Two instances of economic management that have backfired again expose the fact that governments in Pakistan take decisions for the short-term. There is severe shortage of foresight. This is a circle that unfortunately keeps repeating itself, as was evident in the two cases to be discussed below.
The first case relates to the Gas Infrastructure Development Cess (GIDC) Ordinance, promulgated and then withdrawn within a week. The intuition behind this move, as per the government sources, was to reach a settlement outside of court and to ameliorate inflationary pressures through lessening costs of production (by lessening the rate of GIDC). To be fair to the PTI government, this actually reflected a positive step on their part. The mess surrounding GIDC is mainly the work of the PPP and PML-N governments. However, where the blame lies with this government is its failure to understand the larger issues surrounding this matter that still need resolution.
A quick background will help the reader grasp this issue. Post 18th Amendment, Article 172-3 was promulgated. In short, it was aimed at ending the federal government’s monopoly on issues relating to oil and natural gas by bringing in the “joint ownership” concept (50-50 ownership by the federal and the provincial governments). Then, under the seventh NFC award, the federal government acknowledged Gas Development Surcharge (GDS) as provincial revenue, to be transferred under “straight transfers” to provinces.
But as soon as this was done, a parallel tax on natural gas, called GIDC, was applied by the federal government. The aim, as per the government, was to help finance supply of additional gas and build complementing infrastructure.
Three provinces (Sindh, KP and Balochistan) immediately voiced their opposition to GIDC for two reasons: the federal government never consulted them before imposing GIDC, and gas being produced within these provinces was enough to meet their own needs. Therefore, they needed no additional gas and neither any complementing infrastructure. Their opposition to GIDC still stands without any resolution.
The second larger issue in the GIDC case is the justice system. As acknowledged by the government functionaries, the collection targets were way below the calculated amount because cases remained stuck in the court. GIDC is not the only issue that has suffered this predicament since thousands of such business related issues remain stuck. No government in Pakistan has ever seriously considered the damage that shortcomings within provision of justice do to businesses. Same is true of the PTI, which has done nothing in terms of this issue in more than a year of assuming power. What was the guarantee, for example, that the new ordinance would not have been challenged in courts, where a stay order could easily have been extracted?
And the icing on the cake: the GIDC earnings have only been used for budgetary support rather than new infrastructure. The other way of saying this is that the previous federal governments made a fool out of everyone!
Therefore, aside from implementing and then taking back the GDIC Ordinance, the PTI government should have addressed these three important issues: how to address provincial misgivings, what to do about the courts and justice system, and to ensure that the money will indeed only be used for developing new infrastructure. The GIDC Ordinance never touched upon these important issues, which are critical for long-term health of the Pakistani economy.
The second issue, which reflects the persistent short sightedness of our economic managers in dealing with critical issues, is the bar on trade with India. I am sure that the news of severing trade relations with India, after revocation of Article 370, is common. But what a lot of people may have missed is the immediate resumption of trade in medicines, through an SRO issued by the government. This happened hardly a week after the decision to suspend trade with India.
It is important to understand the context of what compelled this U-turn! Pakistan’s pharmaceutical manufacturers import 95 percent of the raw material for manufacturing medicines. A substantial portion of this comes from India. Aside from the raw material, several critical lifesaving medicines (like that of cancer and rabies) is also imported from there. Also important to bear in mind is the fact that there is a persistent shortage of medicines every year in Pakistan, a situation that has been persisting for decades due to wrong-headed government policies.
So, in our haste, propelled by the unwarranted emotionalism, we closed the borders for trade with India. No heed was paid to the pharma industry’s remonstrations about raw material availability and how it would affect medicine supply. Word doing the round is that it was only an SOS from Shaukat Khanum hospital’s management about shortage of cancer medicines (imported from India) that compelled the PM to spring into action. Within a day, an SRO was issued that exempted medicines and raw material imports from India. It is another matter whether India would reciprocate and allow exports to Pakistan.
Now, a few questions that PM Imran Khan needs to contemplate. First, when the summary for cessation of trade with India was moved, did the PM ask about possible repercussions? The summary is prepared by top bureaucrats and concerned ministries. Did any of them, especially the Ministry of Health (which regulates medicines and its related matters), bother telling the PM about the possible shortage of medicines? If nobody told him that, then who is responsible for a decision which had to be revisited within a week?
On these pages, in my articles, I have requested the PM to be cautious in terms of economic management and decisions taken in this regard. What normally happens is that a summary is moved without taking into consideration the possible repercussions, just because it suits a few powerful groups. The present embarrassment that befell the government in the instances related to GIDC and medicines is an apt reflection of my assertion.
The PM must understand that the same mistakes have been repeated again and again in the past. The nation, and its economy, cannot be run on SROs and short-term measures. Specifically, an economy cannot be run through the prism of a security mindset. Exuding bravado to the public about wars not being fought just on economic strength is one thing, but reality is an overpowering force. It took hardly 15 days for Pakistan to request UN’s intervention in 1965 to help arrange ceasefire, despite the economy going through ‘golden period of growth.’ Compared to that time, and if not for considerable foreign assistance, Pakistan’s economy can barely sustain itself at the moment.
The prime minister and his cabinet must learn from past mistakes if any improvement is to come in the future, specifically the fact that economic management can’t be carried out on the back of SROs and short-termism.
The writer is an economist
The first case relates to the Gas Infrastructure Development Cess (GIDC) Ordinance, promulgated and then withdrawn within a week. The intuition behind this move, as per the government sources, was to reach a settlement outside of court and to ameliorate inflationary pressures through lessening costs of production (by lessening the rate of GIDC). To be fair to the PTI government, this actually reflected a positive step on their part. The mess surrounding GIDC is mainly the work of the PPP and PML-N governments. However, where the blame lies with this government is its failure to understand the larger issues surrounding this matter that still need resolution.
A quick background will help the reader grasp this issue. Post 18th Amendment, Article 172-3 was promulgated. In short, it was aimed at ending the federal government’s monopoly on issues relating to oil and natural gas by bringing in the “joint ownership” concept (50-50 ownership by the federal and the provincial governments). Then, under the seventh NFC award, the federal government acknowledged Gas Development Surcharge (GDS) as provincial revenue, to be transferred under “straight transfers” to provinces.
The GIDC earnings have only been used for budgetary support rather than new infrastructure
But as soon as this was done, a parallel tax on natural gas, called GIDC, was applied by the federal government. The aim, as per the government, was to help finance supply of additional gas and build complementing infrastructure.
Three provinces (Sindh, KP and Balochistan) immediately voiced their opposition to GIDC for two reasons: the federal government never consulted them before imposing GIDC, and gas being produced within these provinces was enough to meet their own needs. Therefore, they needed no additional gas and neither any complementing infrastructure. Their opposition to GIDC still stands without any resolution.
The second larger issue in the GIDC case is the justice system. As acknowledged by the government functionaries, the collection targets were way below the calculated amount because cases remained stuck in the court. GIDC is not the only issue that has suffered this predicament since thousands of such business related issues remain stuck. No government in Pakistan has ever seriously considered the damage that shortcomings within provision of justice do to businesses. Same is true of the PTI, which has done nothing in terms of this issue in more than a year of assuming power. What was the guarantee, for example, that the new ordinance would not have been challenged in courts, where a stay order could easily have been extracted?
And the icing on the cake: the GIDC earnings have only been used for budgetary support rather than new infrastructure. The other way of saying this is that the previous federal governments made a fool out of everyone!
Therefore, aside from implementing and then taking back the GDIC Ordinance, the PTI government should have addressed these three important issues: how to address provincial misgivings, what to do about the courts and justice system, and to ensure that the money will indeed only be used for developing new infrastructure. The GIDC Ordinance never touched upon these important issues, which are critical for long-term health of the Pakistani economy.
The second issue, which reflects the persistent short sightedness of our economic managers in dealing with critical issues, is the bar on trade with India. I am sure that the news of severing trade relations with India, after revocation of Article 370, is common. But what a lot of people may have missed is the immediate resumption of trade in medicines, through an SRO issued by the government. This happened hardly a week after the decision to suspend trade with India.
It is important to understand the context of what compelled this U-turn! Pakistan’s pharmaceutical manufacturers import 95 percent of the raw material for manufacturing medicines. A substantial portion of this comes from India. Aside from the raw material, several critical lifesaving medicines (like that of cancer and rabies) is also imported from there. Also important to bear in mind is the fact that there is a persistent shortage of medicines every year in Pakistan, a situation that has been persisting for decades due to wrong-headed government policies.
So, in our haste, propelled by the unwarranted emotionalism, we closed the borders for trade with India. No heed was paid to the pharma industry’s remonstrations about raw material availability and how it would affect medicine supply. Word doing the round is that it was only an SOS from Shaukat Khanum hospital’s management about shortage of cancer medicines (imported from India) that compelled the PM to spring into action. Within a day, an SRO was issued that exempted medicines and raw material imports from India. It is another matter whether India would reciprocate and allow exports to Pakistan.
Now, a few questions that PM Imran Khan needs to contemplate. First, when the summary for cessation of trade with India was moved, did the PM ask about possible repercussions? The summary is prepared by top bureaucrats and concerned ministries. Did any of them, especially the Ministry of Health (which regulates medicines and its related matters), bother telling the PM about the possible shortage of medicines? If nobody told him that, then who is responsible for a decision which had to be revisited within a week?
On these pages, in my articles, I have requested the PM to be cautious in terms of economic management and decisions taken in this regard. What normally happens is that a summary is moved without taking into consideration the possible repercussions, just because it suits a few powerful groups. The present embarrassment that befell the government in the instances related to GIDC and medicines is an apt reflection of my assertion.
The PM must understand that the same mistakes have been repeated again and again in the past. The nation, and its economy, cannot be run on SROs and short-term measures. Specifically, an economy cannot be run through the prism of a security mindset. Exuding bravado to the public about wars not being fought just on economic strength is one thing, but reality is an overpowering force. It took hardly 15 days for Pakistan to request UN’s intervention in 1965 to help arrange ceasefire, despite the economy going through ‘golden period of growth.’ Compared to that time, and if not for considerable foreign assistance, Pakistan’s economy can barely sustain itself at the moment.
The prime minister and his cabinet must learn from past mistakes if any improvement is to come in the future, specifically the fact that economic management can’t be carried out on the back of SROs and short-termism.
The writer is an economist