Does the government have a plan to help people cope with the ever-rising cost of electricity? No, it doesn't. On the contrary, the government on Tuesday, September 9 (which, coincidentally, also happened to be the day on which Asif Ali Zardari took oath of office as president), increased the electricity tariff by up to an unprecedented 40 percent for all categories, of consumers with immediate effect. Pakistan's electricity tariff is already the highest in the world, fuelling inflation, raising manufacturing and farming costs across the board, and making our exportable goods less competitive in foreign markets.
To make matters worse, in the federal budget for fiscal 2008-09, the new government has increased the sales tax on electricity (along with the sales tax on all other taxable items) from 15 percent to 16 percent, thus further increasing electricity consumers’ bills.
Tuesday's increase in the electricity tariff will further increase the cost of living, further fuel inflation, further increase manufacturing costs and further reduce the competitiveness of our exportable products. Lower exports will further widen the trade gap, which, in August, rose to $1.87 billion, equivalent on an annualised basis to $22.44 billion, putting further pressure on the country's balance of payments and further accelerating the erosion of our foreign exchange reserves — which have plummeted by more than $7 billion since September last year and currently stand at $9.1 billion.
Does the government have a plan to cut the soaring inflation rate, which, in June this year, rose to an unprecedented 27 percent? No, it doesn't. On the contrary, the government is now coming under increasing pressure from the International Monetary Fund to do away with all subsidies, including those on petroleum products. The IMF has made it clear to the government that if Islamabad wants assistance from the IMF for immediate budgetary support, it will have to comply with a whole bunch of stringent conditions, similar to those imposed by the IMF in the 1990s that led to a sharp fall in Pakistan's GDP growth during that decade.
Pakistan didn't help its case for any World Bank and IMF assistance during a visit to Washington earlier this year by then-Finance Minister Ishaq Dar, a PML-N cabinet member of the new PPP-led coalition government, when he told World Bank officials that the previous government had “fudged” the figures relating to the country's macroeconomic indicators and that the economy had actually performed much worse than had been made out by the previous government.
Even if the figures had been “fudged”, telling this to the World Bank officials in Washington — and later that same day to IMF officials — was hardly the best way to go about inspiring confidence among those multilateral donor agencies about the sate of Pakistan's economy and the country's ability to repay the fresh loans (both for budgetary support and project assistance) it was now seeking from those agencies.
Has the government a plan for improving Pakistan's position in the World Bank's annual ranking of “ease of doing business”, which is a key factor in attracting foreign direct investment to the country? No, it doesn't. On the contrary, the latest World Bank survey, which evaluated 181 economies, shows that Pakistan has slipped from 74th to 77th in the “ease of doing business” ranking. The survey, which the World Bank has conducted on the basis of official procedures and data gathered from member countries, says that in order to improve its ranking, Pakistan needs to introduce wide-ranging reforms in the enforcement of international contracts, employment of workers and payment of taxes. Has the government announced any plans for such reforms? No, it hasn't.
The World Bank report highlights the cases of countries where regulation is particularly burdensome and levels of informality are higher. Informality, the report points out, comes at a cost — firms in the informal sector typically grow more slowly, have poorer access to credit, employ fewer workers and their workers remain outside the protection of labour laws. The report adds that countries with burdensome regulations have large informal sectors, higher unemployment rates and slower economic growth. Does the government have any plan to address these issues? No, it doesn't.
True, it's early days yet. Even so, the new government has now been in office for more than six months, which, surely, is more than enough time for it to have at least formulated plans for reforms. Or are we to take it that the government is spending so much time in political wheeling and dealing that it has no time for anything else? Be that as it may, one thing's for sure: press conferences and vague declarations of pious intent will not do the trick. What we need is not more press conferences, but more action.
Does the government have a plan to reduce government domestic borrowing? No, it doesn't. On the contrary, figures released by the State Bank of Pakistan last week show that government borrowing for budgetary support rose by a whopping 40.95 percent during the first month of fiscal 2008-09 to Rs58.2 billion, as against Rs 41.32 billion during the corresponding month in the previous fiscal year. According to the State Bank, from July 1 to July 26, 2008, government borrowing from the central bank stood at Rs30.07 billion and from scheduled banks at Rs28.17 billion.
On an annualised basis, Rs58.2 worth of government borrowing in the month of July alone works out to a theoretical Rs698.4 billion worth of government borrowing during fiscal 2008-09. That's nearly Rs700 billion, or $9.14 billion at the current (Thursday's) exchange rate of 76.4 rupees to the dollar. Is Islamabad doing anything to curtail this staggeringly high level of federal government borrowing? No, it is not — other than making some token gestures to reduce the amount of petrol that government officials can use in their official cars. Such gestures, however, are neither here nor there, and represent only a few drops in what is an ocean of red ink.
Government borrowing on this gargantuan scale will inevitably have the effect of reducing the amount of credit available in the banking system for the private sector, in industry, agriculture and the services sector. And since it is these sectors that are the main engine of economic growth, any slowdown in the growth of these sectors due to a shortage of credit will necessarily result in a slowdown of overall GDP growth. Does the government have a plan to tackle this problem? No, it doesn't.
As an Islamabad-datelined story in Thursday's issue of The News noted, “Economists believe that an expansionary government fiscal policy is also considered as a source of diluting the effects of the State Bank's tight monetary policy, which was formulated for capping high inflation. Analysts fear that running a loose fiscal policy may crowd out private investment in the country.”