Economic fallout of PPP politics

The periodic recalcitrance of coalition partners in the Centre from the perspective of the ruling party leading invariably to the PPP capitulation to their demands coupled with the PML (N)'s periodically voiced angst at 'poor governance' at the centre points towards one major element in our politics today: the PPP is the only party that proactively wants to govern today, which accounts for its focus on meeting its political compulsions as opposed to economic or indeed institutional compulsions.
Some analysts argue that political uncertainty is the cause of the current economic malaise that besets this hapless country, however, the veracity of this contention is in some doubt given that macroeconomic performance is being held hostage to two elements: visibly poor governance that is accounting for rising allocations for bailout packages as well as specific economic policy proposals violently opposed by coalition partners as well as the largest party in opposition in the Centre, PML (N), that have elements of playing to the gallery.
Poor governance remains by far the largest drain on the country's exchequer. During the past three years much has been reported on what is considered as the rise in corruption of two distinct types for which the present government is directly responsible. First and foremost is routine corruption, defined as corruption endemic to this country and not unique to this government. It manifests itself mainly through violating rules and procures underlined in the public procurement policy and is fuelled by obviously flawed decisions supported by senior management in autonomous organisations or, in the case of ministries, by federal ministers. It is routine for newly elected/installed governments to change the leadership of state-owned entities (SOE).
The quality of leadership selected has obviously a direct bearing on the fortunes of that particular entity. Appointments made during the last three years to senior positions in most SOEs have been based on personal loyalty/friendship to those close to the highest echelons of the PPP leadership with no consideration given to educational background or relevant experience. Several appointees have been dismissed subsequent to court observations/decisions however, financial scandals due to decisions taken by the selected appointees continue to unfold. No minister has lost a job on allegations of corruption with the exception of the recently fired Religious Affairs Minister. In his case, the court observed that the FIA investigation team has not undertaken a transparent inquiry. The FIA is, of course under the leadership of Rehman Malik, Minister of Interior.
Routine corruption is in evidence in nearly all ministries as well as autonomous organizations. Those involved have ranged from the lowest relevant official to the highest level or in other words a section officer maybe eligible for a cut as would the approving authority be he a secretary/minister or a member of the board - each receiving remuneration according to a designated formula based on his/her existing hierarchy within the organisation. However, as stated above, this type of corruption has been evident in this country for some time and is not one government specific or indeed unique to the present government. Though its scale may well be.
And secondly atypical corruption is made possible when the decision-maker as head of an SOE or a federal minister launches into an activity that is unusual and untoward for the entity/ministry that he/she heads. Thus the rental power projects (RPPs) as well as purchase of huge tracts of land by the National Insurance Company of Pakistan in Lahore, Karachi and Dubai at a cost considerably in excess of market value belongs to a category of corruption that is beyond normal procurement. Technically procuring of such a nature would require approval from either the entire cabinet, as in the case of the RPPs, or the board of directors of a particular entity.
For example, the decision by MD PIA to sign a memorandum of understanding to sell Turkish Airlines its take off and landing slots to New York and Chicago was a unilateral decision. This has no economic justification as those travelling to the US from Pakistan are unlikely to opt to go to the US via Istanbul. In this context, it is critical to note that atypical corruption must, by definition, be laid entirely at the doorstep of a particular government as it is associated with individuals.
The government's major economic decisions have recently been reversed due to political pressure. However, these decisions reflect policies premised on an agreement with the staff of the International Monetary Fund (IMF) that led to the approval of the Stand-By arrangement in November 2008 rather than any economic vision displayed by the government. And the proof of the pudding is in the fact that the government continues to engage in fire fighting with respect to the economy three years down the line rather than formulate an indigenously-based strategy that seeks to achieve self-sufficiency, through reducing expenditure and increasing revenue while rigidly reducing imports that are not critical. This is not to argue that all the IMF policies are flawed in the local context, though insistence on the implementation of the Reformed General Sales Tax through its passage in parliament certainly is as it ignores the recession premised on a severe energy crisis that is continuing; and given the existing sales tax and excise duty regimen is in value-added mode the government could have increased the sales tax ambit as agreed with the IMF through a Statutory Regulatory Order (SRO).
No economist would argue against the need to eliminate subsidies and achieve full cost recovery of public utilities. However, flawed decisions by the cabinet collectively and many a ministry individually has led to a perception that this government is unwilling to slash current expenditure in marked contrast to what several European governments are currently engaged in at the cost of their future political fortunes.
In Pakistan, the government has been unable or unwilling to reduce the 100 plus cabinet and adhered to its budgetary decision to increase salaries of bureaucrats by 50 percent.
The federal government has also compromised the provincial financial health by announcing the 50 percent pay rise of bureaucrats. This, in spite of the plethora of financial challenges facing the country before the summer floods and the refusal of the IMF to release the next tranche until the RGST, is implemented.
Belt tightening has implied lower outlay for development projects and here too those projects that were politically motivated for example the Multan and Larkana packages are to continue while others have either been slashed or given lower priority in terms of fund releases. In other words, it is imperative that an expenditure revenue analysis be undertaken that is focused on what is doable with domestic resources sans deficit financing or borrowing from banks thereby crowding out private sector activity.
It is unfortunate that the government has exhibited no interest in ending corruption or indeed reducing its wasteful expenditure. Revenue generation from the rich also remains a challenge. To deal with poor governance yet another committee has been set up - three members from PML (N) and five from the PPP. It is sad but no one in this country is holding his/her breath to see what would be the committee's outcome.