Clever-by-half strategies

In the anti-money laundering terminology, the process whereby black wealth flies out of a country and then returns to it as remittance, portfolio investment, export proceeds, etc, is called "round tripping". In all ill-governed states, this process goes on as long as the country doesn't fall into the "high-risk" category.
If that country slides into the "high-risk" category, while black wealth leaves the country twice as quickly, it does not come back. At that point that country is left with no option but to legalise round-tripping by promising that black wealth coming back won't be questioned. In Pakistan we saw that happen several times.
But this time the various chambers of commerce of the country want that, not only should those (patriotic Pakistanis?) bringing their black wealth back be exempted from prosecution but the penalty to be levied on such inflows shouldn't exceed 1 percent of the (patriots') 'declared' value of the wealth brought back.
Pakistanis, who will bring back their black wealth without any questions being asked or being inconvenienced, may benefit from these questionable benefits, since an amendment made to Section 120A of the Income Tax Act 2001 in 2008 has already empowered the FBR to grant such concessions. Three cheers for the law!
Not surprisingly, the KSE-100 index touched the 14,000 mark after four years, courtesy foreign portfolio investment inflow that began after the Federal Finance Minister's last visit to Karachi Stock Exchange wherein he promised that the origins of foreign portfolio investment flowing in until 2014 won't be questioned. The same day, the Economic Co-ordination Committee of the federal cabinet (ECC) made a huge concession to institutional investors; it allowed them to invest in National Savings Schemes, which will have repercussions for the financial sector because it will encourage diversion of higher resources from the private to the public sector.
Besides this significant concession, the ECC also announced a host of tax relieves for the oil and gas sectors to attract investment in therein. Even those sector players, who failed to commence operation even after enjoying these relieves for the past seven years, were offered these relieves.
There are two ways of looking at these concessions, to which more may be added by the time the Federal Budget for 2012-13 is announced, oddly, on May 25. One is realism (ie accepting that we are sliding down a bottomless pit), and the other is the height of desperation. Sadly, both have a lot in common.
Resorting to measures such as legal cover to round-tripping of black wealth, and granting huge tax concessions to certain sectors, manifest the failure of state governance because, wealth that should have been invested here flew out, and critically important energy projects weren't helped to become operational quickly.
This failure, though a consistent trend except during 1958-68, became destructive in the last four years wherein accumulation of black wealth and its flight out of Pakistan touched a new high. But this wasn't due to major changes in the law; it had to do with loss of confidence in the integrity of the regime in power.
The fact that this perception has grown from bad to worse is proved by the fact that all that has been achieved thus far is a fractional rise in the highly volatile foreign portfolio investment. Foreign Direct Investment (FDI), which represents the inflow of real and lasting investment, is nowhere in sight.
All that may be achieved by the recently announced concessions is a deceptive rise in KSE-100 index (reflecting a hike in the prices of existing shares, not investment in fresh equity issues) which, during his budget speech, the Finance Minister could cite (without much credibility) as a sign of confidence in the regime.
Shift of institutional investors' resources to the NSS could partly cut government borrowing from the banking sector to limit damage to the image of the banking sector because of its over-lending to the state. But given the size of the fiscal deficit, these actions will afford little relief to the state. The fiscal hole is far too big.
None of these initiatives will resolve the malaise the economy is suffering from because, instead of its being contained, four long years were wasted in turning its impact into an unmanageable crisis. Even if you ignore all the other failures, is there a quick, image-restoring remedy for the power sector?
Among the recent developments, of great significance is the government's decision that, henceforth, it will revise the prices of petroleum products every fortnight. The logic offered is that global oil prices change too frequently and their impact needs to be passed on much faster.
Indeed, oil prices change frequently. But what does the state exist for? Is it there to act as a post office that passes on the market price movements to the masses as they occur? Or is it supposed to make a considered judgement about how much of the price impact be passed on to which sector, depending on a sector's capacity?
Many questions hang over the way the regime is governing the state but most of them won't be answered because, to do so, the administrators of the state have to have a sense of their obligations - a capacity they all lack. All they claim is having 'public mandate', though none of them seems to remember what it was.
Announcement of the federal budget on May 25 may be the first-of-its-kind event in recent history of the country. It is anybody's guess whether the Finance Minister will have reliable estimates of factors like state expenditure, tax and non-tax revenue collection, meeting or missing 2011-12 targets, and fiscal, trade and BoP deficits.
In this background, how confident and sound will he be while proposing new taxes or relieves therein, targets for current expenditure and PSDP, fiscal deficit, etc? How factual could be the opposition's faulting of his estimates, especially about tax collection, given the FBR's highly incorrect reporting thereof last year?
The high probability of lack of convincing data while presenting the budget isn't bothering the finance minister. This leaves the observers with just one explanation thereof; the minister will present very optimistic figures but as 'estimates' and the opposition's contesting thereof will be labelled as politically biased daydreaming.
But proving those estimates unreliable won't be difficult if the opposition conducts a solid investigative effort to find out the actual expenses incurred head-wise, revenue collected head-wise, public debt (including state-owned entities) all as of April 30, and debt servicing due by June 2013, to credibly fault the budget estimates.
But can the opposition do so? Sadly, they are just politicians, not well-versed professionals. That's what the finance minister may be banking on for his clever-by-half budget strategy to succeed, and it, most probably, will succeed in the parliament but not outside it. By now, people know the real harsh truths.