I’ve had a running argument with my friends M. Aslam Hayat (one of the creators of the Fund) and Parvez Iftikhar (first CEO of the Fund) about whether it’s possible to have an effective, efficient universal service fund. My position has been that that such a thing can function for a few years, if well designed and with political commitments, but that it’s a matter of time before they go bad. As we used to say when we were designing Sri Lanka’s fund in 2003, when the cheese is out, the rats are inevitable.
I have pointed to the successes of the Pakistan Fund in its early years in many of my talks, but I have always qualified the claims being made of its behalf. Looks like I have more qualifications to make to the worldwide advocacy of universal service funds, supported by people who should know better.
Newly elected government has shocked the telecom industry by moving over Rs. 50 billion of Universal Service Fund to Ministry of Finance to pay off circular debts.
Sources familiar with the matter said that Economic Coordination Committee (ECC) has decided to shift all the money from Universal Service Fund accounts to Ministry of Finance to pay off debts, primarily to resolve energy crisis.
Sources said that – theoretically – Universal Service Fund will be able to get the money back from Ministry of Finance when and if it ever requires.
Experts, on other hands, consider this is a theft from telecom industry and that USF money – which telecom operators pay for the development of telecom service in far-flung areas of Pakistan – will never be recovered. They said that disbursements of funds to USF will take ages due to tiring procedural requirements in the government sector.
It merits mentioning here that previous government had also considered moving the USF money to National Consolidated Fund.
You put money into the hands of a government and you shouldn’t be surprised that it is spent badly. It is sad that they are taking away funds from efficient private sector companies and putting it in this fund that is in the hands of an inefficient government.
I could not agree more with Rohan Samarajiva. If you have a pile of money seating there while the government is running out of cash (Pakistan’s foreign exchange reserves pay only for two months of imports at $10 billion this month), what should you expect? The IMF provided coverage for the move with rumors that this was a condition for a new IMF program to cover financial shortfalls. If the name of that pile of money is USF, forget about it, it will be taken and will become part of the budget. In terms of finance and accounting a fund is different from a tax. A fund is a contribution an industry makes that will be reverted to the collective interest in that industry. A tax is a payment that goes to the Treasury. Pakistan has now transform the USF in an additional tax on telecoms, as most of the countries with universal service funds have done. What you can say?
What the government has done is thrown good money after bad. It has robbed the entire USF to pay off just 10% of the inter corporate circular debt that has been holding back the energy sector. But this debt is reemerging again because the underlying issues of excessive electricity subsidies has not been fixed.
You talk about the USF being converted into a tax. The telecoms sector in Pakistan is one of the most taxed in the world. For every Rs. 100 in prepaid credit that you add to your mobile phone connection you pay Rs. 34.50 in taxes and an additional Rs. 7 as service charges to the network operator. Heaping additional taxes on this sector is not the way forward.
The idea that the IMF wanted the govt. to do this has got to be the most ridiculous thing I’ve heard. The IMF does not want short term easy solutions. If Pakistan has a fiscal problem it needs to fix that by reducing electricity subsidies, fixing corruption in the power industry and broadening the tax net.
Whereas I am not happy with this development, let me be fair to the other side too. The government has not “taken away” the money. It still belongs to USF and will still be spent exclusively for Telecom Services in unserved/under-served, rural/remote areas. The only difference is that now the surplus funds will not be lying in USF’s own bank account, rather in the government treasury, where they will be used by the government for other purposes in the interim period. It does take away the unique flexibility that USF Pakistan enjoyed, but its not something new. Surplus USF’s are kept this way in almost all countries.
Well theoretically the funds will be available for USF program but practically you know better than me. USF will devise projects if any approve budgets etc and then wait for the redtape at finance ministry to be surmounted meanwhile the window of implementation will surely pass rendering the projects meaningless. You the issues involved. More the Law says the the money received in the name of USF will be “exclusively” used for telecom service sin unserved and under served areas so legally they cannot be used for retiring power sector debt even in “interim” period. This can be shot down with the simplest of challenges int he court if the court is rational. There are so many lacunas in this move of GoP which I have anlysed. ready avilability of USF funds was one thing which set Pakistan USF apart from other and therefore led to something being done.This move will practically mean more dysfunction even if USF company gets back to being efficient.
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