With our traditional revenue generators – tax receipts and export earnings – failing to provide the economy with the necessary fiscal space to snap out of the current stagflation cycle, monetary and financial authorities must look to other, non-traditional avenues for raising revenue. Tax earnings will not do justice to the ambitious budget target without thorough FBR overhaul along with the provinces stepping forward to match increased resources with a show of corresponding rise in responsibility.
Also, while exports positively beat expectations last year, cotton has already lost steam in the international market, implying this year’s trade figures will not be as impressive. Therefore, in order to revive growth, the government must carefully trim unnecessary expenditures and leakages wherever possible, and also incorporate policy measures aimed at increasing revenue.
One important avenue that has found increasing popularity in emerging markets is selling valuable land through development Real Estate Development Trusts (REITs). The government owns vast tracks of land. The armed forces’ cantonments especially, once developed outside main cities, are increasingly found in city centres. Along with logistic difficulties, the present scenario has also made it a security hazard for military installations to be configured in urban centres. The unfortunate Mehran base incident in Karachi was a stark pointer to the direction things are taking in the immediate to medium term.
Therefore, it makes political, security as well as economic/financial sense to move military bases out of main cities and free up valuable land presently held by them to be sold through development REITS. Subsequently, investors can leverage stock exchanges to pick up shares of these REITS, thereby creating capital that can be used in accordance with predetermined priorities. These funds can play a crucial role in developing necessary infrastructure to complement our traditional earners in the agri-industry. More importantly, they can help reduce our debt burden and rein in the fiscal deficit.
Significantly, similar steps can be taken by insolvent large corporations. Pakistan Railways, for example, can help overcome its chronic financing problem by utilising its vast reserves of unproductive land by raising revenue similarly and overcoming its bankruptcy problems. Once these practices begin generating previously untapped revenue, others will follow quickly. Pakistan Steel Mills is a good example. Its 46,000 acres of land are far more than required for its operations. It should be diligently used to raise capital enough to engineer a complete turnaround of the organisation.
However, it is also important to understand the sensitivity of such exercises. The capital thus generated needs the most careful handling. If public sector practices of waste continue, we will have compromised part of our family silver with nothing to show. Therefore, it is essential to revamp ownership and management structures of these organisation before some of the suggested steps can be taken.
Then there is also the vast real estate used by the bureaucracy, various state functionaries and other government installations. Most of this land is right in the heart of major cities. Freeing up such prized land, commercialising it and subsequently selling through development REITS can materialise large reserves of capital that can solve some of our most pressing fiscal problems.
Another important non-traditional way of raising revenue is strategic sale of profit making public corporations. An important lesson of the strategic sale of banks in the last decade was that the sale to the private sector should not be more than 26 per cent, to enable the government to get dividends when private sector management is able to increase the revenue base. OGDC, PPL, PSO and gas companies should be transferred strategically to the private sector in this manner.
We have already come to the point where failure to stimulate growth and arrest unemployment will feed into not just economic but also widespread political and social chaos, as is becoming increasingly apparent. The government’s best option is to enable greater fiscal elbow room for itself, which will allow targeted fiscal expansion, provide jobs, trigger commercial spending and ease the economic burden of the government and people alike.
The writer is a former finance minister