We have been carrying the begging bowl of poverty for the past fifty years to back up our poverty alleviation effort. No one quite knows how much has been collected for battling poverty but this must be in billions of dollars. Beyond the use of begging bowl for soliciting foreign support, we also have done our bit in generating local funding by collecting huge amounts in tax revenue and borrowing handsomely from local banks.
As per figures in the current 2014/15 government budget, collection of tax and nontax revenues is targeted at Rs 441 billion, supplemented by domestic borrowing of Rs 53 billion. Together, resource accumulation for carrying out budget programs for this year comes close to Rs 500 billion or one-fourth of projected GDP, compared to just 18 percent of GDP five years ago. This figure doesn't include foreign financing of the budget—both grants and loans—which, for 2014/15, is budgeted at Rs 124 billion, about six percent of national income.By pleading poverty and a zeal to maximize budget funding, government has claimed a rising share of national income, now approaching a third of GDP.
Poverty persists
How much this battle against poverty fought over such an extended period of time did help the poor or lift the national economy is hard to say, although the government regularly brings up data on poverty incidence, such as the number of households living below the poverty line. Given the weakness of such data collection, reported figures can hardly be reliable but poverty count remains stuck at one third of all households in the country, which is not encouraging.
A more transparent measure of poverty incidence would be the growth in wage employment which, most importantly, would show the speed of transfer of labor from subsistence work in agriculture and petty trades into formal and modernized sectors of the economy, principally manufacturing, construction, foreign trade and public utilities.
Again, data on such inter-sectoral labor transfers are nonexistent but, with 70 percent of labor force still doing subsistence farming and industrial output as a share of GDP low and declining, this gives a strong indication of stagnant output and employment in the private economy, which comprises about two thirds of national economy. Whatever wage growth has occurred nationally isn't known for productive employment of labor and, instead, tends to impose unbearable costs on the economy, in terms of work-duplication, red-tape, and spread of corruption.
Finally, we can assess the impact of government poverty alleviation efforts by looking at the volume and quality of public services and their accessibility for general public. Again, in all of these categories, government provided services not only have been inadequate but they do not exist in most parts of the country—transportation, electricity, water supply, sanitation. Even in the capital city, much of the basic services are of low quality or they do not exist.
Money trail
Government's absence from many aspects of public life remains a fact of life despite its repeated commitment to improving public living, a formal effort for which got underway way back in 1956 when First Five-Year Plan was launched. However, income growth on a per capita basis has largely been non-existent, despite the massive amounts of money that have been budgeted and spent to lift growth and improve living conditions.
We can't then hide the truth that much of the money spent to finance development has been wasted or, more likely, stolen, of which we can allude to by looking at government's own figures. This evidence comes from the national accounts data that show investment share of GDP at one fourth to a third in more recent years. In normal situations, this much of investment carried over long periods of time is capable of producing seven to eight percent of annual growth, compared to just half this rate we have achieved over the past two decades.
The data series laid out in the table tells the story—why national investment has been so unproductive. If we look at private and government investment together, the magnitude is large enough to generate growth of five to six percent or better over long periods of time. This much is evident from looking at investment-growth relationships across the region.
A more surprising element of this data series is what is labeled as change in stocks. This item generally happens to be residual in the national accounts statistics and, so, can be a minus or plus figure but adds up roughly to zero over longer periods. This is nothing like what the change in stocks data in the table looks like. This item has grown steadily over many years and now stands close to Rs 300 billion, about 17 percent of GDP in 2012/13. By comparison, stock changes in US national accounts have just been half a percent of GDP or three percent of private investment that largely comprise change in inventories.
Surprisingly, in our case, change in stocks figure is about equal to private investment and four times government's regular investment in fixed capital. Unless otherwise explained, there is serious doubt about the credible use of this segment of investment funding which, more likely, represents the extent of abuse of scarce public resources that, otherwise, could have doubled economic growth compared to what has been realized.
Earthquake bonanza
Given the scale of abuse and waste of public money intended to develop the economy and alleviate poverty, skepticism about government's ability of making good use of earthquake relief funds is well-founded. Despite the initial confusion in organization of emergency relief efforts, the scale of corruption remains much contained, partly because of higher level of government alertness of its possible abuses and, more importantly, social pressures for a fair distribution of aid supplies.
Looking ahead, however, rebuilding and reconstruction effort is likely to pose a much bigger and more intractable challenge than experienced in relief distribution. For one thing, account-keeping will be much more difficult in this case than in the management of relief supplies and, more so, because monitoring of capital projects suffer from multi-layer of corruption.
Over long years, such lapse in the use of investment funds has become a cultural trait that makes impartial supervision and evaluation of government-funded projects hard to put into effect. This means that majority of projects that do get completed have been of shoddy quality, adding little value to the larger economy or improving public welfare.
There is no guarantee that earthquake bonanza, much of it given as foreign assistance supplemented by larger tax collection and local borrowings, would be put to better use than the way government has traditionally handled its finances. Leakages through inflated estimates of reported damages and multilayer corruption as existing in procurement supplies will make much of the funding disappear on the way to project completion.
The way out from this bleak prospect for beneficial use of earthquake assistance money isn't that we do not make the best effort at collecting the needed funding; rather, to establish a mechanism that could help minimize inefficiency and make productive use of reconstruction funding. In large part, assuring of such an outcome would require outside interference in the management of public funds, which largely would mean keeping government away from reconstruction work or, at the least, forcing it to take a back-seat.
The much-talked about formation of a National Reconstruction Authority will be a good place to start but its credibility will require overwhelmingly foreign staffing of its key positions. This would help provide credibility to the Authority's pledge of putting available resources to good use and also would help attract much-needed foreign support for reconstruction effort. In large part, the Authority will operate independently of government and will be protected from political interference of any sort.
sshah1983@hotmail.com