Poor governance and debilitating economy inject inflationary spiral

Dr. Asmatullah Khan

It is a very common known factor that inefficient poor governance always fail to productively use the available factors of production like Land, Labour, Capital, Organization, Technology and Energy for self-reliance, economic sustainability and human development. Consequently, in such a situation, the economy is adversely affected and huge bulk of man power remains nonproductive. In the circumstances prevailing currently, the marginal productivity is deteriorating tremendously, unemployment is rapidly increasing and per capita income is reducing.

Conclusively, the economy is debilitating and inflationary spiral is automatically injected into the economy. The higher is the rate of down fall of the economy and disequilibrium in the demand and supply ratio; the higher would be the impact of inflationary spiral, which could adversely affect the human development, cost of living and level of capital formation. In addition, when the people of the country will increase their dependability upon smuggled foreign goods, the local industrial productivity will certainly be adversely affected. 

Today, the inefficient, unproductive poor governance in Pakistan has adversely affected the living standard of the common people. The growing dependability of the local population, upon imported goods, has made balance of payment and balance of trade unfavourable and has adversely affected the terms of trade. Industrial and agricultural output has declined tremendously and resultantly, the country has totally been made dependent upon imported necessities of life. Mostly industries are closed due to non-availability of energy, raw materials and unavailability of capital to run the industries and agricultural sectors productively. The prices of raw materials, medicines and food items including vegetables, fruits and wheat’s have tremendously been increased, which is certainly beyond the reach of the common people. 

The prices of life saving drugs are also beyond the reach of the poor population. The growing unemployment has further pushed the country to raise the poverty level and decline the living standard by losing their purchasing power and capabilities of capital formation.

The valuable productive youth is committing suicides due to lack of opportunities for their productive use and employment.  In such an economic deterioration, the balance of trade and payments are adversely affected, which is putting adverse impacts on the overall economy of the country. 

Therefore, in such deteriorating socio –economic circumstances, capital formation plays a very vital role to accelerate economic development and investment in various industrial, agricultural and human development sectors. But for the growth of capital formation, profitability of the businesses, higher per capita income and increasing ratio of saving are the basic requirements, which are getting scarce in Pakistan due to the prevailing higher inflationary spiral.

Currently, the higher inflationary spiral, low marginal productivity, increasing cost of investment and higher rate of unemployment has further narrowed down the chances of speedy capital formation. The injurious monetary and fiscal policies of the present government have further slowdown the capital formation. Hence, the growing inflationary spiral along with the imposition of higher taxes on the withdrawal of money from the individual’s own bank accounts has quite injurious effects on the capital formation, because now the individuals having bank accounts prefer to keep their savings in their private safe custody instead of Banks.

It is worth mentioning, that Pakistan is full of precious deposits and minerals but almost all deposits and minerals are still lying undisclosed, undiscovered and unutilized beneath the earth. Plenty of gold deposits in Khyber Pakhtunkhwa and Baluchistan provinces are not productively utilized by the government of Pakistan.

Similarly available coal deposits are not appropriately utilized in various more productive ways in certain provinces. Sufficient precious medicinal plants are available in our northern and southern parts of the Khyber Pakhtunkhwa but they have not yet been used productively. It is further added that the country is having plenty of skilled manpower, but they are mostly unutilized and nonproductive due to various reasons. If all the deposits, minerals, and man power was efficiently utilized, then the country could be grown and developed without any foreign assistance. It is further added that huge amount of dollars either in cash or in the shape of properties have been kept in the foreign countries by our politicians, bureaucrats and army personnel’s. But unfortunately, the government is not yet been capable to bring back that huge looted capital. In the present socio –economic circumstances, it seems essential to opt for the austerity measures in every walk of life.

Therefore, keeping a cabinet of 45 minsters and advisers is not justified in the present circumstances. Creation of new division in Federal Secretariat in the name of “Social Protection and Poverty Alleviation Division” with an allocation of Rs. 80 billion is another joke with this poor country. Enhancing remunerations and amenities of life for the Ministers, Advisers, MNA’s and MPA’s will be another financial burden over the scarce resources of the country.

Currently almost 800 million people are living below the poverty line in extremely miserable circumstances. The present government has not yet made appropriate changes in the previous economic policies, comprising acquisition of high interest bearing commercial foreign and domestic loans. Irrational increase in the prices of energy inputs and tariffs on electricity has further been increased, which is adversely affecting productivity and commercial activities. Gas tariff has been increased almost by 142% per “MMBTU”.

The recent increase of about Rs. 6% per liter in the prices of Petroleum products is another unjustified remedy. All these cost increasing factors are certainly adversely effecting human development and socio –economic affairs in the country. The fiscal measures of the past 8 months of the present government have certainly resulted in a sharp rise in the current prevailing inflation by almost 9.8 percent. It will certainly push almost more than 4.5 million people below the poverty line and 1.5 million people will further be made jobless.

Therefore, if the ill-conceived and highly regressive fiscal measures remained continued in the current financial year, then certainly double digit inflation will further engulf the socio –economic structure of the country and not only productivity, from various economic sectors will be adversely affected but unemployment will further grow to a very high level.

Therefore, combined effect of the high rate of inflation and slow down of economic growth to almost 3% will certainly result in the long term stagflation, which will further increase poverty level to a very worse state of affairs. Looking and analyzing the current socio –economic and fiscal situation of the country, without taking a few drastic measures, the economic rehabilitation of the country seems not possible. Therefore as an immediate step on priority basis, the following measures needs to be taken honestly with an iron hand without any political victimization and grievances.

1. As a prime step, kickbacks in all mega projects including Peshawar Metro needs to be recovered, because the investigation reports about the said projects claims billions of rupees kickbacks in the Peshawar Metro. Dozens such other megaprojects have been launched for collecting huge money unfairly by the concerned ministries and influential at country level, which needs to be recovered honestly on priority;

2. The unfair illegal money laundering needs to be curtailed in the larger interest of the country. A huge penalty needs to be imposed on the culprits, involved in the said illegal business activities. Furthermore, monetary and fiscal remedial measures need to be taken for strengthening the local currency. All the loopholes in the said business certainly need to be carefully blocked. Further devaluation of local currency in terms of Dollars and Pounds is certainly injurious in all respect and it could lead to raise the demand for foreign currencies in business prospective;

3. The current taxes/ duties imposed on the banks cheque of the salaried and business classes needs to be immediately withdrawn to motivate the bank’s clients to keep their deposits and savings in the banks. The already specified ceiling on the Bank Cheque withdrawing money from the banks be retained without imposing any additional duties on the cheque of Rs. 60,000/-. Such incentives will encourage the people to keep their savings in the local banks for further utilization instead of keeping their savings at home or purchasing foreign currencies, like Dollars and Pounds etc.; 

4. Incentives in Mega Industrial Projects within the country needs to be extended to all the investors without any discrimination and tax holidays be provided on huge industrial investments within the country. Furthermore, tax rate for the newly established industrial units be brought at minimum level. Governmental soft loans for industrial and business sectors need to expand;

5. The uncultivated lands including under government and military control, be made more productive and if possible, its distribution for at least 10 years among the productive cultivators be made for the appropriate utilization of every piece of agricultural land. Housing schemes on productive agricultural land be discouraged and stopped immediately;

6. Immediate ban on the import of all kinds of luxuries items be imposed and export of the industrial sectors from the country be encouraged and facilitated. Certain essential relaxation be provided to the real productive exporters.

drasmat1953@gmail.com