Unhealthy obsession with infrastructure

It has been nearly 20 years since the Lahore to Islamabad motorway was opened for the public. There is usually low traffic to be seen on the 375 Km three lane road between the Federal Capital and Punjab Capital. Motorists can drive for miles without seeing another vehicle, save perhaps for traffic cops manning speed traps because there is simply not much demand for a motorway. Yet this $1.2bn white elephant is one of the proudest achievements of Nawaz Sharif, who was prime minister when it opened in 1997 and is once again running Pakistan. The ruling party, Pakistan Muslim League Nawaz (PML-N), never tires of talking about it. Nawaz Sharif regained power in 2013 with a campaign which both harked back to his famous road and promised more infrastructure to come. This is the conventional thinking that investment in infrastructure is a foolproof way of boosting the economy. The government is racing to finish umpteen projects before the next election, due by mid-2018, including a metro line in Lahore and a new airport for Islamabad.

Pakistan’s infrastructure is underused because the economic boom it was meant to trigger has never arrived. Over the past three years the government has successfully managed a balance-of-payments crisis, achieving some measure of macroeconomic stability. It has trimmed the budget deficit, partly by broadening the tax take and partly by cutting energy subsidies. That, along with lower oil prices, has narrowed Pakistan’s trade deficit and allowed it to begin rebuilding its foreign-exchange reserves. The stock market has risen by 50% since the end of 2015.But terrorism and insurgency have put off investors, both foreign and domestic. The country is also held back by inefficient and often cartelized industries, which have fallen behind rivals in India and Bangladesh. Exports, 60% of which are textiles, have been shrinking for years. Instead of devising a well thought out economic development plan, the government is pinning its hopes on yet more infrastructure to fix the country’s economic problems, in the form of a $46bn investment scheme known as the China-Pakistan Economic Corridor (CPEC).

Pakistan undoubtedly needs to relieve a chronic shortage of electricity and CPEC has the ability to deliver that but critics fear the country will struggle to pay back the debt, especially if foreign-exchange earnings from exports continue to dwindle. At the very least, the government will need to continue chasing deadbeat customers to pay their bills and cutting expensive subsidies—steps that are deeply unpopular. Among that, much more needs to be done to create an educated workforce. Almost half of all those aged five to 16 are out of school—25m children. Health, like education, is woefully underfunded, in part because successive governments shy away from taxing the wealthy. Only 0.6% of the population pays income tax. Merely building roads over roads will not being the economic prosperity and stability that our policy makers are hoping to bring. It can merely provide a channel, but not realize it. In order to do that, the government will have to formulate a multi-dimensional policy plan to reconstruct the economy on modern terms and increase its revenue by multi folds. This is the only way.

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Mian Bilal