Economics of Panamagate verdict

Corruption and rent-seeking are among major drags for the growth prospects of developing economies like Pakistan

Economics of Panamagate verdict


Since the Supreme Court verdict on the Panamagate case, political environment in the country is highly charged. Both ruling and opposition parties are seen pulling political punches at each another. Meanwhile, the debate on the Panamagate verdict by the Supreme Court has been mostly concentrated on its political and legal implications.We are missing a crucial area of concern here. The economic ramifications of the verdict are hardly discussed.

Simply put, can we expect that the verdict will decrease the incidence of corruption and rent-seeking by public institutions or public officials in the economy of Pakistan?It is widely believed that corruption and rent-seeking are among major drags on the growth prospects of developing economies like Pakistan.

The reason why it will not arrest rent-seeking and corruption in Pakistan’s economy is because we are asking the wrong question here. Instead of asking what motivates public institutions or public officials to indulge in rent-seeking and corruption, we are always busy finger-pointing towards such episodes. It’s like we are putting out fire all the time without inquiring what led to that fire in the first place. The way the entire narrative of Panamagate has evolved over the year is an example of this practice.

The root of the problem is the widespread presence of government in every major area of the economy. We are told that government is the guarantor of welfare from the malpractices of market economy. Hiding behind this pretext, public officials with their political motives meddle with the economy to promote their own welfare. We have often seen that politically well connected individuals get to be the major beneficiaries of big government welfare programs.

Government intervention in economic matters has become quite fashionable now in Pakistan and a hallmark for good economic management. And that, too, in the name of welfare

In 2014, the Federal Investigative Agency (FIA) claimed to have found 20 cases of misappropriation of funds, irregular purchase of vehicles, wastage of money, award of controversial contracts, overpayments, irregular procurements, and illegal appointments in the Benazir Income Support Programme (BISP). The national exchequer lost to the tune of Rs.3.8 billion as a result. There irregularities were a product of political appointments at BISP which had political connections to appease.

Even in granting contracts for public works like building roads, dams etc., political connections are of paramount importance. Principles of sound business are rarely honored.

The Rental Power Projects (RPPs) scam is one among many examples of this. Raja Pervaiz Asharf, who was the Federal Minister of Water and Power during the Pakistan People’s Party (PPP) government, exploited his clout with the Economic Coordination Committee (ECC) and the cabinet to obtain approval for an increase in the down payment to the rental power companies from 7 percent to 14 percent. The resultant loss to the public exchequer amounted to Rs.22 billion. These Rs.22 billion were raised from honest tax payers of Pakistan. This happens when a federal minister is exposed to such a crucial business of the economy with an added incentive to make a lot of money out of it.

When such malpractices are exposed, even more money is pumped in the system under the pretext of improving governance. Pakistan is receiving huge amount of money from international financial institutions like the Asian Development Bank (ABD) for improving governance and decreasing corruption. And yet, corruption and rent-seeking remains a drag on our economy.

The solution to these problems can’t be traced to any one judgment by the Supreme Court. We need to eliminate the incentives available to the public officials by reducing the foot print of government in the matters of economy. Let the private sector handle most of the matters of the economy. With their profit motives, private sector can more efficiently provide a service; even a public service in most of the cases.

Why not contract out distribution of welfare payments to a private organisation rather than entrusting a political individual with it? Why not privatize the entire power sector and let the power distributors decide on the percentage of down payment?

We need a minimum government in Pakistan whose focus is only limited to ensuring that the rules of sound business are not violated. Only then can the incidence of rent-seeking and corruption decrease in Pakistan. While both ruling and opposition political parties seem all so eager to uncover each another’s corruption, hardly an political will is shown by political parties to push for the case of minimum government. In fact, government intervention in economic matters has become quite fashionable now in Pakistan and a hallmark for good economic management. And that too in the name of welfare.

 

The writer is a researcher and works in the development sector of Gilgit

 

 

Published in Daily Times, August 13th 2017.