Ali Salman

Incentives will push private sector to deploy resources for building housing units

ISLAMABAD: The most important promise that Imran Khan’s Pakistan Tehreek-e-Insaf (PTI) made to the people in the economic domain was the construction of five million homes targeting the poor segments of the populace.

Three years on, we have seen the launch of Naya Pakistan Housing Programme (NPHP), along with the announcement of subsidised mortgages for the low-income customers.

As of today, 1,500 housing units have been delivered whereas another 5,000 units in different cities are being built. Even then, the attribution of these units exclusively to NPHP is debatable as housing is technically a provincial domain.

At this rate, if the government is lucky, NPHP will hardly deliver 1% of its target by the end of PTI’s tenure.

Home ownership matters not only for urban planning, but also for providing an asset-backed security for people. One may also spot a case of market failure – all new housing schemes launched by the private sector attract only the middle and upper classes.

And arguably, 40% of Pakistan’s population comprising low-income and low middle income will remain deprived if we were to depend on the private sector. That is why we need the government to fill this gap and deliver.

This is the basic premise of all housing programmes that governments launch. NPHP is no exception. However, this approach is fundamentally flawed.

Last week, Safiya Homes, a private organisation working to provide affordable housing solutions for the low income, delivered keys to the first batch of 400 owners in Lahore. These families could not have imagined owning a house of their own as their average monthly income is a meagre PKR 40k-60k.

This organisation is currently developing a number of projects across the country with plans to deliver 5,000 houses by 2023. They have successfully mobilised both domestic and foreign investment to the tune of Rs4 billion.

The private sector works for incentives. In the case of housing market, the incentives, largely driven by a set of rules, practices and demand, mainly disfavour any business model for the low-income people.

This “market failure” can be corrected by altering the incentive structure. Once this is corrected, we will see vast resources being deployed by the private sector in the low-income housing segment, thus not only helping the new homeowners, but also achieving the prime minister’s vision.

The missing insight is that affordable housing is not a game of margins but a game of time.

Typically, the maximum margins on an affordable housing project would be 50% over the life of the project, ie five years, resulting in an annualised ROI of 10%. This is not attractive for private capital, especially in the financial scenario of Pakistan, where inflation is touching 10%.

However, if these five years can be reduced to half – 2.5 years – the annualised ROI will double to 20%, thus making it attractive for the private capital.

The challenge is to re-engineer the planning and approval process. The time that it takes from planning to execution of a housing scheme can be reduced by cutting down the time required to issue an NOC from the current maximum of 36 months to six months.

The good news is that in the case of Punjab, the government has passed legislation to allow Punjab Housing and Town Planning Agency (PHATA) to effectively reduce the time to below six months in the case of affordable housing. This needs to be executed, replicated and demonstrated by all provincial governments.

After approval, the next stage is to develop the scheme, lay down trunk infrastructure and build houses. The time required for development and building houses will be largely a function of the developer’s capacity and demand.

While the private sector can be mobilised to increase the speed to deliver in about nine months, the time required to sell the units can be minimised too.

There is a lack of trust by the citizens in private sector developers, and for the right reason. The government or a regulatory body can help in the certification of developers.

At the same time, the government can assess aggregate demand of the applicants and can channel it to the private sector after appropriate screening.

Obviously, to make it work, transparent criteria for the selection of beneficiaries and transmission of information to the private sector will be critical.

If the demand can be aggregated and developers certified, the sales time period can be cut from a matter of years to a few weeks, thus helping the private sector to achieve financial close.

The end-result of altering the set of incentives will be increased annual ROI for the private sector – to the tune of 33%, more homes delivered in a shorter time and finally no more fiscal burden on taxpayers’ money.

As the project location decision is made by the private sector, supported by the demand data shared by the government, the success probability of the project goes up significantly.

If one private group like Safiya Homes can deliver affordable homes, this can be replicated and scaled by other private groups as well. This needs to be aided by reforms in mortgage laws about which significant progress has been made already.

Thus, it is possible to correct market failure of the private sector in the housing market by changing rules and by bringing in government where it really matters.

The writer is founder and executive director of PRIME, an independent economic policy think tank

Published in The Express Tribune, June 28^th, 2021.

Ali Salman

Govt must be committed to reforms without which growth cannot be sustainable

ISLAMABAD: When the National Accounts Committee published an estimate of 3.94% economic growth based on the July 2020-April 2021 period, it caught most of the commentators by surprise and the estimate was disputed.

In this article, we argue that this should not have been the case, using insights obtained from our analysis.

For the last 18 months, we have published a monthly index, which takes into account Pakistan’s macro-economy based on the analysis of four periodic datasets: trade volume (TV), Consumer Price Index (CPI), Quantum Index of Large-Scale Manufacturing Industries (QIM) and Long-Term Financing Facility (LTFF). From July 2020 to April 2021, the index has exhibited an upward trend, registering a growth of 19%. It shows that the economy has demonstrated positive growth for all but two months.

Over a 12-month period, the Pakistan Prosperity Index (PPI) depicts an upward trajectory, reaching an all-time high of 128.1 in March 2021. This figure signals an increase in economic prosperity, largely driven by improved business sentiment despite the pandemic.

During March 2021, the increase in trade volume and private sector lending outweighed the decline in purchasing power and output of large-scale manufacturing, thus resulting in the increase in the prosperity index.

With the exception of three months, ie August 2020, February 2021 and March 2021, the large-scale manufacturing exhibited a positive growth throughout the period under review.

On the other hand, the purchasing power (inverse of inflation) showed a slight improvement for two consecutive months, i.e. December 2020 and January 2021, but declined during the rest of the period under review.

The year-on-year inflation came in at 9.1% in March 2021, which further suppressed the purchasing power. This inflationary pressure has been on account of increase in prices of basic food items and higher energy prices. In terms of private sector credit, long-term financing facility has been on the rise during the period under review, standing at an all-time high of Rs325 billion in March 2021. Private sector credit sustained its expansionary trend owing to recovery in economic growth and subsidised borrowing rate.

On the external front, Pakistan’s trade volume remained volatile throughout the period due to dwindling global demand as a result of the pandemic.

Other factors contributing to the dwindling trade performance included inflationary pressures, hikes in electricity tariffs and micro-smart lockdowns. As of March 2021, the trade volume stood at Rs1.2 trillion, increasing by 17.6% month-on-month.

Apparently, the measures taken by the government which included relaxing Covid-induced restrictions, cutting policy rate and providing relief packages to industries in order to shore up economic activity are finally paying off.

The increased economic prosperity, as measured by the PPI, supports the provisional GDP growth estimate of 3.94% for the 2020-21 financial year, as released by the planning ministry. There seems to be a strong correlation between the PPI and the economic growth rate as both exhibit an upward trajectory.

In addition to these variables, a record growth in all crops except for cotton has significantly pushed the economic growth upwards. Higher consumption fueled by the increasing flow of remittances certainly helped as well.

What lies ahead?

Recent bullish episodes at the Pakistan Stock Exchange suggest that the market is beaming with confidence and Pakistan is pivoting to growth. What is notable is that this growth has been backed by reforms, most notably in the exchange rate mechanism.

Also, government decisions to raise electricity tariffs twice despite the political backlash were a good sign. This is where commitment to the IMF can help.

The government must demonstrate greater commitment to reforms without which growth will not be sustainable. Aggressive privatisation and cutting down wasteful expenditures should be its high priority.

Tax and tariff reforms at the structural level are direly needed and latest news suggest that the government is serious. For example, it has indicated the withdrawal of customs duty on the import of 600-plus raw materials – a step which is likely to boost industrialisation.

Lastly, as we presented to the Planning Commission in April, the government should not merely target growth, it should also go for economic transformation.

It must plan for a fundamental resource re-allocation from inefficiencies, both in the private and public sectors, to efficiency and innovation.

As the government finalises the budget, it will become clear to what extent it is committed to these reforms. While it may have to take more unpopular decisions in the next two years, it must stay above electoral temptations. It should also close its doors on the selected business groups lobbying for exemptions, rather it should present budget as a policy to stimulate private sector-led and sustained growth in general.

The writers are associated with PRIME, an independent economic policy think tank based in Islamabad

Published in The Express Tribune, June 7^th, 2021.

Ali Salman

Middleman does not deserve all the contempt that is heaped upon him

ISLAMABAD: A constantly hammering theme in Pakistan’s economic policy circles as well as popular debate about economic challenges is the role of middleman who is often considered a source of all types of evil in the market process.

Although the middleman or distributor is an integral part of each economic sector – think who brings clothes from factories to shops, this debate is more pronounced in the agriculture market.

The middleman, it is believed, exploits both the poor farmer and poor consumer and makes exorbitant profit at the cost of social welfare, moral values and efficiency. This obsession with the middleman has consumed energies of economic policymakers as well as commentators to a disproportionate degree and all kinds of “out-of-the-box” solutions are being proposed.

The solution, sometimes stated and sometimes implied, is the elimination of the role of middleman, with the elusive hope that once it is done, prices will come down.

As this article will hopefully show, the middleman, our bogeyman, does not deserve all the contempt, which is heaped upon him. In fact, if anyone understands sound economics – and is ready to listen to the facts – he will begin to appreciate how fundamental role does the middleman play in our day-to-day lives.

Theory should be sufficient guide for those who care. Muslim theologian Imam Ghazali, 800 years before Ricardo, had discovered the theory of comparative advantage, which says, “…farmers live where farming tools are not available. Blacksmiths and carpenters live where farmers are lacking. Naturally, they want to satisfy needs by giving up in exchange part of what they possess.”

Farmers cannot become distributors and consumers cannot drive every day to the fields to get vegetables at ex-farm prices. We need someone to assume risks and earn profit.

For those who do not understand or believe in this theory, here is some data. The Punjab government maintains the Agriculture Marketing Information System (AMIS) and updates the data of prices diligently.

It maintains data of indicative ex-farm costs of various crops and even indicative prices at the doorsteps of mandi – the wholesale market. From the mandi, the commodity is picked up by retailers or distributors and eventually brought to the cities.

While these costs and margins are suggestive, they can always be compared with the actual price data which the Pakistan Bureau of Statistics (PBS) maintains. Thus, anyone who can compare the ex-farm price with the mandi and finally with the retail can see the extent of margins that the middleman and – for that matter – farmer make.

While the food basket that defines the Consumer Price Index (CPI) has 20 goods, 70% of food expenditure by the bottom 20% income household is made on seven items: fresh milk, flour (atta), three vegetables (potato, onion and tomato), chicken and cooking oil in the same order in terms of burden on expenditure.

I have taken data of wheat and three vegetables, which is available at AMIS and PBS. A note of caution before reading the comparative prices at different levels of the supply chain is in order.

Agriculture markets, especially when they are under all sorts of controls, both by price and trade restrictions, are bound to exhibit greater volatility than other markets. Therefore, probably one needs to be careful to generalise.

However, based on theory, and armed with data, one can see that the middleman is not that exploitative, and the farmer is not that poor! Let’s look at the data now.

In the year 2020-21, the farmer’s estimated margins in key crops – wheat, onion, tomato and potato – range from 15% to 253%. Middleman’s margins, on the other hand, range, more normally, between 18% and 36%. In fact, if you look at it closely, this margin is shared between the wholesaler and retailer.

That the farmer may have made extraordinary profit in one year and lost significantly in another year is a normal trend. Anyone who understands rural economy will know this.

Similarly, the fact that the middleman’s margins are within a reasonable bound is due to the lesser risk they have assumed in storing the crop once it is ready and then selling it upon demand. That is Economics 101. What should the government do? In most cases, the government should do nothing more than quality checks and other institutional safeguards such as sanctity of contracts.

The exploitative middleman does not exist, it is our bias that we exhibit. As long as markets are open and competitive, exploitation is checked.

The middleman is pivotal to all economic transactions. While the use of technology is being perceived as a substitute, we need to realise that we are just changing the role here.

Instead of an arhti, we are giving the same or may be more profit to virtual platforms. If the government is setting up markets for exchange between farmers and consumers, it is not free – only that we can’t see its costs.

More dangerously, by doing this, the government has thrown itself into functions it should not bother about and has shunned its more important functions.

The writer is the Executive Director of PRIME, an independent think tank based in Islamabad

Published in The Express Tribune, May 10^th, 2021.

Tarin will do well by cutting down wasteful expenditures, reducing tax rates

ISLAMABAD: New Finance Minister Shaukat Tarin has made it clear that his first priority is to achieve a high growth rate of 6-7%. Pakistan is projected to achieve a growth of 1.5% this year.

Our last episode of relatively high growth, up from 4% in 2013 to 5.5% in 2018, was fuelled by the China-Pakistan Economic Corridor (CPEC) funding, which included both loans and investment.

A major contribution was the investment done in the electricity generation sector that saw the country go into an electricity surplus mode.

The theory was straight forward. While the country’s economic managers knew they are making a huge gamble by contracting a high current account deficit, this gamble would pay off in the shape of increased exports on the back of a reliable and cheaper electricity supply. In other words, a reduction in trade account will help reduce the current account gap.

As indicated by approximately $20 billion in current account deficit in 2019, and a growth rate of 1.9%, the economic managers lost the gamble. Their theory – that export earnings would compensate for the borrowed dollars – was proven long as exports remained sticky around $22 billion, while imports kept rising. The electricity demand failed to pick up.

With the record high current account deficit and a meagre growth rate, we reluctantly entered into the 22nd IMF programme, which gave us the well-known recipe – reduce fiscal deficit, liberalise exchange rate and increase power tariffs – to reduce the current account deficit and circular debt.

Pakistan did achieve some goals of the IMF programme, though the current account surplus, that we achieved, could also be attributed to import compression and remittance inflows.

After a visible progress on stabilisation, what should be the priorities of Shaukat Tarin as PTI’s fourth finance minister and what legacy he has received?

Tarin has inherited a current account surplus, but at the same time stagnant exports and an alarming level of public debt, which will limit his options. About 50% of next budget may be spent on repayment of loans. What should he do to achieve his growth targets?

If history is any guide, just two years to elections, and a popular perception of economic failure (despite achieving macroeconomic stability), a high growth rate can only be achieved by increased public spending – whether this is financed by borrowing or by investment.

Unfortunately, foreign direct investment has been falling for the last one year and despite registering improvement in the ease of doing business, Pakistan is not attracting fresh investments from abroad. Local investments through real estate mobilisation would not help in the current account, though it will help in growth. The only other short-term option is more borrowing – and re-ploughing public investment. This strategy is a recipe for disaster and will land us in the next IMF programme. The finance minister must not resort to more borrowing, and I dare say even for development for now.

In the short term, he will do well by adopting following three goals: cutting down wasteful expenditures, rationalisation of subsidies, and reducing tax rates.

The first two goals can generate around Rs1 trillion in savings and the third goal can increase disposable income of firms and households. This is all achievable in one fiscal cycle and will have positive effects on his growth targets.

In fact, he should promise a proportionate reduction in tax targets matching with the reduction in wasteful expenditures.

In the medium term, we need to increase exports. Here, PTI economic managers need to understand that their theory – devalue currency to make exports competitive and increase our share in global market – has failed as indicated by the stickiness of export numbers even as volumes showed progress.

Clearly, the lesson which should be learnt is that enhancing exports cannot be simply a function of one or two factors – it is a complex phenomenon, which should focus on capabilities, products and firms, rather than selection of winners by inefficient allocation of resources.

In the long term, and one hope that the government can lay the groundwork for this, we need a two-pronged strategy: productivity enhancement and wholesale reforms.

Incidentally, the Planning Commission witnessed two excellent presentations in the last two weeks, which directly addressed both points.

First presentation was made by the independent Economic Advisory Group, outlining an agenda for economic transformation by changing the incentive structure and resource allocation framework while building on the ideas of complexity in the product space.

If instead of supporting existing inefficient industries, we can redirect these resources – such as preferred lending – to efficient industrial activities across the board, growth will take place.

The second prong – reforms – is addressed by the PIDE Reform Agenda for Accelerated and Sustained Growth. While many of these ideas may not be implemented immediately, they do indicate a pathway to reform and growth. In order to leverage stabilisation, i.e. disciplined current and fiscal accounts, the journey of reforms must continue from macro to micro level. And all of these measures will help the growth target.

To give an example, we have reformed exchange rate, but still payment gateways are restrictive – PayPal is not allowed. PayPal will only help our own firms to get more business – and hence increase growth.

We have lived on borrowed growth for decades. It is time that Pakistan must switch to earned growth. Earned growth is possible through discipline, productivity and reforms, eventually discovering the right policy mix for growth and economic transformation.

The writer is the founder and executive director of PRIME Institute

Ali Salman

State-of-the-art private sector-led iron ore project couldn’t be able to take off

ISLAMABAD: This is not only the crushing story of a mining entrepreneur in Pakistan. It is also the untold story of how a state eats into businesses its citizens create.

It has been 13 years since Adnan Ghauri, our mining entrepreneur, has been fighting for his rights in Pakistani court system. He is waiting for the execution of a decree of Rs400 million awarded in his favour when he filed a suit against Pakistan Steel Mills (PSM) in 2007.

The story started with his father, Engineer Majid Ghauri, obtaining a prospective licence for exploration of iron ore in Dilband, Balochistan in 1998, following an indication by the Geological Survey of Pakistan, which encouraged the risk-taking entrepreneur to venture into mining business.

The prospective licence was converted into a lease for 25 years – a lease for 54,000 acres of land.

Back then, a French expert advised that the iron ore available in Balochistan was of significantly better quality than that available in France. It was estimated that only one rock in Dilband area had iron ore reserves of 70 million tons.

The feasibility indicated annual production of 400,000 tons of iron ore from the area. According to estimates, Pakistan has around 1,497 million tons of low to high-quality iron ore available.

After making necessary preparation and investing in research and technical support, the newly formed mining company started extracting iron ore.

It entered into a contract with PSM in July 2004 and set up a crushing plant next to it to facilitate the supply of iron ore.

PSM was, and still is, the only steel mill in the country with blast furnace technology – all others are only re-rolling mills, ie they recycle scrap. PSM entered into a contract to buy 120,000 tons of iron ore from the Dilband project.

PSM, after placing an order, repudiated its contract, and started importing iron ore from Iran, which was three times expensive than the local ore. It forced the mining company to foreclose and sell its properties to repay bank loans.

The company went into court and arbitration and got a decision making the arbitration award rule in its favour, which is yet to be implemented.

The company went out of iron ore mining business eventually, though its directors have continued to operate in different segments, including local assembly of special purpose vehicles, used for drilling water wells and mineral exploration.

While the Dilband project was a private investment, the government had set its eyes on entering the mining business. Not soon after mining operations started in Dilband, Balochistan government started its own mining company.

Many years after this, company officials would complain to the high-ups as to how a private entrepreneur could perform the same operation at a fraction of the cost.

In the case of private sector, the entrepreneur would live in a container, would travel in a used vehicle and would eat simple food.

In the case of a government department, the lunch would be supplied in boxes by a five-star hotel in Quetta, many cars would be bought in advance and a proper residential compound would be built first – before business may commence, or actually regardless of the business.

Various parts of the work were given to private parties on the usual government contract terms. That is how a government would conduct a business.

Many years later, this story was repeated in Punjab, which saw the setting up of a mining company instead of offering proper incentives to the private sector for entering into this business.

The government, instead of becoming a facilitator to the private sector, has become its competitor. The result is that despite having vast reserves of iron ore, Pakistan has not exploited them so far.

A Planning Commission paper cites lack of a business-friendly regulatory framework in the mineral sector as an obstacle to attracting investment. The sad part of the story is that the first state-of-the-art private sector-led project of iron ore was never allowed to take off. It was killed by state institutions.

Like every story, there are lessons here. First, the contract enforcement in Pakistan is unreliable, which discourages risk-taking businesses in particular. Second, government entry into the business is harmful for itself, for its people and for businesses. It not only denies opportunities that an entrepreneur can create, it also denies itself potential revenue that it can earn through taxes, and spend this money to improve institutions.

Third, we need better laws. Outdated policies and regulations, which create more obstacles than facilitation, should be repealed.

As this story suggests, while the government is busy getting rescue packages from the likes of International Monetary Fund and World Bank, it is not paying enough attention to fixing the institutions which matter for businesses and entrepreneurs.

The government may survive fiscally but the party will be over soon while the wealth locked in our people, and in our land, will remain locked.

The writer is the founder and executive director of PRIME Institute, an independent free market think tank based in Islamabad

Published in The Express Tribune, February 22^nd, 2021.

Ali Salman

PSM has received staggering Rs334b from taxpayers’ money over past 15 years

ISLAMABAD:

Over the last 15 years, Pakistan Steel Mills (PSM) has got a staggering sum of Rs334 billion from Pakistani taxpayers.

Financed by the public, it has suffered accumulated losses of Rs189 billion since 2009, received Rs90 billion in bailouts and Rs55 billion in salaries since 2005. For the last 11 years, it has generated zero profit.

After peak capacity utilisation of 93% in 2007, it plunged and never crossed more than 15% of utilisation. While it has more than 9,000 employees, its contribution to the industrial development of Pakistan has been nil over the last five years. The mill was shut down in 2015.

At the outset, the Pakistan Tehreek-e-Insaf (PTI)-led federal government deserves accolades as it has not only revived the privatisation programme but is also undertaking probably one of the most difficult transactions ie PSM sell-off.

The most important rationale for privatisation, in the cases where private sector substitutes exist and trade is open, such as PSM, is to cut down wasteful expenditures and losses, which eat into taxes.

If a private sector entity reports losses year after year, it is closed. However, when a government entity reports losses, it is given more budget. This is what has happened in the case of PSM. It is almost as if failure has a reward.

According to a report, by privatising PSM, the government would be saving Rs700 million each month. That money can alternatively be utilised for more productive purposes such as healthcare, education, job creation and investment in water and energy sectors that can yield long-term benefits for the people and the economy.

The government has approved a retrenchment package of Rs20 billion to lay off half or over 4,500 PSM employees to help them. It will ease the recurring financial burden on the government and make the enterprise viable for privatization.

This comes out to be Rs2.3 million per person on average. This money will not last long and by merely being employed by PSM over the years without doing any actual work, these employees may have become unemployable. Therefore, their logical action will be to go for collective action and gather political support for their survival. This situation certainly deserves a careful analysis. People rightly cite the ongoing pandemic and raise concerns about the timing of these layoffs.

However, there cannot be a perfect time for these decisions. Pakistan is under severe pressure from the International Monetary Fund (IMF) to cut down wasteful expenditures. Perhaps, the government should consider maximisation of benefits under the retrenchment package and can customise payments according to the capabilities.

Those employees who are willing and able to work in the industry should be provided with adequate training to increase their employability. Employees with some entrepreneurial attitude can be provided with cash grants to start a business.

And the bitter reality will be that many of these employees may just have to accept the golden handshake.

Will the closure of PSM affect the steel industry? The answer is clearly no. Closure of a factory, which is already shut for the past five years, can hardly be noticed. While PSM produced losses after losses, the private sector was busy in investing in the sector and producing more steel. We have developed a reasonable base for production of steel in the country over the last 10 years.

Whether the sustained losses of PSM and the rise of private sector investment are related is an empirical question and deserves serious research. I recall that Federal Planning Minister Asad Umar always claimed that once in power, the PTI would run state-owned enterprises efficiently through better corporate governance and professional management.

He was always opposed to privatisation. Consistent with his claim, he led the formation of Sarmaya-e-Pakistan Limited (SPL) when he became finance minister.

However, economic compulsions have led the government in a different direction. With PSM transaction, privatisation is back. SPL is gone. It is high time that the PTI rectifies its theory also.

The writer is founder and managing trustee of PRIME, an independent think tank based in Islamabad

Published in The Express Tribune, February 1^st, 2021.

Ali Salman

While public debt is important, the country must not be lost in these numbers

ISLAMABAD:

In November 2016, the federal government was in a happy mood. Pakistan had successfully graduated from an International Monetary Fund (IMF) programme.

China-Pakistan Economic Corridor (CPEC) investments were looking good and gross domestic product (GDP) growth rate was on an upward trajectory.

When PRIME think tank organised its third National Debt Conference exactly four years ago, the speakers including Dr Ashfaque Hasan Khan along with co-author Dr Hafiz Pasha made some disturbing projections.

Presenting in 2016, they projected that Pakistan’s external debt would swell to $110 billion (from $73 billion then) in 2020, the country will be spending at least 40% of its revenue on debt servicing and it will go for another IMF programme in 2018-19. This conference and its proceedings were covered in the media.

Fast forward to November 2020. Pakistan’s external debt stands at $113 billion, the country is spending 41% of its revenue on debt servicing and guess what? Pakistan entered into an IMF programme exactly as per the projection in fiscal year 2018-19.

One projection, however, proved wrong – in 2019-20, Pakistan spent just 17.20% of its foreign exchange earnings on external debt servicing, instead of the projected 40%.

But another projection was right on the money. It was projected that the country’s external debt-to-exports ratio will be 441%. Currently, it stands at 438%.

Unfortunately, these projections were ignored by the then government and I can recall the public rebuke by the then finance minister, who rejected this analysis. Did it help?

Where are we now?

The public debt-to-GDP ratio has crossed 87%, thus violating the constitutional limit of 60% defined in the Fiscal Responsibility and Debt Limitation Act 2005.

To be fair, the federal government does not have many options now. The Economic Coordination Committee (ECC) has approved increase in electricity tariff by 17% and gas tariff by 14% in line with the IMF programme. The cabinet has stalled this given the rising momentum of the opposition.

Despite the shock therapy of foreign exchange regime, which was a step in the right direction, exports have continued to be sticky around $21-24 billion. The government may set whatever targets in the new trade policy framework, these are unlikely to be achieved.

The only hope for Pakistan is a continued and increasing flow of remittances. However, this channel is also coming under pressure due to the changing global political economy, particularly around Iran and Israel.

Additionally, no one is sure how to explain rising remittances in a global economic meltdown in the midst of a worst possible pandemic. I recall that a senior economist used the term remittance plus for this phenomenon.

Roshan Digital Accounts are proving helpful and thousands have already opened their accounts. However, this will only help in improving the current account, which is already in surplus, thanks in part to suppressed imports.

Also, as argued by economist Beenish Javed in her report, the present government has done well by stopping borrowing from the State Bank of Pakistan (SBP). However, this report clearly establishes that debt sustainability indicators have deteriorated.

There is the Medium-Term Debt Management Strategy FY20-23 in place. As a good economic policy document, it is built on three assumptions as targets – GDP growth, inflation and fiscal balance.

The implementation of the strategy is conditioned on achieving these targets. It is no-brainer that the growth rate has gone southward while inflation and fiscal deficit have gone north.

As these targets remain far-fetched and unattainable, the Debt Management Strategy becomes a meaningless document.

However, this does bring home important points. Ultimately, while public debt is important, we should not be lost in these numbers. The underlying characteristic of any economy is the growth as well as its source and composition. Growth can sustain responsibly assumed debt. Similarly, a government which can cut down wasteful expenditures can contain the deficit which becomes a reason for borrowing.

We have lost Rs2.3 trillion in the energy sector alone in the last 10 years and continue to lose Rs2 trillion a year through state-owned enterprises and other inefficiencies.

Money printing is bad as it eats up purchasing power and it is a good sign that the government is not doing it. But borrowing from domestic banks is worse, as it displaces the private sector and yields risk-free profits for fat bankers at the cost of taxpayers. It is these issues that an open debate on national debt can shine a light on.

Debate matters but it is not happening. We were asked to stop organising the National Debt Conference in 2018 after the fifth conference. While the debate was cut off, the debt rise did not rest.

It is true that a dialogue on public debt does not directly solve the problem but silencing the debate can only make matters worse. Sadly, this has happened. Perhaps, it is time to revive the debt conference. Are there any takers?

The writer is the founder of PRIME Institute, an independent think tank based in Islamabad

Published in The Express Tribune, November 30^th, 2020.