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Political expediency and future economic growth

June 18, 2012

PESHAWAR, June 17: Khyber Pakhtunkhwa may not be significant to the global economy other than its disturbing attribute of a breeding ground of militants threatening economic stability elsewhere.

Nonetheless, its future as a vibrant economy, free of its current negative attribute, depends on the successful application of the economic principles practiced internationally.

World economies, including European and North American, are taking desperate measures to put their house in order in a bid to come out of the current recession. China, with 8.2 per cent estimated growth rate for 2012, highest in the World, is also gearing up to meet the future economic challenges, taking measures to strengthen private sector.

Germany has been pressing other European nations to cut their government expenditures, promoting austerity. The USA has injected billions of dollars, since the 2008 economic meltdown, to create jobs in the private sector, facilitating businesses.

UK has opted for austerity to prevent the situation from going from bad to worse. China, the World’s second largest economy, is showing signs of liberalising its fiscal policies to sustain its current economic growth levels.

Khyber Pakhtunkhwa’s economic prosperity is partially dependent on some of these countries. A substantial part of the Rs23 billion foreign assistance, it has projected to be provided to it in the financial year 2012-13 for its Annual Development Programme, would come from the American, German, and British development organisations.

The multi-billion rupees grants being provided to it by international donors is meant to help it counter militancy through socio-economic development across the province.The interest of people of Khyber Pakhtunkhwa lies in their government’s ability to ensure an intelligent and transparent use of foreign funds. Similarly, their prosperity in years to come depends on the economic policies put in place by the sitting provincial government.

Decisions taken today are bound to overshadow the future prospects of the people of Khyber Pakhtunkhwa and its coming governments’ ability to plan intelligently.

The government’s salary and pension bill is growing at a rate that does not seem to be sustainable for a province heavily dependent on external resources.

According to the provincial government’s medium term fiscal framework, its transfers to 25 district governments to support their wage bill would grow from Rs56.5 billion in the financial year 2011-12 to Rs102 billion in the 2014-15 fiscal.

Besides, its own wage bill will grow from the current level of Rs37.7 billion to Rs63.8 billion in the financial year 2014-15.

The steep rise in its salary bill is not hidden from the provincial government as it is cognisant of the challenge. According to Information Minister Mian Iftikhar Hussain, the ‘alarming situation’ was brought to the notice of the provincial cabinet more than once by its finance department managers.

A government cognisant of the alarming situation is supposed to have introduced some policy measures to meet the future challenges, avoiding strains on the public finances. What is its vision for the province’s future? Where does it want to take the future governments by the choices it is making today?

The coalition government of Awami National Party and Pakistan People’s Party in the province has made its choice clear. It will recruit over 8,300 more employees in public sector in the next financial year, raising the number of its employees to over 386,000. The decision to continue to act as the biggest employer in the province reflects a lack of dynamism on the part of provincial government. The coalition government seems to be obsessed with its policy choice of mustering public support in place of driving the provincial economy intelligently in the direct direction.

It has opted for an oft repeated policy of burdening the provincial public exchequer with thousands of more less-motivated employees than diverting investment to the private sector, letting it drive the engine of economic growth in the province.

The policy of inducting more and more employees, with every passing year, in the provincial public sector has not helped to attain economic growth or improve the state of social services in the province.

The conditions of health facilities in the province, even in the provincial capital, are deteriorating. The standards of the public sector education institutions, despite increase in their number, are on the decline. Water and sanitation facilities, in spite of huge investments being made every year, are far from satisfactory.

Cities are under growing pressure due to influx from rural areas and the government funds are insufficient to cater to the growing expenditure requirements to upgrade infrastructure in towns.

The social development requirements of a growing population are on the rise, whereas, the government is destined to reduce its future development expenditures.

The province’s medium term fiscal framework is quite candid about the decline of the provincial government’s development expenditure. It is expected to go down from Rs72.5 billion (funded by the provincial kitty) in the financial year 2012-13 to Rs63.2 billion in the 2014-15 fiscal.

The coalition government would be remembered for the self-sustainable economic opportunities it would create by expanding the economic base of the province.

It is nearing to complete its five-year term. Its supporters would want it to leave a legacy behind that helps to grow the political capital of the two parties -- ANP and PPP. It would do well by introducing a culture of healthy competition offering equal economic opportunities to all.

The policy of dole outs and straining provincial finances would do more harm than good at a time when many global economic powerhouses are curtailing their expenditure. The foreign donors’ interest in Khyber Pakhtunkhwa overcoming militancy is bound to diminish in the near future.  Prudent planning to strike a nice balance between the provincial government’s revenue and its expenditure will help create fiscal space needed to strengthen the private sector.