Inflation and corruption by Abdul Quayyum Khan Kundi

These days most of my writings are based on questions raised by my friends and supporters. Someone asked me few days ago why do we have such high inflation in Pakistan? The answer requires a book length discourse but I will try to sum it up in the space of an article.

There is strong link between inflation and corruption. It is unfortunate and painful to say but the realty is that we Pakistanis have lost the benchmark for ethics and moral conduct. All of us in one way or the other engage in corruption. Some in Pakistan are trying to promote the idea that if a handful of honest people are given reins of the country then all will be hunky dory and we will convert the country into a paradise. This is elitist and aristocratic thinking of solving social problem especially corruption. The other myth promoted is that if big corruption is contained then the country will embark on the course of progress and prosperity. Both these assumptions are wrong and naïve. To contain corruption we need to change our mindset. We need to amend the famous English phrase “Honesty is the best policy” to “Honesty is the best national policy” and adopt it.

How corruption contributes to rising inflation? To explain this phenomenon lets consider an example. Let’s suppose that on a fine day the total worth of a nation was Rs. 10000 million. Total worth means all land, plant and bank deposits. Based on this calculation the government prints Rs. 10000 million worth of currency to represent the total worth and so that people can trade with each other.

Suppose that in the last fiscal year people have paid Rs. 1000 million in taxes that are deposited in the bank account of the government. In the budget plan the government decides to spend this money to build a motorway from Karachi to Peshawar. A contract is awarded to a company. This company’s owner has good contacts so he promises government officials a 30% commission as bribe (according to some sources that is how much is the size of corruption in a typical government contracting in Pakistan). This bribe payment has two consequences on the nation. First, since there is no record of this transaction of Rs. 300 million the government has to print more money to ensure that the documented economy has Rs. 10000 million in circulation. The second effect is that since the government officials did not earn this money through proper channel they hesitate to deposit it in bank account because it will expose their corruption. So they go out on a buying spree like real estate, clothes, jewelry, cars etc. This increases demand for goods and services which results in the increase of prices which are based on demand and supply.

The top officials engaged in corruption are not alone they have network of people that help them in this enterprise. So when a contract is awarded there is a long chain of people that are involved in getting the cut. This black money is then hidden through a second group of people that are experts in hiding stolen money. These are lawyers, real estate agents, foreign exchange brokers and bankers.

There is a misconception that corruption only happens in government projects. Corruption also happens in private sector as well. In Pakistan when people buy real estate property they register the transaction at a much lower value than the actual sales transaction. They do it for two reasons that are to avoid paying higher property taxes and to avoid reporting of actual source of income.

Another form of corruption is getting paid without working. In rural Pakistan there are large numbers of teachers, nurses, doctors, cleaners and other public service employees that never show up for work but get full month salary. But the deal is that District Education or health Officer gets cut of every month’s pay of these absentee public employees. So it is win-win for these people but a terrible national loss. Another form of corruption is that officers hire grade 4 employees that work at their home rather than to serve people.

We have corruption of Kunda especially in villages and shanty towns in cities where people want free electricity. Besides Kunda there is another form of electricity stealing. It works like this people don’t pay bills for lets say four months which means their total unpaid bill is to the tune of Rs.5000 or 6000. These people then go to brokers who get it reduced to Rs. 2000 for a fee. But who pays the rest of Rs. 4000. That money is distributed into the bills of other customers which mean that the local electricity department keeps their accounting in order. But some unsuspecting customers are paying others peoples bill.

Corruption happens in the government purchase of grain where the officials have to get a cut from the farmer before he is able to get paid for his produce. Even cane managers of private sugar mills engage in buying and trading of farmer indents in collusion with factory management.

There are other forms of corruption that seems insignificant but adds to the declining ethics of the nation. These are throwing garbage on the streets, parking in wrong places, encroachment on streets, land grabbing, misuse of school lands, selling of government jobs etc.

Bottom line is that everywhere you look in Pakistan there is corruption. No nation is completely free of corruption, 5% is considered normal, but we have taken it to new heights. All of us are guilty of corruption even if we don’t do it ourselves; we watch it and say nothing. So we become part of it anyways. Inflation is the end result of all this corruption. If we want to have a better life as a nation then all of us have to agree to be honest as Honesty is the Best National Policy.

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