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Charter of Economy: What was the accountant thinking?

The Accountant has done it again. This time he has made the Charter of Economy part of the budget speech. The gauntlet has been thrown on the floor of the house. The opposition will now have to respond. The PPP led opposition will of course have to be mindful that votaries include Tarin, FM in PPP’s previous government, as well as the arbiter of our economy – IMF’s Masud.

We have our disagreements with the Accountant but these are about policy, data, and control; all huge issues. But never his dedication, blessed as he is with so many fingers that no pie is left untouched. We like to think he would not be asking for this charter unless he strongly believed it to be in the best national interest.

The Accountant is yet to share the contours of his charter. We thus grope in the dark as we assay this presumed emblem of our salvation. There can, of course, be no disagreement if the charter contemplates a more prosperous Pakistan. There can be no disagreement if the charter seeks greater equality. There can be no disagreement if the charter is the route to a more just and fair society. But doesn’t the manifesto of every single political party aspire to these very goals? And isn’t all this enshrined in the Constitution of the Islamic Republic? What could be a more binding ‘charter’ than the Constitution?

So what could the Accountant have in mind? That the future of Pakistan is best guaranteed if all political parties agree to follow his economic policies? We are afraid he is not being terribly original there. For the last three decades successive governments have largely followed these very policies. Throughout, the thrust has been on macroeconomic stability: more taxes, less spending, and a build-up of reserves -and social protection to give austerity a human face. Fiscal and monetary tightening have been the principal tools. Privatization, full cost recovery, (ie, elimination of subsidies), revenue growth, and recourse to ‘soft loans hard adjustment’ have been part of the scripture.

Where are we 28 years, twelve IMF programmes, several billion dollars in ‘locational rent’, and a 20 trillion debt later? Over the same period, with somewhat similar economic variables, India has consistently posted a higher GDP growth rate that is now double ours. Each government declared victory at some point or the other, only for the succeeding government to tell the nation things have never been so bad – except the nation always knew it. If you are the victim you don’t have to be a super economist to ‘read’ the numbers of growth or employment or CPI or power generation dished out by the government. You ‘live’ the harsh reality of unemployment, inflation, power outages – and no voice.

Each government’s epitaph reads “Here lies macroeconomic stability. Right medicine wrongly administered”. And that is precisely the problem with the charter of economy: how to administer the medicine – its dosage, sequencing, contra-indications. This is where policy choices reside. Shouldn’t each political party make its own economic policy choices? Isn’t this what democracy is about?

Should every political party make an unwavering commitment to privatization; or should it seek to make state enterprises work efficiently? After all some of the best run companies in the world are state owned. After all once upon a time Pakistan boasted of perfectly well managed state enterprises. After all so many private enterprises around the world go belly up or have to be bailed out. Even if you want to privatise there are so many different routes to choose from, from IPOs to auctions to employee buy-outs – rather than a ‘strategic investor’ who gets the keys by paying only 26% of a valuation that is not always free of opacity. Shouldn’t the regulators be strengthened before going for privatisation? How do you factor in social considerations? An abundance of policy choices that just won’t fit the straitjacket of a charter!

Cost recovery, as currently applied, is a warped concept. Only those subventions are sought to be eliminated that eat into the budget. A wider view offers an array of policy choices. The current approach is infested with contradictions. Karachi Electric can disconnect when bills are not paid, but Karachi water board cant. Government guarantees a high rate of return to IPPs and then forces the consumers to pay for their obscene profits. It subsidises the fertilizer producers but not the farmers’ input costs. It gives water literally free to the agricultural sector (no more than 25% of even O&M costs are recovered) but safe drinking water is hard to get, despite the exorbitant charges for water tankers. It celebrates the growth in remittances without bothering to think of their cause – the ever growing number of economic migrants. Surely, different political parties have a right to design their own cost recovery policies!

Revenue generation is critically important, but do all parties have to opt for huge borrowings, regressive taxes, burdening the existing taxpayers further, and rely on the genius of withholding taxes? There is any number of ways to skin the cat. Policy options abound. Taxation is the stuff that politics is made of. Economics is the sternum of politics. How do you forego politics for an amorphous charter?

If a charter secures best national interests let there be charters on education, health, extremism, environment, equality, basic needs. Why not a charter on national cohesion or sovereignty, or even defence? Surely here, more than elsewhere, national interest should transcend political tugs of war.

Looks like government by commissions – Hamoodur Rehman, Abbottabad, Memogate, (locked) Panamagate, whatever – is not enough. We now want government through charters. Let the whole world that is yet to see the wisdom of charter of economy emulate us.

Constitution already provides for what should be the principal elements of a charter of economy, or any other charter for that matter. Let’s respect the constitutional provisions. Let’s work on Institutions, the real bulwark against political vicissitudes. Let’s urge all political parties to unite behind the charter of good governance and the rule of law. Let’s not allow the Accountant to try to rob the political parties of their tool boxes as well. Let’s not be in a hurry to draft the obituary of the political system.

Shabir Ahmed, "Charter of Economy: What was the accountant thinking?," Business Recorder. 2016-06-15.
Keywords: Economics , Capital budget , National interest , Political parties , Consumer satisfaction , Basic needs , Pakistan , PPP , IMF , IPO , IPP