How should we approach these challenges? For a start, let us vastly increase the proportion of easy-to-understand and colourful economic debate (at the expense of tedious politics) both in the media and in our public discourse
Yesterday, I pointed out that the federal budget for the current year proposes an outlay of Rs 2263 billion (made up of current expenditure of Rs 1700 billion, and development expenditure of Rs 503 billion), while the total net internal resources available to the government of Pakistan are only Rs 1635 billion. Forget development; that Rs 1635 billion does not even cover current expenditure.
How are the books to be balanced? The answer is: through internal borrowings of Rs 144 billion, plus Rs 510 billion of external financing in the shape of loans and grants. Remember too, all these figures take no account of the additional requirements of our armed forces (running into hundreds of billions) that are not met through the budget but are satisfied by other means and through direct foreign military assistance.
In these circumstances, is it really a realistic proposition — as is so cavalierly proposed so tediously often by those who wear their ghairat on their sleeve — that we can easily shun external assistance (civil plus military) by some obvious belt tightening measures?
The favourite sort of measures cited here are: drastically reduce the number of ministers and their perks, give up bullet-proof Mercedes cars, cut down on lavish official entertainment, and curtail visits abroad, etc. etc. But, of course, any discussion of subsidies for the ghareeb awaam in this context is taboo.
How much do you think such savings might amount to in total? Will such measures plug the hole?
Let us think in terms of some numbers. Some weeks ago, in the context of discussing the Kerry-Lugar Act and our ‘perverted’ need for the begging bowl, the ever honourable Dr D&G, feigning his usual innocent and artful incredulity that is the stock-in-trade of his morose discourse, sought to stun viewers with the supposedly shocking revelation that the President had chalked up expenses of Rs 170 million last year in ten trips abroad. Okay. I say, multiply that figure by an extravagant factor of a hundred to bring into the unnecessary expenditure net the travels of the prime minister and other functionaries. Is that Rs 17 billion saved, towards the some Rs 700 billion we require, really relevant?
Take the reference to the extravagant expenses of our parliamentarians. One well-known financial columnist, who I respect for scrupulously grounding his critique in facts and numbers, once calculated a figure of about Rs 100,000 per day per MP, all inclusive. That figure, superficially, seems a little steep to me, but let us accept it as a fact. Assuming a total of a thousand MPs, and assuming all of them are sent packing, we can save Rs 36 billion. Great! But will it rid us of the begging bowl needing 700 billion?
And so on. Let us not, in righteous indignation, confuse matters. The point I seek to make here is not that we don’t need exemplary frugality and good governance in a tough economic situation. We do. For, every little bit helps, and a wise political leadership must send a message of sharing pain so that the ordinary citizen will more easily endure his hardship in a common cause.
But how relevant is all that in the specific context we are discussing? The point I seek to make here is only this: is it appropriate for those who exercise considerable public influence to irresponsibly mislead ordinary Pakistanis into believing our dependency on foreign assistance is only a consequence of these, what in the larger overall picture, are no more than piffling and irritating extravagances?
But the kind of mindset that is rooted in unshakeable simplistic beliefs, and has no concern for analysis, is also adept at changing the goalposts to stubbornly maintain its position when confronted with inconvenient facts. How often have you heard from them the additional argument that we can do without the begging bowl if only our elite class will bring home the looted billions of dollars they have stashed abroad?
The clear advantage this particular argument offers its proponents is that no one has the faintest idea what this amount may be. Therefore they can choose whatever figure suits their requirement. And, you can bet, given our propensity to exaggerate, the figure chosen will bear little relation to reality. Anyway, unless the government of Pakistan confiscates such presumably private wealth (and if that is the idea, why would anyone bring their money back?), how is it going to help the government plug the hole we are talking about?
Okay. Let us go completely mad and assume $10 billion is brought back this way and goes into GoP coffers. Great! That covers the hole for this year. But what happens the following year, when our situation is not likely to be much different?
But there is hope yet. When inconvenient facts are all too incontrovertible to be denied, a final solution is always blessedly at hand for those sporting a moral halo: all we need to do is to end corruption. Hallelujah! (or should I be saying Alhamdulillah?) Yes, of course. How stupid of me to overlook such a marvellously simple recipe. This solution reminds me of that other staple remedy offered for all our ills: if only we all would become true Muslims everything else will fall into place. Ah well! I suppose I should not whisper it out loud but I say, as a practical measure, it is supreme folly to bank on utopias being round the next corner.
Let us go back to the budget and ferret out some additional relevant details that might help our understanding of issues. Are we, for example, being crushed by the burden of foreign debt, as many presume? Hardly. Of the total budgeted expenditure of Rs 1700 billion, foreign loan re-payments will eat up Rs 132 billion, while servicing foreign debt will cost us some Rs 70 billion. If it is a debt trap we should worry about, it is the internal debt. Would you believe the interest payment budgeted to service this internal debt is a whopping Rs 577 billion in comparison?
No, our problems do not really lie on the expenditure side (though the internal debt and defence expenditure are causes for worry). There is hardly any room to manoeuvre on that front. The real problem is on the revenue side. With a GDP of some $175 billion, the country is not exactly a basket case. But when the government can only collect less than a derisory 10 percent of that in taxes, we are all in trouble. No wonder there is no money for so many essential public services.
But, who wants to pay taxes? Certainly, the position with our eastern neighbour (for the sake of comparison) is not substantially better (around 13 percent), but it is worth remembering that every additional 1 percent represents, in our case, nearly Rs 150 billion extra for the government. So this is one obvious area our opinion makers should be focusing on.
The other area everyone should be talking about incessantly is how to grow the economy rapidly at a healthy and sustained rate. Herein lies the best possible answer to the vast multitude of our many otherwise intractable problems. But in this quest we are hindered by our abysmally low domestic savings rate (some 15 percent compared to India’s 30 percent), crucial to financing investment, and the big gap between our exports and imports. The inflow of direct foreign investment, and remittances, plus a concerted effort to increase exports all have a vital part to play in this enterprise.
How should we approach these challenges? For a start, let us vastly increase the proportion of easy-to-understand and colourful economic debate (at the expense of tedious politics) both in the media and in our public discourse.
The writer is a businessman. A selection of his columns is now available in book form. Visit munirattaullah.com
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