- Enhanced public sector intervention needed to remove economic and social imbalances
Until financial year 2016 economic managers of the country tried to keep the economic growth rate in fast track, but thereafter it started exhibiting severe socio economic imbalances particularly between the urban formal and the rural informal sectors. Increasing inequality is depicted from much higher unemployment and poverty levels in rural sector, which in turn is the outcome of increasing number of landless population in rural areas. Increasing intensity of this phenomenon in recent years has given fillip to migration of work force to urban areas, thus enhancing rural dependency on urban sector and ultimately raising relative poverty level. Besides that onslaught of severe Covid pandemic during the period from beginning of 2020 to end of 2022 has totally stagnated the country’s economic growth rate.
Consequently all the foreign funding agencies like, IMF, world bank and Asian Development Bank are of the view that persistent economic imbalances emerged due to lack of strategic approach of broad economic institutions like central bank and legal system, which defines the rules of the game relating to economic transactions at all levels. Hence country has failed to show sustained long run economic growth rate. They are also of the view that Pakistan having population exceeding 200 million needs to improve quality of life of its people. In the presence of already heavy external debt country needs a healthier investment climate to boost and sustain economic growth rate needed to arrest growing poverty in the country.
No doubt there has not been significant increase in public sector investments consecutively for the last three years and now attaining the level of around little more than four trillion in recent budget (including federal development budget of Rs.1 trillion, Rs 2869 billion for all the four provincial development projects and remaining Rs.225 billion to be provided to State Owned Enterprises (SOEs) for development projects), yet the magnitude of development work to be undertaken and coping with burden inflicted on country’s resources due to unforeseen natural disasters like drought condition and other adverse impact of climate change and economic shocks due to steep rise in import bill caused by enormous increase in imprudently planned imports and enormous increase in petroleum prices in international market, have rendered these funds insufficient to develop infrastructure needs, particularly energy, water supply .and transport related projects, which need to be expanded and revitalised for sustainable economic growth, vitally needed for improving quality of life in the country.
In view of fiscal constraints already being quite sever as depicted from the very low tax – GDP ratio, which ranges from 9% to 9.4% in recent years and in the absence of quality fiscal measures, which ensure needed level of savings and investments without adverse impact on current spending particularly social sector related spending, make it impossible for further enhancement in PSDP budget even for critical infrastructure needs. Private sector involvement in infrastructure development has been negligible as until recently construction of roads, dams and development of energy sector has been close preserve of public sector, hence significant structural gaps have emerged that could interrupt economic growth rate momentum for long time to come. Now country finds itself at a cross road where it is to be decided to what extent private sector role be entertained particularly for infrastructure development. The energy crisis in the country and Railways running on loss has already inclined government to invite private and foreign investors to this area.
Blessings
China’s voluntary intervention to assist Pakistan to develop its infrastructure, modernise transportation network and most importantly promoting extensive industrialisation work for urbanisation of economy from an agriculture-based structure through China Pakistan Economic Corridor (CPEC) projects has proved Allah’s blessings for Pakistan. As per reports from government sources by December 2024 around 43 projects worth $24.703 billion were completed,which include development of infrastructure particularly energy and port development projects, while eight projects with a budget of $759.56 millions are underway across Pakistan including Gawadar free zone phase2 and flood affected infrastructure rehabilitation.
Mismanagement
No doubt public private partnership has immense scope for undertaking infrastructure, education and health development projects in developing countries, but that needs strict monitoring, good governance and a highly competitive environment (leaving no chances of cartelization in any field of economic activity) for achieving maximum efficiency and giving cost effective services to consumers and government.
In the present scenario when lack of monitoring and good governance are the main factor impeding effective implementation of all development projects, total shift to public private arrangement is not advisable and instead there is need for enhancing the role of public sector for undertaking maximum number of major infrastructural and social sector projects. All utility services related projects need to be under the umbrella of public sector. Privatisation of Karachi Electric Supply and miseries brought to Karachiites through frequent load shedding these days is the result of unabated mismanagement by private owners.
Private hospitals and majority of privately run educational institutions in the country are not accessible to even students from lower middle income families. Economically disadvantaged population in big cities have access only to government hospitals and there too on pretext of non-availability of life saving drugs poor patients have to bear the cost of medicines and other special medical care services. Similarly private schools because of their charging exorbitant tuition fee are not within the reach of low and lower middle income families.
The magnitude of the need for infrastructure for all sectors of the economy as well as social sector justifies the increasing intervention of public sector even at the cost of enhanced dependency on external borrowings provided public investment will be productive and yield significant dividend for the budget or in other words public investments have a high yield than private investment. Public investment, apart from efficient utilisation of funds needs to be accompanied by a good quality current spending and sizable cut in distortional taxes so as to lessen the intensity of economic and social disparities.
Anticipation
For all the IMF and Asian Development Bank’s supported programs, Pakistan needs to ensure macro economic stability, debt sustainability and promoting and protecting public investments through fiscal adjustments. This can be achieved if government pays more attention towards mobilisation of revenue and reducing current expenditures rather than capital expenditures and most importantly maintain external debt – GDP ratio not above 20% through utilisation of borrowed funds only in highly productive and cost effective projects. For that it is essential that evaluation of all projects is done comprehensively and these are monitored vigorously at the implementation stage.
In view of non-developmental expenditures, particularly defence expenditures rising substantially in view of emerging situation on Eastern and western borders or rather rising insecurity in South East Asian Region as whole, in recent years and Tax – GDP ratio touching a low level of 9%, fiscal deficit is likely to increase further. Rising bill of imports now touching figure of $ 56.48 billion by the year end of 2024. During the current fiscal year position of current account will further worsen with no hope of any respite in rising trend of oil prices in future. Hence for mobilisation of funds for financing PSDP of over 4trillion rupees (which has slipped down to 5% of GDP, a concerning situation for a middle income developing economy)major reliance will have to be on external borrowings / financial assistance. All borrowings for meeting short – falls of PSDP budget need to be arranged cost free or at low cost with a grace period not less than 10 years relating to repayment schedule.
To make all public sector investments cost effective, it is to be ensured that all projects to be undertaken start in time and all norms of good governance are met at all levels, which entails strict monitoring to ensure creation of required number of job opportunities from each project and completion of projects within the estimated budget and meeting all social development targets particularly relating to education and health care.
The economic survey report released for the current fiscal year indicates increase in infrastructure development and this increase is mainly in the form of private domestic investment and mostly in partnership with public sector.
Major share of current year’s Public sector investment has gone into development of physical infrastructure . Investment in social sector that is education and health care remains at stagnated level of 2.3% and 1.7% of GDP respectively. Government’s claim achieving fiscal stability ignoring required spending on social sector cannot be given a weightage as stagnant status of education and health sectors gives little hope of achieving set targets in all sectors of economy.
However overall allocations made for PSDP budget amounting to Rs.4.224 trillion both for Federal and provincial development projects for next fiscal year brings hope for removing economic and social imbalances as 60% of total development budget are meant for developing physical infrastructure, which is likely to create tremendous employment opportunities through mega projects like construction of planned big dams, energy projects, motorways and railway etc culminating into improving quality of life of people.
For a long time to come public sector intervention would be needed to bring visible change in all sectors of economy and also social well being of the masses being the vital criterion for success to be achieved under Sustainable Development Goals by 2030. In this regard government need to focus on promoting and protecting public investment in a way that it is consistent with macro economic stability and external debt sustainability through good governance, undertaking reforms to streamline current spending and extending scope of revenue mobilisation without burdening already financially disadvantaged segment of population.