State of economy
THE last fiscal year was one of the toughest for Pakistan, and the challenges are far from over. This is the gist of the annual report just released by the State Bank of Pakistan regarding FY2019.
Coming almost four months after the fiscal year concluded, the report remains timely for the important lessons it has for the present, particularly the insights it shares on why the investment scenario remains so dismal. Last year’s record high fiscal deficit of 8.9pc of GDP was the result of unrealistic targets set by an outgoing government, according to the bank. A poor revenue mobilisation effort combined with weak expenditure control contributed as well.
The unrealistic targets can be attributed to politics, since an outgoing government was hardly incentivised to leave behind a robust revenue plan, although the drafters of that budget will argue that the innovative thinking around which the numbers were built never found acceptance with the new dispensation.
That debate notwithstanding, a big takeaway from the report is the narrowness of the state’s revenue machinery and the enormously ambitious revenue drive that the government has launched. In large part, for example, last year’s weak revenue performance stemmed from the failure to mobilise new revenues via two mini-budgets, as well as the politically motivated reductions in sales tax and surcharge on fuels, particularly petrol and diesel.
Whether or not one agrees with the government’s decision to try and protect the masses from fuel price increases, it is hard to disregard the fact that, given the inflation levels today, the decisions were shortsighted and failed to accomplish their stated purpose.
A close reading of the report shows the importance of restoring fiscal discipline, and in equal measure of broadening the tax base. These are the two principal challenges the government is currently working on. Although it is proving to be a difficult path to walk, having chosen it the government has little choice but to persevere.
Besides the fiscal situation, the report highlights the near-calamitous state of industry and agriculture, and clearly says that a large part of the contraction in the external account is due to collapsing demand in both these sectors, which between them account for more than half the size of the economy.
Therefore the contraction in the current account deficit is hardly something to be celebrated since it is being achieved by strangulating the economy, and agriculture has suffered strong water shortages on top of high input prices.
The investment climate is mired in high levels of informality that draw in investible resources, preventing productivity gains. With these weaknesses, the current account deficit will simply reappear with the return of growth. The need for deep and urgent structural reforms could not be more clear.
Amending NAB law
THE government has promulgated an ordinance through which it has amended the National Accountability Ordinance 1999 so that any person arrested for an offence involving an amount above Rs50m shall be entitled to ‘C’ class or equivalent in prison. This selective amendment in the NAB law, while many controversial elements remain in place, has rightfully elicited concerns that the government is only interested in amendments that affect its political opponents. This is unfortunate because the NAB law in its present shape is a holdover from the Musharraf years and its genesis is rooted in that regime’s intent to persecute and punish politicians on the other side of the divide. Framed with such a purpose in mind, the ordinance was packed with sweeping powers that often bypassed the established due process of law within the ambit of the courts. It is a telling failure of political will and vision that successive governments have refused to amend the law in order to bring it closer to a shape befitting a constitutional democracy.
This failure has come at a cost. Untethered from the constraints of the judiciary and unaccountable in any real sense to any other institution in the dispensation of its brand of accountability, NAB is today riding roughshod over politicians, bureaucrats and people from many other walks of life. The law in its present form allows NAB discretion that automatically translates into selectivity in the application of these powers. For instance, draconian provisions such as the denial of bail during the investigation stage have led to the arrest of prominent politicians without formal charges being framed against them. Indeed, it is not surprising that opposition leaders are facing the brunt of this accountability while various people associated with the ruling alliance facing similar accusations enjoy the fruits of unfettered freedom. It is clear then, that while it may be convenient to blame the decision-makers at NAB for the reckless use of their powers, the real fault lies with the law itself. Legal experts say the ordinance must be overhauled so it can be cleansed of those powers that go against legal checks and balances. Again as an example, the ordinance allows NAB to charge people on “misuse of authority” whereas this is a vague charge that can be applied to any decision taken in the running of state affairs. The hounding and arrests of many bureaucrats on such charges leading to near-paralysis in decision-making is a case in point. Selectively amending the NAB Ordinance is plain wrong.
Yemen death toll
NEW figures from a database project concerning the war in Yemen reveal that around 100,000 people have died in this brutal conflict since 2015. The figures, gathered by the Armed Conflict Location and Event Data project from multiple sources, further show that 12,000 civilians have been killed in directly targeted attacks. These grim figures do not include victims of the war that have died from starvation and disease, which would arguably push the numbers even higher. Sadly, despite evidence of such widespread suffering in this impoverished land, the global community seems least interested in ending this vicious conflict. This is despite the fact that heartbreaking images of dying and malnourished children regularly emerge from Yemen; yet the global conscience seems undisturbed. Moreover, the Saudi-led coalition, which is fighting the Iran-supported Houthis to restore Yemen’s government in Sana’a, the capital, has, according to the Acled figures, targeted over 8,000 civilians. While both sides have committed atrocities, Riyadh’s coalition, backed by the US, UK and other Western states, has bombed markets, weddings and schools primarily through air strikes. But the stalemate continues as the Houthis remain ensconced in the capital, with the Yemeni people paying a huge price for the geopolitical battle being fought in their forsaken country.
The picture is nothing short of devastating. This war has dragged on for far too long and has taken too high a human toll. An entire generation has been destroyed in Yemen and it will take several years to rebuild this shattered country. A long-term ceasefire needs to be immediately declared by the Saudi coalition, to which the Houthis must respond positively. From there on, external players must support their Yemeni allies in reaching a compromise that paves the way for a government with representation from all of the country’s tribes and sects. Warfare has proved useless and it is only dialogue that can now resolve Yemen’s political problems. Moreover, those states that claim to be the bastions of human rights and democratic values must be asked why they choose to remain silent when arms sold by them end up killing innocent Yemenis.