manufacturing know-how making goods for the mainland Chinese who by then had huge savings to go for a consumption spree. Meanwhile, globalization had occurred and multinationals from all over the world came in with their capital, technology and the markets to turn China into an export power-house.
Instead of doing what we should be doing to attain a degree of economic sovereignty we have been going around the world with a hat in hand. This, we have been doing since independence but have done nothing with the dole received other than let the rich pocket part of it and the other part going into buying costly arms. More of the same is not going to make us behave differently.
The economic predicament that Pakistan has been facing since 2008 is similar to the one we had faced in the decade of 1990s. And like then the present crisis too is the direct result of the mismanagement of the economy during the preceding regime.
Throughout the 1980s and part of the 1990s one saw the dice heavily loaded against the majority as the nationalized banks were fleeced by opportunists in the name of development. The policy of 30-70 equity offered by the nationalized banks was exploited to the hilt by these opportunists to rob the nation red.
The bank’s 70 per cent equity would be used for importing machinery and investor’s own 30 per cent equity would be completely made good by indulging in over-invoicing the imports. And by floating shares of the upcoming manufacturing unit say at Rs 10 a share and then buying them back after fixing the market to depress the share price to half and less than half of its original price, these so-called entrepreneurs would make substantial profits even before the coming on stream of the production unit.
And if it is an exportable goods producing unit, the investor would blatantly indulge in under invoicing his exports making a killing in foreign exchange and stashing this loot in a foreign bank where he had already stashed the loot from over-invoicing the import of machinery.
Since our entrepreneurs try to keep every penny of their investment within the family they are forced by self-created compulsions to reduce the risk to their margins of profit by the vagaries of business cycles by maintaining more than two books of accounts while blatantly pilfering utilities like electricity, gas and water and stealing taxes by evading and avoiding their dues by bribing the collectors.
Under this system even the middle classes in the country find it almost impossible to keep themselves from going under as the cost of education, health cover, housing and transport has virtually gone out their reach.
In Pakistan, the poor are subjected to heavy and harsh taxation to finance luxuries of the elite enjoying free perquisites, benefits, including purchase of valuable state-owned plots in prime locations at throw-away prices. The way they waste and plunder taxpayers’ money is no secret. Revenues worth trillions of rupees have been sacrificed by governments—civil and military alike–since 1977 extending unprecedented exemptions and concessions to the privileged classes.
Today, the rich enjoy wide-ranging exemptions and concessions, low effective tax rates and can engage in tax evasion with a degree of impunity, frequently in connivance with the corrupt tax administration. The consequence is low direct tax-to-GDP ratio, which has kept the overall tax-to-GDP ratio at extremely low levels in relation to other countries in the region.
By the time the first Afghan war had come to an end, our shallow show of opulence had consumed more than 50 billion unencumbered dollars that had flowed into the ‘front-line state’ in the five years since 1982 from the so-called ‘free world’ including the oil-rich Middle East. In addition the then regime was consuming up, on the double, the physical and social assets and production capacities created during the Bhutto regime. But as the war neared its end there was nothing to show on the ground where all the billions had disappeared. Dr Mehbubul Haq, finance minister of the interim government of President Ghulam Ishaq Khan, had to rush to IMF for an emergency Band-Aid.
This entire scenario was repeated to the letter in the first decade of the current century as the second Afghan war related dollar inflows created another skin-deep prosperity in the country only to disappear by 2008 in a blink of an eye as it could not last for even a couple of months in the face of financial upheavals occurring in far off lands. As in the closing years of 1980s, by the close of 2007 the country started suffering from massive load shedding. During both periods precious foreign assistance was wasted on consumption instead of using the comfortably wide fiscal space for introducing the much needed structural reforms to enhance national income, and add to physical and social assets.