The oil prices are likely to shoot up in the wake of the sanctions on Iran; the European Union, the largest economic bloc in the world, is all set for a deep recession which would offset the recovery in the United States.
Increase in oil prices will put pressure on commodity rates, particularly food grains as crops like corn would be converted into bio-fuel. The capacity of the developed world to assist the developing nations would be the lowest in past three decades. The countries that benefited from past foreign assistance and are on path to sustained growth would be better off than nations that wasted the foreign aid on luxuries and unsustainable projects.
Pakistan, unfortunately, falls among those states where the injudicious use of foreign aid has been very high. Foreign assistance had done wonders for Pakistan in the past. We built the Mangla and Tarbela dams on huge foreign loans, but were not only able to pay back these loans in a few years from the income generated by these two projects, but the yearly income generated from these dams is equivalent to their total cost. Road infrastructure established with foreign assistance in the past has paid back the government due to sustained economic activities generated because of better communications. In recent times look at the benefits that the nation got from the run of the river Ghazi Barotha hydro electric project. This project has paid back its cost in just seven years and is earning billions for the government every year.
The two larger dams irrigated millions of acres of land throughout Pakistan, while generating low cost electricity as a by-product. Because of these projects Pakistan has capacity to produce 6450 MW hydro electricity that is supplied to PEPCO at Rs. 1.10 per unit. WAPDA yearly produces 30 billion electricity units costing government around Rs. 31 billion. Equivalent power generated from furnace oil costs the government Rs. 403 billion per year. This means that the savings from hydro electricity are around Rs. 372 billion a year. Just imagine what would have happened if this cheap electricity was not available. The PEPCO is currently losing Rs. 1 billion per day or Rs. 365 billion a year. Had hydro power not been available the loss would have been Rs. 2 billion per day or Rs. 730 billion a year.
This shows the strength and importance of sustainable development projects. We wasted Rs. 60 billion on rental power projects in last four years which are producing merely 125 MW of electricity at cost of Rs. 25-30 per unit. The raising of Mangla Dam was completed when this government assumed power. The only hindrance in its operation was the compensation of around Rs. 12 billion that was to be paid to the affectees. This payment was not released for three years that complicated the compensation issue as well as prevented the nation from using 2.9 MAF additional water in this dam. Some payment was released this year and the dam capacity has been partially raised. The dam after full operation would have added around 175 MW of additional electricity as well.
We could have saved Rs. 60 billion spent on RPPs and produced higher electricity by spending only Rs. 12 billion four years back besides irrigating thousands of acres of agricultural land. The RPPs were tainted projects and the Supreme Court ordered return of billions of rupees by sponsors that did not even initiated the projects after getting hefty advances from the government. These projects might have benefited few high ups in the ruling elite but devastated power sector of the country. Examples, like this depict the priorities of the rulers that are tilted towards self interest instead of national interest.
The industrialization done during Ayub era and the agricultural revolution, because of better seeds developed at that time aided by better water availability are examples of better use of resources. We lost our way after that. The nationalization of industries during the Bhutto regime of 1970's increased the inefficiencies in the state controlled enterprises. Slowly but steadily we started drifting from a sustained growth path towards foreign assistance dependent economy.
Instead of investing in sustainable infrastructure projects we started using the foreign loans for covering the budget deficit or on unsustainable politically motivated projects. The MNAs and MPAs eliminated the local governments and indulged in minor local level projects instead of working for sustainable national projects. Local interests got preference over national interests. Kalabagh dam is one such example where baseless politically motivated arguments were used to put the most viable water project on back burner.
It is deplorable and unfortunate that in past two decades successive rulers of Pakistan have failed to initiate long-term development projects. The politicians now prefer small unsustainable development programs to gain popularity in their constituencies. The infrastructure built in the past from foreign assistance that regularly paid back the governments in power is now in shambles. The government does not have the resources to finance repair of even existing infrastructure but it has no shortage of funds when it comes to financing small and unsustainable projects recommended by its MNAs or MPAs.
The government spending has doubled in past four years but the development program has shrunk to less than half in past four years. The government that generated tax revenue of around Rs. 1500 billion last fiscal. It runs a budget deficit of Rs. 1450 billion. Pakistan's total debt in past five year (including last year of Shaukat Aziz government) is double the total debt that successive governments accumulated in previous 60 years.
The present regime has mortgaged the entire nation. Servicing the current debt would be a nightmare for future governments. We do not have any fiscal space for initiating development. We cannot borrow more as even the current borrowing is beyond our means but still we are on a borrowing spree or we are printing notes. The present regime may not survive in the next election but the damage it has done to the economy is enormous. The next government after election would face recessionary global economy, high oil and commodity rates, huge debt servicing liabilities and enormous expectation of the electorate similar to the one it had when present regime assumed power.