After more than one year of the PML-N government there appears to be hardly any improvement in investment climate of the country. There is hardly any doubt about the fact that investment is key to bringing the economy out of the doldrums, but options are profoundly limited while a plethora of issues still remains unresolved. The superior judiciary; regulators (Nepra and Ogra); National Accountability Bureau (NAB) and the Executive Branch are cumulatively responsible for this dismal state of affairs. The country's economy is adrift as the decision makers are distracted by the sit-ins in the capital city (Islamabad). And, the allegations of rampant corruption in the shape of commissions and kickbacks are being repeated ad nausum every evening by the leadership of both the Tehrik-e-Insaf and Pakistan Awami Tehrik. The mud-slinging is sticking since the leadership of PML-N, ie, the Sharif family, has miserably failed in correctly answering about the assets they hold abroad specially their luxurious Park Lane apartments in London.
The question that needs to be answered is why do the politicians in this country have the need to hold wealth abroad? Is it due to lack of faith in this country's stability or for providing the need to have insurance cover? Prior to nationalisation of business, black wealth was invested back into this country. Pakistan's foremost economist Dr Mehboobul Haq realising his folly about the 22 families holding majority of wealth of the country reversed himself and came up with whitener bonds as well as national bearer bonds to encourage this wealth to be ploughed back into the economy. Prime Minister Nawaz Sharif in 1992 liberalised foreign exchange regulation and General Musharraf in 2000 perforce had to continue with foreign exchange regulations Act 1992, provided the money was remitted through banking channel and converted into Pak rupee. This is the cost that the nation is paying for the wrong policy of nationalisation of businesses. Now the investors want a higher return to cover the country-risk which has further deteriorated due to cancellation of signed contracts en masse by the courts as well as the fear of NAB investigation reopening of signed and concluded agreements.
Not all rental power agreements had an element of kickbacks. But all these contracts were cancelled by the Supreme Court which further exacerbated the supply-demand gap for electricity. Now the present government is being accused of raising the tariff for coal powered plants as well as for conversion of existing furnace oil-based generation converting to coal. The question that needs to be answered is why the investors have the need to convert when fuel is a pass-through item. The answer appears to be to lower their financial cost because the government managed distribution companies (Discos) do not pay on time and also the sovereign has reneged on its rupee guarantees. The new investor - probably the Chinese - see this dismal state of affairs. They will definitely raise the country risk. Even in joint ventures with big Pak businesses the foreigners are now requiring guarantees from parent companies of the Pakistani partners in addition to sovereign guarantees. Chinese enthusiasm to invest in Gadani will wane if we do not have the capacity to transmit electricity from the South to load centres in the North ie Punjab through the national grid which also needs to be revamped.
The real problem in Pakistan is the dependency of the politicians on bureaucrats. Politicians want things to be done but lack knowledge. The civil servants know how to do it on fast track bypassing the rules and regulations. Only does not lead to accusations of misuse of authority when challenged in the courts but it also catches those in authority with their pants down; because the process laid down in rules and regulation has not been followed. This has happened repeatedly. The latest example being the Gas Infrastructure Development Cess (GIDC). It was challenged when it was levied under the PPP regime. Despite High Courts adverse ruling being in the field; GIDC collection of Rs 148 billion was included in the budget and committed to the IMF. Now that Supreme Court has declared null and void as this is not a tax but a 'fee' and cannot be part of the Money Bill; it has left the government panting between a rock and a hard place. The government is said to be contemplating filing a review petition. Politicians in this country are people who do not have knowledge to run the system. They greatly depend on civil servants to do it. Unfortunately, however, our civil servants have still not learnt to live under the 18th Amendment and operate in a truly federal set-up and are more conversant with a unitary form under a colonial rule or a military regime. Until the civil servants are re-trained on how to work in a federation, the country will move from one crisis to another.
Last but not least, Imran Khan's sit-in effort is not aimed at creating a 'New Pakistan', nor is Qadri the spectre of a struggle for delivering a 'Green Revolution' in the country. These two identical developments, as they play out in Islamabad's Red Zone, are flowering of Pakistan's past.
Monday, September 15, 2014
Pakistan: PML-N government - Tunnel vision
After more than one year of the PML-N government there appears to be hardly any improvement in investment climate of the country. There is hardly any doubt about the fact that investment is key to bringing the economy out of the doldrums, but options are profoundly limited while a plethora of issues still remains unresolved. The superior judiciary; regulators (Nepra and Ogra); National Accountability Bureau (NAB) and the Executive Branch are cumulatively responsible for this dismal state of affairs. The country's economy is adrift as the decision makers are distracted by the sit-ins in the capital city (Islamabad). And, the allegations of rampant corruption in the shape of commissions and kickbacks are being repeated ad nausum every evening by the leadership of both the Tehrik-e-Insaf and Pakistan Awami Tehrik. The mud-slinging is sticking since the leadership of PML-N, ie, the Sharif family, has miserably failed in correctly answering about the assets they hold abroad specially their luxurious Park Lane apartments in London.
The question that needs to be answered is why do the politicians in this country have the need to hold wealth abroad? Is it due to lack of faith in this country's stability or for providing the need to have insurance cover? Prior to nationalisation of business, black wealth was invested back into this country. Pakistan's foremost economist Dr Mehboobul Haq realising his folly about the 22 families holding majority of wealth of the country reversed himself and came up with whitener bonds as well as national bearer bonds to encourage this wealth to be ploughed back into the economy. Prime Minister Nawaz Sharif in 1992 liberalised foreign exchange regulation and General Musharraf in 2000 perforce had to continue with foreign exchange regulations Act 1992, provided the money was remitted through banking channel and converted into Pak rupee. This is the cost that the nation is paying for the wrong policy of nationalisation of businesses. Now the investors want a higher return to cover the country-risk which has further deteriorated due to cancellation of signed contracts en masse by the courts as well as the fear of NAB investigation reopening of signed and concluded agreements.
Not all rental power agreements had an element of kickbacks. But all these contracts were cancelled by the Supreme Court which further exacerbated the supply-demand gap for electricity. Now the present government is being accused of raising the tariff for coal powered plants as well as for conversion of existing furnace oil-based generation converting to coal. The question that needs to be answered is why the investors have the need to convert when fuel is a pass-through item. The answer appears to be to lower their financial cost because the government managed distribution companies (Discos) do not pay on time and also the sovereign has reneged on its rupee guarantees. The new investor - probably the Chinese - see this dismal state of affairs. They will definitely raise the country risk. Even in joint ventures with big Pak businesses the foreigners are now requiring guarantees from parent companies of the Pakistani partners in addition to sovereign guarantees. Chinese enthusiasm to invest in Gadani will wane if we do not have the capacity to transmit electricity from the South to load centres in the North ie Punjab through the national grid which also needs to be revamped.
The real problem in Pakistan is the dependency of the politicians on bureaucrats. Politicians want things to be done but lack knowledge. The civil servants know how to do it on fast track bypassing the rules and regulations. Only does not lead to accusations of misuse of authority when challenged in the courts but it also catches those in authority with their pants down; because the process laid down in rules and regulation has not been followed. This has happened repeatedly. The latest example being the Gas Infrastructure Development Cess (GIDC). It was challenged when it was levied under the PPP regime. Despite High Courts adverse ruling being in the field; GIDC collection of Rs 148 billion was included in the budget and committed to the IMF. Now that Supreme Court has declared null and void as this is not a tax but a 'fee' and cannot be part of the Money Bill; it has left the government panting between a rock and a hard place. The government is said to be contemplating filing a review petition. Politicians in this country are people who do not have knowledge to run the system. They greatly depend on civil servants to do it. Unfortunately, however, our civil servants have still not learnt to live under the 18th Amendment and operate in a truly federal set-up and are more conversant with a unitary form under a colonial rule or a military regime. Until the civil servants are re-trained on how to work in a federation, the country will move from one crisis to another.
Last but not least, Imran Khan's sit-in effort is not aimed at creating a 'New Pakistan', nor is Qadri the spectre of a struggle for delivering a 'Green Revolution' in the country. These two identical developments, as they play out in Islamabad's Red Zone, are flowering of Pakistan's past.
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