EDITORIAL: A visible intent of the stakeholders to deal with smuggling and endemic corruption recently shared during meetings with the country’s business community must be fully supported as these twin evils have been major impediments to the country’s development.

The overarching focus reportedly was on improved policing against the corrupt and along our large porous borders, a focus that again is praiseworthy; however, policing alone may reduce the extent of the problem, though perhaps not appreciably, which may resurface unless economic factors are dealt with concurrently.

It is the existing economic policies and their sustained continuation throughout this country’s entire history, irrespective of whether a civilian or a military government was in power, that has been the major bane of our economy accounting for the rising disparity between the haves and the have-nots that is the root cause of present public discontent.

Thus, while immediate measures require improved policing yet economic reforms, if undertaken, including revisiting existing subsidies, can certainly curtail these long prevalent menaces.

One would hope that valuable lessons have been learned from the past and action taken across the board – on not only the takers but also the givers, be they politicians irrespective of their party affiliations (and not based on a favoured political paradigm) or members of the business community or bureaucrats or those stationed at our borders who provide an enabling environment to the smugglers.

Be that as it may, the enabling environment provided through continuation of flawed policies, a continuity that has been to the detriment of development, thereby pushing ever larger numbers under the poverty line, need to be amended forthwith – an amendment that all political governments have resisted to this day and one would hope the current stakeholders may not, given their obvious intent to set the country on a path towards equitable development.

Three measures that have been identified again and again by multilaterals and sector experts and contained in voluminous reports backed by empirical data that are gathering dust in relevant ministries/departments.

First, to widen the tax net by including traders, real estate players and compel provincial governments to tax the income of the rich landlords at the same rate as that payable by the salaried class. To allow for a differential tax rate from filers and non-filers on purchases (a sales tax mode) has merely legitimised the non-filers and this practice must end.

In addition, the reliance on indirect taxes whose incidence on the poor is greater than the rich, is more than 80 percent of total tax collections – 60 percent from acknowledged indirect taxes and around 70 percent of direct taxes are being collected under withholding taxes in the sales tax mode.

Second, the government needs to implement structural reforms in the power sector – reforms that do not envisage passing on the buck of sustained poor performance and corruption onto the consumers through raising tariffs; but instead to: (i) slash all budgeted allocations for payment of electricity bills – which may reduce consumption that would raise capacity payments but savings will be in import of fuel which would strengthen the external value of the rupee and thereby reduce imported inflation; (ii) end free electricity to those employed in the sector; and (iii) circular debt flow must be brought to zero in the near future.

While privatization of Discos is a mantra that is finding considerable traction amongst the present stakeholders, yet, unless there is a decision on the current policy of charging uniform electricity rates throughout the country, privatization may have limited benefits – an example being the privatisation of K-Electric that requires budgetary support of 315 billion rupees in the current year.

It is relevant to emphasize that privatisation is not the solution to all ills associated with the public sector and an empirical study needs to be undertaken to ascertain whether any sale would require continued government intervention in pricing the product and, at the same time, the prevailing investment climate needs to be considered, as the objective must not only be to minimise the budgeted allocations for a loss-making state-owned entity but also to ensure that the sale amount takes account of its existing assets.

And finally, there is a need for stakeholders to engage in dialogue with the Ministry of Finance officials with the aim of slashing their expenditures.

One would have hoped that the Ministry of Finance officials had first engaged with all domestic stakeholders to slash their generous budgeted allocations instead of engaging with the Fund staff in an attempt to reduce the electricity bills of low income groups.

It is still not too late for the stakeholders to voluntarily reduce the massive pay rise they received by the outgoing government or their generous procurement budgets because about 2 to 3 trillion rupee reduction in the 13.3 trillion rupee budgeted current expenditure for the year, around 26.5 percent higher than the revised estimates for last year, if trimmed can increase the government leverage with the Fund considerably.

Copyright Business Recorder, 2023