Friday, December 13, 2013
Vicious circle: Circular debt again
THIS is the truth about circular debt: it can make policymakers go round and round in circles in search of a tool to break the chain. Just when government officials were congratulating each other on their ‘success’ in liquidating the unpaid bills of public and private power producers and their fuel suppliers accumulated over time, they find themselves standing against yet another mountain in the making. The power companies’ bills have spiked again to a staggering Rs216bn, or equal to 45pc of the previous bills of the Rs480bn cleared by the Nawaz Sharif government in its first month in power. That was billed as a great success and the government has since been trumpeting the clearance of that debt hoarded by its predecessor as a major policy feat. No one in officialdom is prepared to even acknowledge the debt’s resurgence, let alone move to settle it.
When the government announced its plan to pay off the outstanding dues of power companies in one go, it had claimed the move was part of a major reform programme to fix the country’s collapsing energy sector. Soon it transpired that it didn’t have a plan at all. The so-called energy policy came quite late in the day although the ruling PML-N had started working on it immediately after winning the May elections. Apart from a substantial increase in electricity prices for most consumers to ease pressure on the budget, the need for crucial reforms, aimed at reducing distribution losses, controlling electricity theft, revamping public generation and distribution companies etc seems to have been forgotten. There’s little movement on the plan to privatise Gencos and Discos. This is so, despite repeated warnings from experts and private power producers who were the main beneficiaries of the government’s decision to liquidate the circular debt. They have been pointing out that the clearance of unpaid bills alone won’t solve the country’s chronic power troubles.
Lack of implementation of energy sector reforms is not the only reason for the resurgence of the unpaid bills of power companies. The issue is also linked to the government’s cash flow problems. The government hasn’t been able to generate enough revenue to keep its budget deficit within the limits prescribed by the IMF under its $6.6bn loan arrangement, after paying the producers their bills. Unless the government works simultaneously on revamping the power sector and increasing its tax revenues, it will not be able to put the ever-agitated genie of circular debt back into the bottle.
Polio crisis deepens: India’s travel ban
THE failure of both state and society to recognise a crisis requiring urgent attention is astounding. It has been nearly a decade now since reservations started pouring in regarding the administration of the polio vaccine. Since then, resistance to the vaccine has grown exponentially — the trend has gone from a passive refusal to allow the administration of the vaccine to active resistance and aggression. Meanwhile, the incidence of polio within the country has been on the increase; in fact, there is alarming evidence that we are exporting it. The Pakistani strain of the virus has been detected in Asia and Africa, and just recently, medical experts warned that it could threaten Europe. It is little wonder, then, that India — which was recently declared polio-free — acted on Thursday on a recommendation first proposed in 2011 by the Independent Monitoring Board for Polio Eradication: after Jan 30, 2014, those travelling to India from Pakistan and other polio-endemic countries (Afghanistan and Nigeria) will be required to show proof of recent vaccination.
It is unfortunate indeed that matters have come to such a pass, and the possibility cannot be ruled out that other countries may follow suit. While the world, India in particular, must be urged to be patient — for such restrictions will affect a great number of people — the fact remains that it is imperative that Pakistan start putting its house in order in terms of countering the polio threat. While the danger has intensified, the state and its leaders have looked the other way. Though validation for the vaccine has started trickling in — Maulana Samiul Haq of the Darul Uloom Haqqania announced his backing for the vaccine a few days ago — much more is needed. The much vaunted ‘national interest’ that forms the backbone of the bulk of our leaders’ rhetoric cannot be better served than by ensuring that future generations are not stalked by polio, and Pakistan is not a pariah amidst the comity of nations for failing to control the crippling virus.
Not by loan alone: Youth scheme
THE launch of the Prime Minister’s Youth Business Loan Scheme has generated excitement. In the first phase, the government plans to disburse Rs100bn among 100,000 loan-seekers who will be able to apply for a sum of between Rs100,000 to Rs2m. The ceiling indicates that in its attempt to ensure greater economic activity the scheme seeks to ensure that its impact is expansive. The smaller loans may also be ideal in the context of recovery, which is always a tricky proposition. Transparency and easy accessibility are essential to the success of such a programme. Another crucial factor is the creation of a favourable environment for loan utilisation. Without the provision of the right conditions for utilisation, the loan-granting authority and its intended beneficiaries could end up blaming each other. The repercussions of such failure can be dangerous for the two parties and for the banks.
The government understands the worth of the youth loan project. This, among other things, is borne out by the appointment of the prime minister’s daughter Maryam Nawaz to oversee the scheme. Something of a PML-N counterpart of Benazir Bhutto whose posters adorned the previous government’s income support programme, Ms Nawaz would not have been advised to risk the scheme unless there were real prospects of some work to do and some popularity points to earn. The issue of the chair settled, the government needs to ask itself whether it can quickly create an atmosphere suitable to the utilisation of the funds on offer — like improvement in the energy sector, etc. The idea is, or should be, to encourage small-scale industrial entrepreneurship. That cannot happen without infrastructural support. What often happens is that the loans end up being used to set up shops with little or no addition to industrial production.