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Price of bad governance

September 02, 2013
-File photo by AFP
-File photo by AFP

PAKISTAN Steel Mills, the country’s largest industrial unit, has suffered a cumulative loss of about Rs100 billion since its controversial sale was cancelled by the Supreme Court of Pakistan. Its overall liabilities have gone beyond Rs110 billion since then.

“The PSM arrived at the present state due to unchecked corruption, inefficiency, over-employment and the government’s lukewarm attitude towards its revival,” said a summary considered by the Economic Coordination Committee (ECC), which further claimed that “the unbroken series of losses started from the year 2008-09, when PSM suffered a Rs26.45 billion operating loss”.

PSM now needs at least Rs30 billion for a little improvement so it could be privatised, or else it has to be liquidated after the budget dole-out of Rs40 billion in clearance of its liabilities. Business as usual would cost Rs60 billion in the next 15 months.

Since 2009, Pakistan Steel has secured Rs40 billion in bailout packages, but the situation seems to be getting from bad to worse. The root cause is bad governance, involving corruption, mismanagement, nepotism and political interference.

The power sector in the public domain has eaten up over Rs2 trillion in the last five years and counting. The degree of power and other energy shortages has reached unprecedented levels, and its impact on economic growth is being estimated at between 2-4 per cent, depending on different studies.

The problem, again as highlighted even in official discourse, involves corruption; theft of oil, gas and electricity on a large scale; appointments at key positions on political considerations; misuse of authority, and inefficiencies. In many cases, the superior courts had to intervene, like in the case of rental power projects, but the larger picture on the energy scene remains cloudy, as the financial bleeding continues unabatedly.

Pakistan has suffered more than $6 billion (Rs600 billion) in extra payments on account of furnace oil imports, as it failed to complete arrangements for the import of liquefied natural gas (LNG) since a controversial deal was scrapped by the Supreme Court over allegations of corruption and violation of rules and regulations. The losses to the economy on this account are manifold.

This was also because of governance problems. The lack of clear vision and lust for personal financial gains triggered the bypassing of rules and best business practices of transparency and fair play. Pakistan International Airlines, purportedly the sign of the country’s pride in the skies, is eating up tens of billions of rupees every year, and is fighting for another Rs20 billion fresh injection nowadays.

The cumulative bleeding, only in the above mentioned cases, if stopped, could reduce the need for additional revenue mobilisation to meet mandatory government expenditure, and instead be diverted towards improving the standards of living of ordinary citizens.

The World Bank said effectiveness was hampered by the patronage-prone political system, frail administrative capacity, weak provincial and local governments, and shortcomings in the justice system. Efficiency was constrained by the state’s inability to mobilise revenue and manage resources well.

Accountability was also undermined by fragmented and feeble governance institutions and a lack of transparency, allowing for corruption and manipulation of rules. “Given that corruption is often institutionalised, Pakistan needs to prepare a new broad-based anti-corruption strategy and ensure that it is implemented well,” said the World Bank.

The findings from various numerous international and local studies point to serious failings in governance and the institutionalisation of corruption in Pakistan. For example, the Legatum Institute’s prosperity index, on the basis of 90 indicators, ranked Pakistan at 132 among a total of 142 countries it covered. India was ranked at 101, Indonesia at 63, Bangladesh at 102, Combodia at 107, and even Nepal at 108. Among the eight categories of the index, Pakistan ranked 121 in governance.

Improvement of governance structure seems to be the single largest cross cutting requirement across the public domain, from legislation to judicial implementation and policy objective. Hence, the governance reform agenda needs to be too wide and substantial — starting from the parliament to election commission and going down the judicial ladder and towards transparency in political parties.

The Auditor General of Pakistan, the public procurement regulatory authority, Ombudsman offices, National Accountability Bureau, and regulatory authorities need to be strengthened, with the induction of people on merit-based selections so that they could be trusted upon in the medium-term to hold other public institutions and offices accountable.

While the local democratic system has the potential to address grass root problems faced by a majority of citizens where the flow of finance is limited, the most important and tangible success from the national point of view could be addressing the public sector corporations, where there could be no other alternative to merit, accountability and transparency.