Unexpected events happen in Pakistan all the time. Two years ago, speculations were rife about early elections. Lately, conspiracy theorists believed elections would be delayed.
Nevertheless, Pakistan has successfully conducted elections and is ready to move forward towards better economic policymaking. Whether the results will be accepted and if the new government will complete five years is another debate. For now, there are 10 clear indicators that need the attention of those taking the helm of affairs:
Going back to the IMF programme: On day one of cabinet formation, messaging the International Monetary Fund (IMF) of the intent to embark upon a new programme and adequately completing current standby agreements is crucial.
There are no viable or unviable options except to seek support from the IMF and bilateral friends to provide economic certainty to businesses, investors, and lenders. Do not hesitate to make the intent public.
Debt deleveraging: The IMF, along with other bilateral and multilateral lenders, will clearly assess Pakistan’s debt repayment ability over the next three to five years and dictate reforms needed to address the issue.
While domestic debt restructuring in the form of higher taxes on sovereign yields is preferable to immediate haircuts, external debt needs to be elongated with softer terms to buy time and implement reforms. Structural reforms: No lender will grant a grace period, nor will any friendly country continue to provide financial support until tangible efforts are made to fix the house and rectify mistakes.
Under Shamshad Akhtar’s caretaker leadership, efforts were made to control circular debt, privatise Pakistan International Airlines (PIA), hand over DISCOs management to the private sector, streamline Federal Board of Revenue (FBR) for tax reforms, pave the way for foreign investors, reduce economic subsidies to the elite, and delegate provincial expenses back to provinces in a modified National Finance Commission (NFC) award form. Painful yet necessary decisions need continuity and commitment.
Read: IMF warns of risks to economy despite stabilisation
Controlled expenses: Government expenditure needs to be tamed, whether current or discretionary, to live within means. Limiting salary hikes is not the solution; rather, abolishing and merging inefficient government departments is necessary to restore productivity to policy making.
Additionally, PSDP (Public Sector Development Programme) remains a luxury if any funds remain after securing a primary surplus. By taxing more effectively, funds can be allocated to development. Investing in people rather than just infrastructure is the key.
Continued privatisation: Recent gains in the privatisation process, especially concerning PIA, must reach their logical conclusion to reduce the burden on the exchequer. Immediately, Pakistan Steel Mills and loss-making DISCOs should be handed over to the private sector with complete authority to reform processes and manpower.
Growing exports: Economic prosperity, improvements in the middle and lower classes’ lifestyles, self-sufficiency, increased geopolitical weight, reduced debt burden, and job creation all hinge on increasing the export-to-GDP ratio from 8% to 15%.
The government must encourage both foreign and domestic investment that increases value-added (without subsidy) exports in agriculture, IT, industrial goods, and services. Fair taxation: Currently, 80-90% of tax revenues are used to service interest on debt, let alone the principal repayment. Hence, even with Rs9 trillion revenues, the country cannot move towards sustainable growth.
The tax-to-GDP ratio cannot increase from 9% to 15-20% until agriculture, real estate, traders, and retailers, which are major components of annual GDP, are taxed fairly. Politicians need to prioritise fair taxation over their vote banks and vested interests. Reducing cash in circulation: Improved digital transactions must be incentivised with lower taxes, refunds, and rewards. Beyond a certain threshold, all transactions should be conducted via banking instruments to formalise the economy and accurately record the flow of wealth.
It’s crucial to understand that demonetisation of currency is the long-term solution to accelerate growth, drive a digital revolution, combat corruption, and enhance the tax-to-GDP ratio. Short-term economic impacts should not overshadow focus on the next five years.
Population control: Resources, however limited and blessed by the Almighty, are finite. The growing population is challenging to feed, let alone provide with basic necessities such as education, healthcare, and infrastructure.
Disincentives need to be implemented in BISP (Benazir Income Support Programme) for having a second or third child, particularly in rural areas where children are often seen as assets to be employed as labour.
State Investment Facilitation Council (SIFC): Despite scepticism, SIFC remains a supreme body of civil-military collaboration essential for immediate house-fixing. The credibility provided to foreign and local investors through the validation and impression exerted by issuing instructions with the consent of the military is invaluable.
Foreign investment must be carefully evaluated on a long-term basis for net dollar inflow, and the structural reforms agreed upon at SIFC will remain the key to prosperity.
Economic dashboards must be prepared by the cabinet, with each ministry remaining accountable to the people to fast-track efficient decision making. The pace witnessed during the caretaker government must be doubled to catch up with lost growth seen in neighbouring countries. Technocrats, private sector individuals, and overseas Pakistanis willing to contribute to the country’s progress must be brought onboard under “remake Pakistan.” There is no time to relax; let’s get back to work.
THE WRITER IS AN INDEPENDENT ECONOMIC ANALYST
Published in The Express Tribune, February 12th, 2024.
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