Ab initio, whoever dreamt up the mechanism of State spending money that it does not have out of borrowing which it can never pay back is the unsung hero of democracy and in fact should be credited with the moniker, the father of democracy, whoever it was. Why do I say that? Well, because if democracies across the globe had been unable to bribe voters via politically motivated projects or spending which were unproductive to say the very least, if not a complete financial disaster, the likelihood of the system ever taking off would have been remote if not absolutely zero; and fiscal deficits made it happen. So much so that the entire development budget of Pakistan has been financed through debt for many years, and our inability to pay this debt has resulted in annual debt servicing increasing to the point that we now have to get debt to pay debt. When you calculate how much of the annual budget is financed through debt, fiscal deficit at even 8% of GDP seems like a walk in the park; again an economic ratio which makes no sense to me at least. The capacity to borrow should always have been correlated with the ability to pay and not to something which at best is a guesstimate.
Nonetheless, with the fiscal deficit growing and losses of State-Owned Enterprises (SOEs) therefore getting magnified, as expected, privatisation has once again moved to the fore from the backburner; there is news that 50 loss-making SOEs will soon be on sale. A logical question that comes to mind immediately is that who will buy these loss-making enterprises in the first place; unless the government offers them at throwaway prices, or guarantees for future returns, in which case the losses don't get eliminated from the budget anyway!
Privatisation's foundations, beyond reducing budgetary burden, are based on the premise that efficiency is maximised in a perfectly competitive market thereby resulting in lowest possible cost leaving more money in the hands of the consumer hence maximising consumer welfare. Pakistan perhaps provides clear empirical evidence that it does not happen this way.
Yes I am aware everybody is screaming telephony and cheap calls; but how has that resulted in leaving more money in the hands of the consumers? If anything telephony has reduced the disposable income of the common man by inducing wasteful spending; the money spent by the middle class and below on talking aimlessly, would definitely be better spent on their children's education. Reduction in cost per minutes is an illusion. When we privatised the airwaves for millions of dollars it was a joyful moment; did we forget that the investors will want their money back, with profits, and all that in foreign currency? Truly we cannot survive without technological advancement, but has anyone done an economic analysis, weighing in the unseen consequences including the impact on trade balance, of privatising spectrums to foreign investors? Was there no other option?
We may not have privatised the national airline but we have privatised our skies; we have allowed foreign airlines almost unrestricted access to our passengers and has it reduced the airfare? From personal experience, definitely not! It is almost twice as much more expensive to travel by Emirates than by PIA to Dubai; and for the uninformed, we may buy our tickets in rupees, but foreign airlines take home their revenues in dollars. So has anyone done an analysis on what is the real cost of the open sky policy, including the burden on foreign exchange reserves, and whether or not PIA would have failed if it still had a monopoly on air traffic from Pakistan?
We privatised power generation and the IMF is after us to even privatise distribution. Definitely we need electricity, after all it is necessary for economic activity, but not at any price. So did privatisation result in cheap electricity? Well, it definitely could not have with the kind of dollars returns the government had to offer to foreign investors; ludicrous by any standards. And this is one argument that everyone can relate to because of the increase in monthly electricity bills which probably will increase again soon, so no explanation needed here. But does anyone think that with expensive electricity our industry can ever compete in the international markets?
And yes we privatised banks and handed over our country's biggest national asset, our savings, to private investors, foreign or domestic. Essentially this has resulted in our government borrowing at a higher rate the very money that we save and put in our bank accounts. And if our government pays more we pay more taxes. And again in the case of foreign controlled banks, the profits they make aren't spent for the good of Pakistan but are remitted in dollars.
Dear readers, understand the principle, whether the government pays out of the budget or we pay out of our pockets, essentially it is the same, Pakistan pays. Consumer choice does not necessarily translate into consumer welfare, or national welfare for that matter.
I understand that at the end of the day I am the lone voice which argues against privatisation, but don't get me wrong. We have practised privatisation for a couple of decades now and that hasn't resulted in a reduction in our debt, or market efficiencies; and I don't even want to get into the discussion about natural monopolies, a subject left for another day. Perhaps it is time we tried something innovative rather than mindlessly pursuing the privatisation agenda.
(The writer is a chartered accountant based in Islamabad) Email: syed.bakhtiyarkazmi@gmail.com Twitter: @LeAccountant