Last week witnessed some events which will have far-reaching consequences for the integrity of the state. While the parliament finally passed the Anti-Money Laundering Bill, a NAB court honourably acquitted ex-president Asif Ali Zardari in the 18-year long money laundering case against him because photocopies, instead of original documentary evidence, were placed before the court.
We know what happened to the 12 cartons containing the original evidence of this case provided by the Swiss authorities; a Pakistani TV channel showed those documents being collected by a former High Commissioner of Pakistan (close confidant of Zardari) in Britain. How those documents could disappear thereafter is therefore not an irresolvable mystery.
Next, despite eventually being charged for currency smuggling in the 35th hearing of her trial and being placed on the ECL thereafter, Ayyan Ali will be handed back her passport. Given the fact that many other powerfully backed individuals (including a minister in Sindh cabinet) accused of the same crime could exit Pakistan despite the “operation” to nab them, she too may exit Pakistan.
As if these two incidents weren’t enough to again tarnish Pakistan’s image, the Federal Finance Minister advised the parliament’s Public Accounts Committee not to seek public disclosure of the entities who invested in Pakistan’s latest $500m Eurobond issue; instead, he said, these details be discussed in an in-camera session. Is it because the investors are suspect entities?
Mystery surrounds not just this issue; same goes for the $16bn agreement with Qatar for import of LNG until 2030. The Finance Minister continues to avoid explaining the basis whereon the import price has been agreed and whether LNG is being imported by the government or the PSO. In fact, all concerned ministries remain unclear on these issues.
As for prudence in governance, the latest shocker concerns Wapda’s supervision of progress on the Neelum-Jhelum Hydropower project. Thanks to Islamic Development Bank (IDB) – a financier of the project – for informing the Prime Minister that “the contractor is taking full advantage of an unfortunate accident owing to which one of the tunnel boring machines was damaged and remained stagnant for the last 6 months.”
Only after IDB’s warning did the Prime Minister seek an explanation from the Chairman Wapda over IDB’s remarks about negligence by the state-appointed consultant who is ignoring on-time completion of each phase of the project, and is allowing the contractor to operate on ‘best effort basis’, instead of meeting timelines – the disease that is afflicting this crucial project.
Weak contract enforcement by the project consultant is permitting critical slippages although continued slackness in project supervision and contract enforcement may delay the tunnel breakthrough until May 2016. Installing power generation and transmission equipment thereafter could take another 22 months and delay completion of this vital project until 2019.
Completion of Unit-I of this project is scheduled for May 2016, but would be delayed by more than a year. Yet the contents of the Prime Minister’s letter to Chairman Wapda (as disclosed by the media) don’t require Wapda to impose any penalties on the contractor although, according to Chairman Wapda, the opportunity cost of this delay – loss of one high-flow season – is around $250m.
Reluctance to penalise the contractor explains why it behaved the way it did. In this backdrop, Ecnec has accepted Wapda’s request for raising Rs 244bn from domestic commercial banks for ‘timely’ completion of the Rs 900bn Dasu and Neelum-Jhelum projects – setting that, supposedly, will ‘enable’ China’s Exim Bank to extend a term-loan for $576m – but Wapda’s own share in funding will be just Rs 56 billion (roughly 6 percent).
In addition thereto, Wapda ‘expects’ the World Bank to provide around Rs 184 billion via 25 to 30-year long-term loan. Realistically speaking, in this setting, lenders can be ‘enabled’ or ‘expected’ to lend only if Wapda’s supervisory ability undergoes a radical visible change, not otherwise. Whether the Prime Minister can ensure it, remains to be seen.
Last week the Federal Finance Minister claimed that since Pakistan’s fiscal deficit is around 4 percent of the GDP, global confidence in Pakistan’s economy has risen; FDI inflows will therefore increase and allow the government to focus on growth. He also promised implementing an “out of the box” (ie flat tax) strategy for taxing the retail sector.
How reliable are FBR’s strategies for lowering the fiscal deficit, is pointed out routinely, the latest by Chairman TDAP. According to him, FBR is sitting on tax refunds of exporters worth Rs 225bn which are being shown as tax revenue – a point earlier raised by the OICCI – but regretted the fact that for months he couldn’t meet the Prime Minister to apprise him of exporters’ problems and these book-keeping distortions.
According to him, while the Federal Finance Minister has been running from pillar to post every year to secure external debt worth $1.0-$1.5bn, his ministry has refused release of Rs 28bn to the Commerce Ministry under the Export Development Fund although Pakistan’s annual exports are stagnating around $24bn due to the bottlenecks crippling the export sector.
Sliding exports and FDI inflows, and rising trade deficit despite a decline in the cost of oil imports (due to low oil price) reflect the economy’s fragility due to serious risks to its balance of payment position. Besides, the Federal Finance Minister also ignores that the benefit of low oil price may prove short-lived; increasing tensions in the Middle East could push-up oil price.
While the government is oblivious to stagnation in savings and its ever-higher reliance on external debt, the SBP is satisfied with banks’ performance because they earned Rs 148bn post-tax profit during January-September 2015 – 28 percent higher than January-September 2014 – and wants mobilisation of more ‘cheap’ deposits, although Pakistani banks have been charging very high mark-up spreads that are escalating economic inequalities.
Pervasiveness of bad governance is portrayed by the state of even basic civic services, as pointed out by the Supreme Court – institution that doesn’t discuss such issue unless things were in an utterly miserable state. “Should the Supreme Court intervene all the time to keep the metropolitan city of Karachi clean,” was the question asked last week by a 3-judge bench headed by the Chief Justice.
These reactions highlight ‘bad’ governance ie blurred or zero focus on the challenges facing Pakistan. Longer this mess continues tougher will it become for those who may eventually have to undo it. In this backdrop, delaying a change in the country’s administration baffles everyone because, given the pace of corruption and maladministration, their results may be irreversible. Unless “critics” of the governance of the state have compromised on this issue, their reluctance to do what is needed defies comprehension.
A. B. Shahid, "Governance – more failures exposed," Business Recorder. 2015-12-01.Keywords: Economics , Corruption investigation , Fiscal policy , Export controls , Income Tax , Civic improvement , Economic policy , Civic leaders , Globalization , Tax revenue estimating , Pakistan , TDAP , OICCI , FBR , FDI , SBP