Tough economic decisions
I have great respect for Dr. Ishrat Husain for his focused work as Governor State Bank for a good 6 years. His continuity in the position and steadfastness of policy not only turned State Bank into a credible organization but he was able to continue the reform process. I agree with most of the points that he has given in his article that was published in today’s Dawn, but the question to him is as follows: How can there be political will to do anything that he has proposed when the government is just defending itself on all fronts? If one has to deliver, he has to be assured of his tenure and then expect him to deliver.
Tough economic decisions Dawn, October 4, 2010
By Ishrat Husain
PAKISTAN has never been hit by such adverse shocks as in the past few years. All of these have occurred in quick succession and their speed, intensity, duration and magnitude are unparalleled. The war on terrorism has caused enormous loss to life, property and order. It is still going on.
The bulk of the population was already suffering from diminished purchasing power due to high inflation, stagnating incomes and growing unemployment. The global economy has been in recession and has remained unhelpful in stimulating the domestic economy. There are few expectations of economic recovery at this stage.
On top of this the floods have affec ted some 20 million people, damaged or destroyed more than a million houses and infrastructure and played havoc with agricultural production over 10 per cent of the cultivable area. The cumulative effects of these shocks on the economy are likely to persist over a fairly long period of time. The way to tide over these extraordi nary difficulties therefore requires some tough decisions on the part of our policymakers. It is not the time for business as usual.
First, we must reset our priorities regarding public-sector spending at the federal and provincial corporation level and eliminate wasteful expenditure in budgets at all levels. A clear link between public expenditure and the desired economic outcomes — incomes, output, prices and employment — should guide the screening of projects, programmes and policies for inclusion on the priority list.
Second, the domestic savings rate is dismal and has made us heavily dependent on foreign assistance. The savings rate has to be stepped up by providing incentives to households, corporate and small businesses and overseas workers through national saving schemes, mutual funds, bank liability products, insurance, etc.
The public sector as a whole has been a source of poor savings mainly because of losses by public corporations, low resource mobilisation arising from exemptions, evasion, waivers, weak compliance and indifferent enforcement. Studies have shown that at current rates, tax col lection can be raised by four to five per cent of GDP while the plugging of leakages, waste and corruption in public corporations and development projects can provide an additional fiscal space of two to three per cent of GDP. An action plan should be implemented by the finance managers to capture public savings.
Third, the privatisation programme has been stalled for quite some time now and the loss-making public corporations are bleeding the exchequer. Not only is privatisation necessary for the health of public finances it will also contribute to the efficient allocation of resources, improvement in productivity, expansion of output and employment. Vested interests have so far prevailed upon decisionmakers by perpetuating myths and falsehoods about privatisation. It is time to ignore them and proceed with privatisation in an open and transparent manner both by offloading limited shares of profit-making companies and disposing of loss-making corporations.
Fourth, the government by becoming too intrusive is now an impediment in the way of new enterprises, start-up companies and small businesses in the private sector. Entrepreneurship is discouraged by excessive rules and regulations. Too many agencies and departments are involved, often at cross purposes with each other, in cumbersome and long-drawn-out process of getting clearance, no-objection certificates and building permits, and acquiring land, utilities and infrastructure. A single building project requires the seal of more than two dozen government agencies and departments — connections and corruption are the main determinants. Successful examples should be replicated all over the country.
Fifth, decision-making at the government level is convoluted and complex because of the overlap, duplication and multiplicity of organisations, elongated hierarchal chains within organisations and a growing tendency for turf protection and inter-agency rivalry. Rules and procedures along with structural changes in the ministries/attached departments have to be drastically modified and powers delegated and accountability established to make room for fast track decision-making. The enormous discretionary power enjoyed by poorly paid, ill-trained low-level functionaries such as the patwari and SHO have alienated ordinary citizens from the government and should be transferred to civil servants of high calibre.
Sixth, the gap between the capacity of the government to deliver public goods and services and the growing expectations of the public is getting wider. This can be filled by an empowered and well-functioning local government system. The Local Government System 2001 had rightly devolved powers, authority and resources for basic public service delivery to the union councils and district governments. This system, with some required changes, should be reinstated as soon as possible with the provincial governments responsible for policies, standards, ensuring quality and monitoring results. The Police Order 2002 with its built-in checks and balances should form the basis of citi zen-police relations.
Seventh, investment decisions in energy, the rehabilitation of the irrigation system, education and health should be made on a medium-term basis. Parliament should discuss and approve the allocations which should remain unchanged at the time of the annual budget except where fine-tuning is required. This will ensure that some essential activities that will produce results in the medium to long term are not sacrificed at the altar of short-term expediency and arbitrary cuts in development projects.
Finally, the chief executives and the boards of directors for 100 key economic institutions, organisations and corporations should be appointed for a fixed tenure and not arbitrarily removed without cogent reasons. These appointments should be placed and endorsed by parliamentary committees. The removal should be challenged in court if done with mala fide intentions. These executives should be given specific targets and held accountable for results.
The political will to carry out these measures has been lacking so far. It is time that we mustered up the courage and rose above partisan interests to get the country out of the present crisis and cleared the general air of despondency by taking these decisions. ¦ The writer is a former governor of the State Bank of Pakistan.
pakistan has never been hit by such adverse shocks as in the past few years. all of these have occurred in quick succession and their speed, intensity, dura- tion and magnitude are unparal- leled. the war on terrorism has caused enormous loss to life, property and order. it is still going on. the bulk of the population was al- ready suffering from diminished pur- chasing power due to high inflation, stag- nating incomes and growing unemploy- ment. the global economy has been in recession and has remained unhelpful in stimulating the domestic economy. there are few expectations of economic recovery at this stage. on top of this the floods have affec- ted some 20 million people, damaged or destroyed more than a million houses and infrastructure and played havoc with agricultural pro- duction over 10 per cent of the cultivable area. the cumulative effects of these shocks on the economy are likely to persist over a fairly long period of time. the way to tide over these extraordi- nary difficulties therefore requires some tough decisions on the part of our policymakers. it is not the time for busi- ness as usual. first, we must reset our priorities re- garding public-sector spending at the federal and provincial corporation level and eliminate wasteful expenditure in budgets at all levels. a clear link be- tween public expenditure and the de- sired economic outcomes — incomes, output, prices and employment — should guide the screening of projects, programmes and policies for inclusion on the priority list. second, the domestic savings rate is dismal and has made us heavily depend- ent on foreign assistance. the savings rate has to be stepped up by providing incentives to households, corporate and small businesses and overseas workers through national saving schemes, mutu- al funds, bank liability products, insur- ance, etc. the public sector as a whole has been a source of poor savings mainly because of losses by public corporations, low re- source mobilisation arising from exemp- tions, evasion, waivers, weak compliance and indifferent enforcement. studies have shown that at current rates, tax col- lection can be raised by four to five per cent of gdp while the plugging of leak- ages, waste and corruption in public cor- porations and development projects can provide an additional fiscal space of two to three per cent of gdp. an action plan should be implemented by the finance managers to capture public savings. third, the privatisation programme has been stalled for quite some time now and the loss-making public corporations are bleeding the exchequer. not only is privatisation necessary for the health of public finances it will also contribute to the efficient allocation of resources, im- provement in productivity, expansion of output and employment. vested inter- ests have so far prevailed upon decision- makers by perpetuating myths and false- hoods about privatisation. it is time to ig- nore them and proceed with privatisa- tion in an open and transparent manner both by offloading limited shares of prof- it-making companies and disposing of loss-making corporations. fourth, the government by becoming too intrusive is now an impediment in the way of new enterprises, start-up companies and small businesses in the private sector. entrepreneurship is dis- couraged by excessive rules and regula- tions. too many agencies and depart- ments are involved, often at cross purpo- ses with each other, in cumbersome and long-drawn-out process of getting clear- ance, no-objection certificates and building permits, and acquiring land, utilities and infrastructure. a single building project requires the seal of more than two dozen government agen- cies and departments — connections and corruption are the main determi- nants. successful examples should be re- plicated all over the country. fifth, decision-making at the govern- ment level is convoluted and complex because of the overlap, duplication and multiplicity of organisations, elongated hierarchal chains within organisations and a growing tendency for turf protec- tion and inter-agency rivalry. rules and procedures along with structural changes in the ministries/attached de- partments have to be drastically modi- fied and powers delegated and accounta- bility established to make room for fast- track decision-making. the enormous discretionary power enjoyed by poorly paid, ill-trained low-level functionaries such as the patwari and sho have alien- ated ordinary citizens from the govern- ment and should be transferred to civil servants of high calibre. sixth, the gap between the capacity of the government to deliver public goods and services and the growing ex- pectations of the public is getting wid- er. this can be filled by an empowered and well-functioning local government system. the local government system 2001 had rightly devolved powers, au- thority and resources for basic public service delivery to the union councils and district governments. this system, with some required changes, should be reinstated as soon as possible with the provincial governments responsible for policies, standards, ensuring quality and monitoring results. the police order 2002 with its built-in checks and balances should form the basis of citi- zen-police relations. seventh, invest- ment decisions in en- ergy, the rehabilita- tion of the irrigation system, education and health should be made on a medium-term ba- sis. parliament should discuss and approve the allocations which should remain unchanged at the time of the annual budget except where fine-tuning is re- quired. this will ensure that some es- sential activities that will produce re- sults in the medium to long term are not sacrificed at the altar of short-term expediency and arbitrary cuts in devel- opment projects. finally, the chief executives and the boards of directors for 100 key economic institutions, organisations and corpora- tions should be appointed for a fixed ten- ure and not arbitrarily removed without cogent reasons. these appointments should be placed and endorsed by parlia- mentary committees. the removal should be challenged in court if done with mala fide intentions. these execu- tives should be given specific targets and held accountable for results. the political will to carry out these measures has been lacking so far. it is time that we mustered up the courage and rose above partisan interests to get the country out of the present crisis and cleared the general air of despondency by taking these decisions. ¦ the writer is a former governor of the state bank of pakistan.
