Overview: KESC Woes

By Amir Zia
The News on Sunday
Special Report
June 26, 2011

The Company appears to be fighting a losing battle against the vested interests and political mafias opposed to streamlining its operations. But in the corridors of power, who cares?

Senior officials of the Karachi Electric Supply Company (KESC) have not been able to enter their head offices for nearly two weeks now as hundreds of protesting employees remain camped outside the building, threatening and beating staff members, who want to attend duties. At other locations, KESC offices have remained mostly shut for nearly two months now as bands of protesters -- some of them armed -- roam freely, targeting those who refuse to stay away from work.

There have been more than 100 cases of sabotage and violence against KESC installations and employees during the last two weeks alone,” said Tayyab Tareen, KESC’s chief financial officer (CFO). “In majority of cases, police and the other law enforcement agencies failed to act. We can’t operate from our offices… Our staff members, who perform outdoor duties, are constantly being threatened, harassed and even targeted by trade union activists.”

As defiant workers lock horns with the KESC management against its decision of outsourcing the non-core operations of the company, the tussle has perhaps become a defining one for the country’s privatisation programme and overall investment climate. The labour trouble has also created an unprecedented power crisis in Karachi, where demand already exceeds the supply by more than 20 per cent. With workers disrupting the day-to-day operations of the public utility, even small local problems in the distribution network remain unattended for days. This has compounded the misery of consumers in the sizzling summer and triggered spontaneous protests and power riots.

“The problem is that our staff is not being allowed to work,” Tareen said. “Even sensitive installations like a power generation plant had to be shut down because the union members abducted staff on gunpoint. One of the main grid stations was also forcibly closed by the union members. Later, rangers had to get it vacated.”

The KESC management’s concerns about security are not out of place. The KESC head office, located in Defence Housing Authority -- a relatively peaceful neighbourhood by Karachi standards -- was attacked by hundreds of protesters on January 20 in which not only dozens of vehicles were damaged or set ablaze and offices ransacked, but staff also beaten-up.

No wonder that in these testing times, KESC technical staff sneaks out mostly after sunset to fix faults. Some of these staff members have been thrashed black and blue by protesters, who according to the KESC management, resort to organised sabotage activities, damaging cables, pole mounted transformers, and even grid stations.

A KESC technician, who spoke on the condition of anonymity, said that many of his colleagues remain too afraid to report to duty. “Those who come, do it at the peril of their lives. The union members roam in small groups on motorbikes and threaten and beat those whom they find working. There is no security, no law. We are even attacked by angry consumers, who want us to restore their connections then and there.”

As a result, often even small local faults remain unattended for six to seven days.

The list of acts of lawlessness committed by trade union members -- the latest bane for citizens of this volatile city -- is getting longer with each passing day. There are no rules of the game. The government and the state institutions appear to have abandoned their responsibility allowing the mob to rule. Yes, any organised minority can dictate terms, block roads, threaten and disrupt operations of a legitimate, legal business. In this land of the pure, there is a freedom to break laws, but try playing by the book and you make yourself vulnerable.

The government’s deliberate inaction is understandable. All the three parties in the ruling coalition -- Pakistan Peoples’ Party (PPP), Muttahida Qaumi Movement (MQM) and Awami National Party (ANP) -- have their trade unions in KESC.

“We are being directed by authorities to facilitate the KESC unions,” said a senior police officer requesting anonymity. “We are not making any arrests or trying to break their protest, though the union workers have been blocking major roads and resorting to numerous illegal activities.”

The government has been pressing the KESC management to resolve the issue with the unions, which means keeping the status-quo. But the status-quo is the biggest problem at the KESC; it’s in the red because of overstaffing, rampant power theft and corruption.

The government’s attempt to dictate KESC’s private management, trying to revamp and restructure this loss-making entity, goes against the grain of the privatisation programme and sends a message to potential foreign and local investors to stay away from the country -- which lacks consistency of policies and changes goal-post with the change of governments.

Restructuring and revamping are part and parcel of the privatisation of any organisation anywhere in the world. No management can change fortunes of a company without cutting operational costs and a major overhaul and shakeout of the workforce. In Pakistan, there has been a precedent of restructuring in a number of key privatised institutions, including in the banking sector. It worked perfectly well because there was political will behind the move. Employees were given financial benefits through “golden handshake schemes” for leaving their jobs. The successful implementation of these schemes resulted in the turnaround of many institutions, which became profitable and financially robust, paving way for improved services, expansion and creation of new jobs.

But unfortunately KESC is not being allowed to do that for narrow political reasons. At one level, PPP’s traditional pro-worker posture leaves no room for retrenchment. This is a major contradiction in the ruling party’s policy which also endorses privatisation and maintains its full-fledged ministry, although it hardly has any success to its credit since coming to power in 2008.

The second key reason is that at lower level of the party, there are huge stakes in maintaining the status-quo at organisations like KESC. Not just PPP, but workers and local leaders of all the other major parties and trade unions also have financial and political interests as big organisations and their resources remain open to loot, abuse and exploitation. For years, political parties have abused and exploited these institutions by doling out jobs to lackeys, activists and relatives. They patronised nepotism and corruption at all levels.

This has financially wrecked most public sector enterprises that remain a drain on the national exchequer. Only a dozen or so top such loss-making institutions need more than 300 billion rupees a year in subsidies to remain afloat.

Obviously, the local leadership of these parties and their trade unions will resist any attempt to stop this loot. And ironically, the top leadership -- by design or default -- is following suit at the cost of not just KESC, but the country’s long-term economic interest.

Finance Minister Dr. Abdul Hafeez Shaikh, who once headed the privatisation ministry under former president Pervaz Musharraf, should know better the consequence of prolonging this unnecessary and self-damaging tussle with KESC run by Dubai-based Abraaj Capital.

The KESC as part of its restructuring plan aims to reduce number of employees to around 13,000 from the current 17,000 plus. The move is not unlawful and part of the privatisation agreement with the government.

It tried to implement this in early January by terminating the services of 4,300 non-core employees who refused to accept a voluntary separation scheme (VSS). The non-core employees included drivers, bill distributors, security staff and sweepers. The scheme offered a minimum of 700,000 to a maximum of 4.0 million rupees to each employee according to seniority. The KESC says that by doing this it wants to concentrate on core technical operations, which makes sense. However, the move was derailed as a result of January 20 violence. At that time, the political parties in the ruling coalition forced the KESC management to reinstate these employees.

But the KESC management made it clear even then that it was not abandoning the restructuring plan and accordingly outsourced non-core operations to specialist firms. The non-core employees were put in the surplus pool and their job specific allowances and overtime were stopped, but they continue to draw salaries.

This move led to the current protest campaign that started on April 29 as it directly hit the vested interest groups. The KESC management says that charging up to eight hours daily overtime by many of the non-core employees, especially those affiliated with trade unions and political parties, has remained a norm for years. Many came just to show their faces during office hours, but still claimed overtime through the muscle power of the unions.

According to the KESC management, the cost of outsourcing remains 250,000 rupees less than just the overtime claimed by these non-core employees. Once the restructuring is complete, the company will be able to significantly cut its fixed operational cost -- a move which makes perfect business sense. The management says that it will be able to invest on hiring new technical staff where needed once it is through with the VSS implementation.

However, the KESC management finds itself in a tight-spot given the political interference and politicisation of the issue. For now, it appears to be fighting a losing battle against the vested interests and political mafias opposed to streamlining KESC operations. The government’s criminal inaction is adding not only to the woes of KESC and its more than 2.2 million consumers, but also hurting the future foreign investment and privatisation prospects in the country. But in the corridors of power, who cares? In the short-term, appeasing trade unions seem to suit their interest more.

Hostage to Political Players

By Amir Zia
Newsline
June 2011

By using the labour unions to thwart KESC’s attempts to revamp and restructure, the government is defeating the very purpose of privatisation and scaring away potential investors

For more than three weeks now, the Karachi Press Club (KPC) has been under siege. Hundreds of protesting workers from the privatised Karachi Electric Supply Company (KESC) and their political allies have occupied the main road in front of the club and set a camp under police protection. The road, located in the heart of the city, is shut for traffic. All nearby buildings, which not only house the offices of some leading companies, but residential apartments as well, are also getting a taste of the “labour movement” – Pakistani style – against the reform and restructuring of KESC.
With naats, slogans and frenzied speeches blaring from loudspeakers at all odd hours, living on Sarwar Shaheed Road has indeed become an ordeal. “They are a nuisance to public life,” said an irritated resident of a nearby building. “But who cares about the public in Pakistan? If you have muscle power, the support of the ruling party and goons at your disposal, you can get away with murder.”
The frustration is not just confined to ordinary citizens. Journalists, who by and large are sympathetic to the workers’ cause, have also been at the receiving end of this unique struggle being waged under the patronage of provincial authorities and the Pakistan Peoples’ Party (PPP).
“They beat up journalists and KPC staff members when we tried to stop them from barging into our premises,” said Tahir Hasan Khan, president of KPC. “Now many members have stopped coming here because they find the major road closed. We have to shut the main gate because they demand food, tea and even toilet facilities. When we approached the police, we were told that they have been directed to facilitate the protesters. We have nowhere to turn to.”
But the woes of KPC members are just a tiny detail of the bigger picture called Karachi, which has seen its worst power outages in recent years, as the protesting workers went on an organised campaign to sabotage and disrupt the power supply. The KESC Collective Bargaining Agent’s (CBA) armed workers have damaged Pole Mounted Transformers (PMTs), high tension cables, maintenance trucks and feeders across the city, resulting in the worst power outages lasting up to six to seven days at a stretch in various neighbourhoods. At several places, KESC offices were forcibly shut down and the technical staff beaten black and blue by armed men, who wanted them to stay away from work. Police and other law enforcement agencies, in most cases, looked the other way, or arrived only after the miscreants had completed their mission of destruction.
The disruption in power supply led to spontaneous protests, especially in the middle and low income neighbourhoods where a vast number of people do not have generators to light up their homes and run small businesses.
The situation was reminiscent of the ugly events of January this year when violent protesters ransacked KESC headquarters in the presence of security personnel. At that time, the PPP-led coalition forced the KESC management to reinstate more than 4,000 non-core employees, whose services were terminated following the outsourcing of their functions as part of the organisation’s restructuring drive. However, KESC had made it clear even then, that the government’s decision – based on political expediency – was unacceptable and should not be considered as a solution.
The non-core employees included bill distributors, drivers, security staff and sweepers whose jobs were given on contract to specialist companies. The KESC management said that by freeing itself from non-core operations, it wanted to concentrate on the core function of ensuring power supply in the megapolis. The decision made business sense as it reduced the head count from 17,000 to 13,000 and allowed the company to expand its technical services by hiring fresh staff where required.
According to KESC sources, the total cost of outsourcing is Rs 250,000, less than the amount spent on just the overtime and job-specific allowances of non-core employees. Once the plan is fully implemented, the company could save a substantial amount in salaries and other perks given to these employees, many of whom were ghost workers as well as those who worked for just two to three hours a day, but still claimed eight hours overtime daily.
“The protest is uncalled for because this time around we have not sacked any employee,” says a KESC spokesperson. “We just stopped the overtime and job-specific allowances of these staff members as these functions were outsourced. The outsourcing also helps in preventing meter tampering and installation of illegal connections.”
But the decision proved a blow to the vested interests at KESC, where all the major political parties, including the ones in the ruling coalition, have contributed to overstaffing and corrupt practices. The CBA says that putting employees in the surplus pool remains unacceptable. It also demands reinstatement of those employees who were sacked on charges of misconduct and violence.
To complicate an already complicated situation, some key leaders of the PPP as well as the opposition parties visited the protesting workers to show their support and avail cheap photo opportunities without understanding the issue and its impact on the overall investment and business climate of the country, which is caught in the low growth and high inflation cycle.
As a private-run organisation, the KESC has every right to decide its human resource policy and restructuring plan. It offered a voluntary separation scheme to the employees, under which, each employee would be given a minimum of Rs 700,000 to 4 million – according to seniority – on leaving the organisation. But the political parties-backed trade unions forced workers to reject it.
The government’s policy of arm-twisting the KESC through its labour unions and local leaders is in contrast to the precedence set in other organisations, including the privatised banks and even state-run natural gas distribution companies, where non-core functions such as security and bill distribution have been outsourced.
There is a complete disconnect between the government’s policies and deeds. On paper, it wants to boost foreign and local investment in the country and privatise state-run institutions, but its leaders appear bent upon scaring investors away by sponsoring and promoting unlawful activities and hostile statements.
Dr Ashfaque Hasan Khan, a leading economist who served as an advisor to the finance ministry, maintains that the PPP government should close down the ministry of privatisation and the board of investment if it wants to treat investors in such a shabby manner. “Who will want to invest in Pakistan, if the government fails to honour its commitment and provide security to investors?” asks Dr Khan.
Flawed populist policies, corruption and overstaffing have already wrecked the majority of the public sector enterprises, which are being kept afloat on subsidies. The top eight entities alone needed an injection of more than Rs 250 billion – which is higher than the total development expenditure of the country for the fiscal year 2010/11 (July-June). If privatised institutions like the KESC are not allowed to revamp and restructure to cut their losses and make profits, it will defeat the whole spirit and purpose of privatisation. Commercial organisations are not run as charities or job-providing bureaus. They operate or fail on the basis of profit and loss – a basic economic principle which many of our politicians fail to understand.
The KESC, in which the Dubai-based private equity firm Abraaj Capital has 50% shares and management control, has already invested more than 600 million in improving the power utility systems over the last two years. It should be encouraged to invest more and ensure a turnaround in its services to get Pakistan’s industrial and commercial hub going. An increased inflow of investment, badly needed by Pakistan, will help create new employment opportunities, which will offset the short-term bitter decision of the sacking of employees. Standing up for labour rights does not mean allowing ghost workers to draw salaries, file false overtime claims, indulge in corruption, break laws and resort to violence. Supporting a corrupt labour mafia is a recipe for economic disaster. The PPP government needs to ensure the writ of the law and provide protection to legitimate and lawful businesses to attract foreign and local investment and restore Pakistan’s credibility.

The Inner Conflict

By Amir Zia
Newsline
June 2011

Time has run out – we must decide: are we with the terrorists or against them?

Are the drone attacks a bigger challenge for our sovereignty, or those bands of foreign and local militants, who freely roam around establishing a state within a state, masterminding and planning acts of terror and sabotage across Pakistan? What undermines Pakistan’s security more, unilateral action by US forces against Osama bin Laden, or the fact that the terror mastermind remained hidden here for years?
Today, these fundamental questions are not only polarising an already ideologically divided country, but are likely to play a pivotal role in determining its future. The manner, in which state institutions, civil society, political parties and other stakeholders tackle these questions and influence the narrative, it will either help align Pakistan with the international community, or put it in the category of a pariah state. There is no third option.
Sticking to the controversial 1980s-era policy of supporting, nurturing and protecting non-state actors and using Islamic militant groups as proxies in both Afghanistan and India, will not work now. Times have changed and carrying the burden and vision of General Zia-ul-Haq any further will only wreck the country. The long-followed policies of double-speak and duplicity, are already demonstrating disastrous results. The sooner our ruling elite realises this, the better. Pakistan needs clarity of mind and action so it can earn a place in the comity of nations.
It is an irony that the country which has suffered the most in the decade-long war on terrorism, appears unable to set its priorities right. The ongoing suicide bombings and terror assaults, from one end of Pakistan to the other, have claimed the lives of more than 30,000 civilians and 5,000 security officials. Al Qaeda, the Pakistani Taliban and their other local allies have hit every segment of society and each institution that matters. From mosques to schools, posh hotels to bustling markets, military headquarters to police stations – all have suffered the brunt of terrorism and the common man has paid in blood and tears.
Yet state institutions have been selective when it comes to tackling these elements. Even when militants and their masterminds have been dealt with by military might, the state has failed to fight this battle on the ideological and political fronts. The breeding grounds of extremism remain untouched.
Against this backdrop then, an organised and vocal minority led by religious parties, right-wing opinion-makers and politicians are succeeding in convincing Pakistanis that their security, sovereignty and national pride is hurt more by US drones, which target militants, than by the militants who murder Pakistani citizens.
Consider how the Jamaat-e-Islami, the Jamiat Ulema-e-Islam and Imran Khan will conduct widely-publicised ‘dharnas’ against the drone attacks, but not even protest, let alone stage a rally to condemn suicide bombings or the masterminds of terrorism. The religious right continues to incite people about unilateral action by the US to take out OBL, but does not question what bin Laden, his wives and children were doing holed up in a garrison town in Pakistan. Why do they not ask if bin Laden was here on a visa, or whether Islamabad had bestowed Pakistani nationality on him and his family? Or question why international terrorists gravitate towards Pakistan and manage to find a support structure here that not only permits them to conceal themselves, but also recruit other extremists and flourish.
When President Zardari and Prime Minister Gilani publicly welcomed the elimination of the world’s most-wanted terrorist, it was an appropriate and welcome response, since Pakistan has been one of the biggest victims of Al Qaeda-inspired terror. But soon thereafter, the country’s religious parties and right-wing politicians –¬ many without any representation in parliament – managed to swing the direction of the national debate to what they bellowed was an attack on Pakistan’s sovereignty. Resultantly, mainstream parties, including the ones in the ruling coalition, caved in to the pressure and decided to flow with the tide.
The result: a unanimous parliamentary motion on May 14, which rather than taking into account the challenge of extremism and militancy, vigorously condemned the Abbottabad operation by the US and drone attacks.
Gradually, all attempts at objective self-criticism, debate about the future course of action and willingness to take responsibility gave way to denial, hysteria and finger-pointing. The unanimous resolution was certainly not the epitome of national pride and honour. In fact, it reflected the intellectual and moral bankruptcy of our ruling elite, which has neither courage, nor any vision for the future.
Bin Laden’s presence and killing in Pakistan raises many thorny questions. In a world that has little tolerance for terrorist adventurists, the bin Laden affair has exposed the country to unprecedented internal and external risks and pressure. And there can be no arguing that the international community is justified in asking tough questions and demanding from Pakistan’s civilian and military leaders an unequivocal reaffirmation of their commitment in regard to the fight against terrorism. Most vital perhaps is that Pakistan has to recognise that ultimately, combating the monster of terrorism is in Pakistan’s own long-term interests, and perhaps even its very survival as a viable state hinges on this recognition.
If Pakistan is to have any real sovereignty, the civil and military leadership will have to fight to earn it. Not by taking on the world, but by ending the need for unilateral military operations by foreigners. Pakistan has to become proactive on a war footing: it has to identify terrorist hubs, root out terrorist havens, establish its writ on its territory, and create awareness among its people through a sustained and credible campaign of the need to eliminate the menace of terrorism permanently.
Pakistan’s leaders need to talk to the nation, plainly, bluntly is now an imperative. The people overwhelmingly seek economic development, progress, peace and normalcy in their country, not conflict with any of their neighbouring countries, or the United States and the West.
Perhaps now more than ever before, the civil and military leadership has an opportunity to use current international concerns toward Pakistan to its advantage by writing an agenda of change. But this can only be done when all pillars of the country’s leadership, in conjunction with the collective will of the people, take ownership of the struggle for a moderate Pakistan that focuses on improving the lives of its people.

A Bid To Appease All

By Amir Zia
Monday, June 13, 2011
Money Matters
The News

The finance minister has presented a “business-as-usual” budget, which could work perfectly well under the normal circumstances. But the only problem is that these are abnormal times for Pakistan

In these tough economic times, Finance Minister Dr Abdul Hafeez Shaikh has managed to present a “politically correct” budget for fiscal 2011-12 – at least on the paper. All the key budgetary targets, including the intention to keep fiscal deficit at 4.0 percent of GDP, raising a record 1.952 trillion rupees in revenues and slashing subsidies to 166 billion rupees from the current year’s 395 billion appear ambitious and aimed at reviving the stalled programme of International Monetary Fund.

To cheer up influential business circles, the government aims to lower the general sales tax (GST) to 16 percent from 17 percent, abolish regulatory duty on 392 items and scrap the special excise duty. The proposed budget also plans to remove federal excise duty on 15 items out of a list of 52. The government’s generosity does not end here. It has decided not to raise any taxes or customs duty, thus maintaining a status-quo and ensuring that no major group gets a chance to moan and groan.

For the government servants, there is a gift of a 15 percent raise in salaries.

The powerful land owners, feudal lords and tribal chiefs remain snug and cozy as there is no measure to impose tax on the agricultural income. The government managed to sidestep the issue under the 1973 constitution, which gives powers to impose this tax to provinces. And the good news for the rural-elite is that the provincial governments do not want to upset the apple cart in a bid to secure vote bank ahead of next elections.

The government felt confident about its resource mobilisation, raising the Public Sector Development Programme by almost 58 percent to 300 billion rupees. It jacked up defence spending by more than 11 percent to 495 billion rupees and set aside 791 billion for loan retirement and interest payment – the biggest chunk in the budgetary expenditure.

The finance minister has presented a “business-as-usual” budget, which could work perfectly well under the normal circumstances. But the only problem is that these are abnormal times for Pakistan — shaken to its core by political instability, terrorism and a struggling economy.

Many analysts say that the budget sets unrealistic targets, which will surely be missed by wide margins as has been happening for the last three years.

“The government has again avoided taking any meaningful reforms,” said Dr Ashfaque Hassan Khan, dean & principal of NUST Business School, Islamabad. “The tax measures are not enough to achieve the revenue target. As it happened in the past under this government, the budget deficit target will be the first casualty. It appears as an election- year budget, which will only add to the country’s economic woes.”

Sayem Ali, an economist at Standard Chartered Bank, also remains in doubt about the government’s capacity to meet its targets. “The government’s record on budget targets inspires little confidence,” he said in a post-budget research report. “In the last four years every tax and spending target has been missed.”

Ali predicts that in 2011-12 too, there remains a “real risk” that targets will be missed again including the deficit target, which is likely to stay high at 5 percent of GDP. “While the tax collection target of 9.3 percent of GDP in FY12 is very ambitious, it is not backed up by measures needed to boost revenues.

A cutback in subsidies through a 12 percent hike in power tariffs will be a difficult sell for the government. Bank borrowing is likely to rise to 550 billion rupees against the budget target of 304 billion.”

However, while economists may criticise the budget, an analyst at a leading brokerage house in Karachi says that major political parties will find little to oppose in the budget.

“This budget has tried to keep all the interest groups happy and it is likely to sail through the parliament notwithstanding the dramatic posturing and emotional speeches by parliamentarians,” said the analyst, who according to company policy wanted to remain anonymous.

But a senior finance ministry official brushed aside all the scepticism, saying that the budget targets remain achievable. “Last year, the economy passed through difficult times due to the internal and external shocks,” he said. “But now the economy is getting back on track. The new budget aims both for stabilisation and growth.”

He said all the expenditures and tax measures have been factored-in and the government remains confident that the budget deficit and all the other targets would be met.

An analyst working for a multi-donor agency said the budgetary objectives appear reasonable, including the plan to slash subsidies, but durable measures to achieve them seem lacking. The foremost of the challenge is how to expand the tax base, he said.

The government, however, says that by bringing new sectors under the ambit of GST, targeting 70,000 wealthy individuals outside the tax net, and administrative measures would be enough to meet this year’s revenue target.

But analysts feel that the government’s plans hinges on many ifs and buts.

First, like the previous year, the government expects provinces to give surplus budgets to help it meet the budget deficit target. But last year, provinces failed to do that and with all eyes already set on the next general elections, due in 2013, they would want to spend more rather than give surplus budgets.

The second factor, which could disturb the government’s plans, remains the volatility in the international crude oil prices. The government’s commodity operations are also piling up to the debt burden.

Given the fragile state of the economy that remains stuck in high inflation and low growth cycle for the last three years, the proposed budget fails to take those difficult measures, including taxing the agricultural income, which are seen vital for its revival.

In the absence of reforms, the target of putting the country back on the high growth trajectory and curbing inflation to a single-digit number – which is a must to reduce poverty – would remain elusive. It is a budget for the status-quo aimed to meet the government’s political challenges rather than serve the country’s long-term interests.

Budget: Targeting The Impossible

By Amir Zia
June 5, 2011
The News

Pakistan has been missing its revenue and fiscal targets for four years in a row now and meeting them remains vital not just to satisfy the International Monetary Fund, but also to revive the country’s economy which remains stuck in a low-growth and high- inflation cycle.

These are indeed tough and depressing times for the Pakistan economy, but going by Finance Minister Abdul Hafeez Shaikh’s assessments, a turnaround now seems within grasp. After braving all the aggressive booing and hostile sloganeering of Pakistan Muslim League Nawaz (PML-N) lawmakers a day earlier, the finance minister bounced back and appeared his usual calm, poised self on Saturday at the post-budget press conference, trying to explain and sell his budgetary measures, which many experts believe remain unrealistically optimistic.
But Shaikh and his economic team members appear unruffled by the bitter criticism of political opponents and those experts who predict only gloom and doom for the economy.
The post-budget press conference, where orderly-seated journalists appeared in a sharp contrast to the rowdy and unruly PML-N lawmakers, provided Shaikh a perfect platform to explain what he could not do in the National Assembly. And Shaikh certainly made the best use of the opportunity, speaking with eloquence and conviction — a more or less similar impressive performance, which he gave last year while presenting the budget of 2010-11. However, his pleas to reform and restructure the economy and expand the tax-base at that time failed to impress his political bosses and the Pakistan Peoples’ Party (PPP)-led government missed most of the crucial targets set for this out-going fiscal.
But this poor performance apparently has not dampened Shaikh's spirits. He looks convinced that measures taken so far provide a foundation to build-on and will lead to a better economic performance in the coming year. “We may have not achieved 100 percent results, but more than 50 percent work has been done,” he said.
While many may find this performance below average, the government maintains that it remains satisfactory against the backdrop of the country’s worst floods in its history, the sceptre of terrorism and high global oil and food prices.
Shaikh insists that there are reasons to be optimistic about the country' economic team performance in the new fiscal year as he aims for some ambitious revenue and fiscal targets, which most experts find difficult to achieve. For many sceptics, the most improbable milestone in the 2011/12 budget — having an outlay of 2.767 trillion rupees -- is that of raising revenues of 2.732 trillion that includes both tax and non-tax revenues. The Federal Board of Revenue (FBR) will have to collect a staggering 1.952 trillion rupees in the coming fiscal, compared with the targeted 1.588 trillion rupees for the outgoing fiscal.
The government hopes to achieve this target on the back of expanding the tax-net and a crucial step in this regard remains bringing several sectors, which so far have enjoyed exemptions, under the umbrella of general sales tax.
Another important step remains the withdrawal of sales tax exemption on local supplies of five zero-rated sectors. It indeed provides a new source of revenues for this cash-strapped government.
The government’s move to bring new potential 700,000 taxpayers in the tax-net in a country where only 1.5 million people file returns could also help boost revenues if FBR manages to follow this task till the end. The government hopes to collect 70 billion rupees through these newly identified tax-payers.
However, the task is easier said than done. It requires a bold and brave attempt from the FBR to raise 1.952 trillion rupees revenues. But the target is worth trying. Don’t we miss all those shots which we never attempt?
Another crucial target directly linked with FBR’s performance and the government’s ability to maintain financial discipline is that of keeping the fiscal deficit at 4.0 percent of the gross domestic product (GDP).
In the current fiscal, the government failed on this front as the deficit is likely to hit 5.9 percent by the year end if the government decides to allocate 120 billion rupees to settle the circular debt problem, stifling the country’s entire energy sector.
Pakistan has been missing its revenue and fiscal targets for four years in a row now and meeting them remains vital not just to satisfy the International Monetary Fund (IMF), but also to revive the country’s economy which remains stuck in a low-growth and high- inflation cycle.
One commendable proposal of the budget remains slashing subsidies target to 166 billion rupees, including that given to power sector, from the highs of 395 billion rupees in 2010-11. In the current fiscal, power sector subsidies alone remain more than 200 billion rupees. If the government meets this target, which definitely appears impossible given the current state of affairs at the public sector companies, it would be one great leap forward.
Overall, the current budget proposal focuses more on stabilisation than on trying to push the country into a high-growth trajectory through sweeping bold structural reform measures. This reflects through its decision of sticking to the current regime of general sales tax and abandoning the idea of the value-added tax and the reformed general sales tax.
The direct tax on agriculture income, which is the domain of provincial governments, also seems on the back-burner and will be imposed in a diluted form. One could expect no better from a parliament dominated by feudal lords and tribal chiefs.
Another area on which the government seems to lack a clear-cut policy remains the restructuring and privatisation of the loss-making public sector enterprises. The way this government has been dragging its feet in settling the labour dispute at the privatised Karachi Electric Supply Company manifests a contradiction in policy and action. The government needs to align them, though it seems an impossible task given the fact that it has entered the fourth year in its office and is now eying the next general elections. One should not expect difficult and bold decisions at this particular juncture from this politically-embattled coalition government, which does not want to upset the carefully laid applecart at this point in time.
Under these circumstances, if Finance Minister Shaikh and his team manage to achieve the revenue target, keep the fiscal deficit at 4.0 percent and boost growth to over 4.0 percent in fiscal 2011-12, it will be a huge achievement. Let’s hope that they succeed this time and achieve 100 percent results. Pakistan’s economy can’t afford any more failures and mistakes.