It wouldn be surprising if the federal government slashed its development spending, earmarked for this year, to cut back on its fiscal slippages yet again. However, the overriding preoccupation with fiscal stabilisation (or lack thereof) is driving the government in a different and wrong direction this time. Once again, it is the sizable, lucrative and well-documented telecom sector that has caught the eye of the financial wizards. It has been reported in local news media that the Finance Ministry is keen on using surplus funds from the accounts of two independent organisations mandated to develop and promote information & communication technology (ICT) in Pakistan The two entities, Universal Services Fund (USF) and Research and Development Fund, were set up by the Ministry of IT and Telecom (MoIT) in 2006 on a public-private-partnership model. USF is involved in development of ICT infrastructure in un-served and under-served areas of the country, while the R&D Fund undertakes technical R&D initiatives and sponsors various scholarship programs. The licensed telecom operators contribute 1.5 percent of their adjusted revenues to USF, while part of the proceeds from Access Promotion Component (APC) also land into USF account (maintained at MoIT). Contribution to the R&D fund by telecom operators is 0.5 percent of their adjusted revenues. The two funds are meant to benefit the same industry which they receive contributions from. However that might not happen in the future as the Finance Ministry is reportedly hell-bent on introducing an amendment in the Telecom Act of 1996, which would curtail financial autonomy of the two funds. The government would then be able to draw down from roughly Rs50 billion accumulated in the funds. For the government, the telecommunication sector is akin to a goose that lays the golden eggs. The temptation to ask for more from the lucrative sector is just too much to handle. However, the government move is bound to spell disaster in various ways. The market players, already reeling under a discriminatory taxation regime, would grow more disgruntled with the governments policies. It might also not help the governments case to finally auction the 3G licenses in the ongoing fiscal year because of the wariness that might sink in among current and potential investors. By going ahead with this, the government would once again be resorting to easy, quick measures to contain the ballooning fiscal deficit instead of making difficult but needed decisions. Messing up the countrys flagship FDI recipient sector could spell doom for FDI inflows in other sectors too. Similar moves had been initiated in the past, but thwarted in time by the market players. There are reports that this move will also be opposed by the market tooth and nail. The financial and operational autonomy of the two funds should be paramount to vested interests. The two funds are into the fifth year of their operations and they have undertaken good work in some areas which should be acknowledged. There are concerns in the industry regarding slow disbursals of project subsidies and inadequate developmental focus on certain telecom segments. However, these issues can be sorted out as each segment has its representation on the boards of these funds. The telecommunication sector is already paying hefty taxes and also contributing regularly to the two funds. The government needs to realise that it would do way more harm than good if it deprives the sector of the funds which are meant to be spent on bridging the digital divide and bringing value to customers.
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