Economic checks and balances
By Mehmood-Ul-Hassan Khan

Checks and balances seem to be the mantra of every government, as in a political system they provide sustainability in the economic process and ease implementation of macro policies. Reliability of the political system saves the economic interests of the investors. Economics works in integration, and the philosophy of checks and balances is vital for the quick economic revival and poverty alleviation.

The present government is also making every possible effort to have checks and balances in the different inter-related sectors of the economy.

In this article, I have evaluated different checks and balances of the government, and have suggested steps to improve the socio-economic situation of the country.

To begin with, let's take Wapda. Wapda has increased the power tariff making it the twelfth upward revision in the last three years. The government granted some Rs30 billion to help Wapda and Kesc. The national electric power regulatory authority (Nepra) has reduced the power tariff up to 19 per cent, instead of 39 per cent for the common consumers of the country. However, the power tariff for agricultural and industrial sectors, the Kesc and Azad Jammu and Kashmir would remain unchanged.

The ratios of unemployment are increasing in the country. The price spiral of consumer goods, and repeated increase in POL prices has made life difficult for the low-income groups.

Recent raise in electricity tariff

The tariff announced on July 19, 2002 was applied just to rectify the difference of Rs20 to 22 billion, which would ultimately be delivered to the different IPPs in the country.

Now, let us discuss how Wapda can reduce its cost of production, control its other expenses and generate extra revenue by using alternative methods. During the year 2001-02, line losses of Wapda remained as high as 25.8 per cent and receivables went up from Rs43.885 billion to Rs51.148 billion. It is estimated that PRs32 billion can be saved per annum from line losses. Power theft is rampant in the tribal areas, which is causing a Rs12 billion loss to the Peshawar Electricity Supply Company (Pesco) annually. Wapda has also waived PRs19.057 billion arrears from the federal and provincial governments in the year 2001-02.

The charges of furnace oil increased up to 132 per cent and gas up to 104 per cent, due to the imbalance between the thermal (70 per cent) and hydro (30 per cent) electricity in the country. The prices of all the utility bills have been increased from 50 per cent to 133 per cent in the past two years. The government of Pakistan is bearing US$1 billion per annum to pay the different IPPs.

Wapda has some alternatives can implement checks and balances to avoid the increase in power tariff.

Wapda should bring down line losses from the present 40 per cent to about 20-22 per cent, which is perhaps the third highest in the world. And the imbalance between the thermal electricity (70 per cent) and hydro electricity (30 per cent) ought to be changed and other available natural resources should be used to reduce the cost of production i.e. coal, gas, solar or hydral.

According to a geological survey of Pakistan, over 175 billion tonnes of lignite-coal reserves are available in the Thar coalfield only. The total coal reserves available in the country have been estimated to last for over 100 years and their present value has been assessed at US$5,540 billion.

USA uses 60 per cent coal as fuel, China 80 per cent, India 40 per cent and Pakistan 3-4 per cent to generate electricity, and 38 per cent of the world power is being generated through coal. Efforts should be made to adopt coal for the generation of electricity and in this regard, the government can seek help from China.

The proposed small and medium dams ought to be built to save our environment. The government may also initiate smaller projects of wind-energy at the coasts of Sindh and Balochistan.

Statistics from the Global Environment Facility (GEF) show that the market for photovoltaic solar energy, the most commonly applied technology that directly converts sunlight into electricity, is growing by 15 per cent a year. China is producing photovoltaic solar energy cells quite economically, and the government can seek the help of the Chinese government to give some sort of financial stability in the realms of WAPDA and the KESC.

The recovery mechanism, corruption-free negotiation between Wapda and different IPPs is needed. The government must look into all the proposed steps immediately. The increase in electricity tariff will increase the prices of daily commodities, and would have an adverse impact on the input costs of manufacturing and services industries, rendering their products less competitive in the export markets.

Agriculture is the backbone of Pakistan's economy. In spite of industrialisation and shift of capital to the industry, the agriculture sector still contributes 25 per cent of GDP and accounts for 65 per cent of total exports and employs 46 per cent of the total labour force, and the latest raise in electricity tariff would be the last nail in the coffin.

The power rates of Pakistan are the highest among the other countries of the region and the rest of the world. Holland and New Zealand have smaller cultivated land as compared to Pakistan, but their agricultural farm exports are much bigger than Pakistan, as they are provided meaningful incentives, low cost of production, cheap utilities and power rates and easy availability of micro-credit facilities.

In spite of such a significant role of agriculture, the sector was allocated only one percent of the total budget for the year 02-03.

The government is very keen to introduce many reforms in the agriculture sector that includes Corporate Farming, Land Reforms and many Structural Programmes in order to boost the out-put of the agriculture sector, but the new power rates would definitely produce a great set back to all the diversified, but integrated administrative measures of the government.

Presently, most of the Middle Eastern countries are importing their commodities like fruits, vegetables, rice, wheat, dry milk, etc. in appreciable quantities from the European and the American markets. There is a potential for the agro commodities of Pakistan. But how can we capture these markets in the present situation and strict policies of GST, power rates raise, shortage of micro-credit facilities?

Sustainable growth of agriculture sector is essential for the growth of other sectors i.e. industry and service industries. Better production of cotton, sugar and wheat is necessary for the exports of many commodities as it gives a boost to many related industries.

The government is also introducing checks and balances in the field of agriculture by introducing Corporate Farming, Land Reforms, easy availability of micro-credit, micro-finance facilities and many Structural Programs, which may lose their effectiveness due to the decreasing purchasing power of farmers, increasing rural poverty through out the country, which is now 40 per cent and the price hike in all the inputs of agriculture i.e. utility bills, power rates, diesel price, fertiliser price etc. Agriculture provides raw materials for industry, and market for manufactured goods.

The developed OECD countries are giving subsidy to agriculture to the tune of $360 billion, more than 6 times their Official Development Assistance (ODA). The US and the European Union provide huge subsidies to farmers, estimated at $400 billion, and we do not even provide the most essential minimum price protection for the major crops.

The agricultural sector can be revolutionised by adopting modern technology. Holland, New Zealand and Australia have developed their dairy-farming sector, and are presently earning huge sums in foreign exchange. The latest modern technology has helped a cow in Denmark and Holland to provide nearly 7,000 and 6,000 litre of milk, per year respectively. It is high time to introduce new technologies in the field of agriculture, so that we may increase its share in the exports and reduce the increasing ratios of rural poverty i.e. 40 per cent.

The agriculture of Pakistan is always dependent on nature. Innovative methods i.e., rain-gun sprinkler irrigation, perforated pipe irrigation (Balochistan), should be adopted to maximise the usage of available waters.

The wonderful new urea fertiliser being used for crops in Bangladesh should be introduced in the country. Organic agriculture, precision agriculture, use of Geo-Informatics Technology in farming, soil cultivation and hydroponics systems ought to be implemented to increase the productivity of the agriculture sector.

Pakistan's economy is mostly dependent on agricultural productivity. The natural catastrophes badly influence the overall production of wheat, cotton, sugar etc., and adversely hurt the overall economy in the country. The factors controlling crop production must be identified and controlled. Weeds are hidden enemies of crops and cause huge losses to the crop yields, which amount to between PRs115-200 billion per annum, which is supposed to be a huge loss, keeping in view the scarcity of resources.

The government is also introducing checks and balances in the industrial sector, and is trying its best to provide financial technology, and intellectual infrastructures in the country.

Without the expansion of the manufacturing sector, with its forward and backward linkages, the economic growth would suffer. The recently published book of economics 'The Rise and fall in Industrial Productivity in Pakistan' says that growth in the agriculture and service sectors cannot be continued without an effervescent growing mechanised sector and manufacturing sector, cannot be developed with out the dependable growth of agriculture in the country.

With the turn down of huge financial institutions and industrial units the government should give more importance to Small and Medium Scale Enterprises and agro and cottage based industries in the country. The cost of production should be curtailed so that finished goods may be exported to different countries on competitive prices. More financial and structural incentives should be given to increase the over all productivity and profitability of the industrial sector.

Establishment of trade free zone is the need of the hour. Joint ventures with China in the fields of industrial production, power projects, agro/cottage industries, arms production, and information technology must be initiated.

The government has initiated many structural programmes in the country. The policies of privatisation, downsizing, and rightsizing are being carried out in order to reduce the burden of federal government and increase efficacy in the public sector.

According to the latest data available, more than 350,000 people have been rendered jobless since 1999, while the number of those living below the poverty line has risen by a staggering seven million. The unemployment rate increased from 3.5 per cent between 1981 and 1990 to 5.7 per cent from 1991 to 2000, and it has now reached 17 per cent.

The government should introduce logical checks and balances to stop the onslaught of WTO, globalisation and the process of liberalisation; by providing socio-economic relief to the poorest sections of society, and should not try to privatise - at least educational, and medical institutions.

Instead of total privatisation to foreign buyers, it should try to sell them to local investors, as in the case of UBL. The policy of merger and acquisition should be implemented as a basic philosophy of checks and balances.

Regional trade, search for new economies and financial markets is very vital for quick economic revival and poverty alleviation, and to influential instrument and checks and balances against the globalisation and liberalisation. The NAB is doing its level best, but more efforts should be made to make Pakistan corruption free. The poor must be protected from the negative effects of privatisation and the free market.

Traditions of good governance ought to be implemented in all the public and private institutions. It ensures the transparent use of public funds, economic growth, and higher fiscal deficit to high foreign and domestic debt liability and eliminates the economic recession. It decreases the high unemployment and increases number of people free from the poverty trap. It also encourages growth of the private sector, promotes effective delivery of public services, and helps establish the rule of law.

A sound macroeconomic governance and framework is needed to encourage efficient domestic investment, and to keep the inflation low to protect real incomes of the poor. The government of Pakistan is taking keen interest to establish the tradition of good governance, which is supposed to be very important for the reduction of poverty and economic revival. The tradition of good governance is necessary for fiscal discipline; economic growth can be achieved through an effective, progressive tax system and adequate allocations for basic education, primary health care, and other public services.

The main causes of poverty are stringent stabilisation, structural programmes/measures and falling growth in the agriculture sector, causing reduction in the income of poor farmers. Using the mechanism of micro-credit/micro-finances or lavish distribution of easy agro-loans the increasing ratios of rural poverty, which is now 40 per cent, can be checked.

The political commitment, joint effort and immaculate planning at federal and grass roots level are essential for controlling poverty alleviation. The collaboration among the ministries of Planning and Development, Commerce and Investment, Finance and Communication, traditions of good governance and decentralisation of powers, population control and rural development programmes may check poverty and economic stagnation.

The vigilance by the federal and provincial monitoring agencies, accuracy within the National Accountability Units, efficacy of Anti-Corruption Courts, commitment at local government, prompt availability of zakat and usher funds, proper utilisation of stamps duty schemes, productive participation of NGOs, coordination in CBOs, and commitment of international monetary agencies can make a decisive and huge difference and establish a genuine system of checks and balances to control the increasing ratios of poverty in the rural and urban areas of Pakistan.

There is also an urgent need to attract more foreign direct investment and foreign portfolio investment in the country. The government should take all checks and balances to gear-up the ratios of FDI and FPI.

Firstly, the deteriorating law and order situation ought to be improved as soon as possible.

Secondly, the traditions of religious intolerance and frequent occurrences of terrorism should be tackled with iron hands.

Thirdly, the prolonged tension with India needs to be resolved amicably.

Fourthly, our past national character/image in the west needs to be improved. Fifthly, political stability must be maintained at any cost, because frequent political system failure and struggle damages the overall economic stability and continuity of macro economic policies. The government has taken the right step by granting legal cover to SBP, local government, NAB and macro economic policies and structural programmes.

Economic revival and poverty alleviation can be breached by the growth of interrelated sectors like agriculture, small and medium scale industries, agro/cottage industries, development of power, oil and gas, information technology industry, and mutual assistance of privileged classes, industrialists, businessmen, honesty of different departmental functionaries e.g. the CBR, Income Tax, and Wealth Tax, availability of sufficient and proper utilisation of available resources, rationale micro credits schemes of financial institutions and commercial banks of the country, and generous grants of over seas Pakistanis.

Conclusion

Checks and balances are essential for the economic revival, poverty alleviation, industrialisation, spread of education and health facilities. The rule of the law and belief in merit is vital for establishing a sustainable system of checks and balances. True traditions of democracy, social adaptability, sensible operations of diplomacy and foreign policy and the urge of reconciliation is necessary for creating and maintaining the system of checks and balances in different sectors of economy.

I conclude and quote the verse of the holy Quran, Al-Asar " I swear by the time and the period, verily, the man is at loss, except those who believe and practice good deeds and urge others to be patient and forbearing, to pursue the path of truth".

HOME