BUSINESSOPINION

Economic revitalization- probable and possible

By Syed Sadaqat Ali Shah

What is likely to be done for economic revitalization and what can be done for economic revitalization under the looming 22nd IMF bailout package is yet to be ascertained. The incumbent government is in lurch and bewilderment on economic revitalization plans since it took on its shoulders the responsibility to lead the country after electoral victory in July 2018 polls. Since Pakistan Tehreek Insaf took office, installing and later unseating heads of key institutions and departments have resulted in uncertainty among concerned stakeholders. The dislodgement of FBR chairman unceremoniously and the resignation of governor State Bank of Pakistan at a time when the government is preparing its first budget have triggered another debate among investors about future economic posture under the supervision of incumbent government which they see an inexperienced and confused government. 

With foreign dollar reserves draining and trade sector in morass the government has yet to promulgate policies related to trade sector and foreign exchange reserves held by the central bank. The bleeding state owned enterprises are costing the economy to undesired and unwanted levels. To tackle challenges on the external front, the government has finally decided to ink loan agreement with the IMF to avert any balance of payment crisis. However, the IMF mission, it is believed, this time is more callous in terms and conditions attached to the possible bailout package. What is likely to be done by Pakistan to procure the loan package is getting clearer and obvious with each passing day. The mission, independent economic experts believe, is likely to force the country to broaden tax base, privatize loss making national key enterprises, give more autonomy to SBP, ensure free float exchange rate without any regulatory restrictions and impose new taxes on electricity and gas consumers. The mission also fears Pakistan might pay back loans to China it has acquired for infrastructure projects under CPEC initiative. So what is likely to be done is to ensure transparency on Pakistan side in the relief package and plug trust deficit between Pakistan and the IMF. Tax shortfalls, trade deficit, current account deficit, fiscal deficit in tandem with ballooning military expenditures will be challengers for economic managers among other challengers for the economy such as circular debt and bleeding SOEs.

It is also believed government plans to impose new taxes to the tune of around Rs 750 billion in the coming budget and set high tax target for the new fiscal year. Rs 5.3 trillion target is ambitious at a time when FBR is facing massive shortfalls in tax collections. What can be done to accomplish this ambitious target is to ensure investor confidence, improve formal tax framework at the taxation department end and provide conducive informal institutional environment for the businesses and investors. Taxing existing taxpayers obviously will not provide relief but exacerbate the problems.

What can be done is to broaden tax base. Broadening tax base in Pakistan has always been likened to taxing the already taxed ones over and over again which is not correct and in fact wrong perception. Broadening tax base means to bring in tax net sectors which so far have enjoyed free lunch and have remained out of reach for the tax department. The potential of transport sectors (van and bus stands) especially falling under provincial jurisdictions still enjoy tax free environment (excluding toll taxes transport vehicles pay for they are paid by commuters) which can help tax authorities meet set targets. The other sectors having potential for generating tax revenue can be tourism routes, big cities, unregistered car showrooms and commercial markets with unregistered retailers therein in the country. Taxing private hospitals, clinics and law chambers should be no exception when setting tax targets every year. 

Strengthening country’s tax laws with the aim to provide relief to the businesses and investors can help ward off external pressure and which I believe is the only way to bail-in Pakistan in lieu of resorting to international donors for bailout package at stringent terms and conditions. Besides consolidating taxation laws, the country has still not tapped tourism potential. India, to be comparative, generates around USD 91 billion from tourism in the country whereas Pakistan has so far generated around USD 8 billion in tourism revenues, although the law and order situation is no exception but it has improved considerably.

Pakistan’s economic woes on both internal and external fronts are neither circumstantial nor due to global or regional slowdown- ceteris paribus. The losses related to twin deficits along with fiscal deficit are self-inflicted and due to our own failed, in fact short-lived, policies. Our policies have not addressed dilemmas of business segments and the poor people. We not only lag behind in tapping IT sector potential, we have so far failed to produce any policy and framework to boost IT exports. We still have not unlocked potential existent in value added goods that can earn our national exchequer the needed foreign reserves. We still lag behind in ease of doing business because foreign investors expect transparent tax laws, favorable business environment, private property laws in good shape, easy access to bank credit, satisfactory law and order situation and after all smooth energy supply for their businesses and projects which we still lack on the ground and in our national policies related to business and investments. 

What are probable and possible to revitalize the economy are not things beyond understanding of policy makers. What needs to be done is to develop political consensus on issues of national significance, in fact national security. The probable is each time Pakistan resorts to external borrowing will have to brace it for tougher terms and conditions. Pakistan will have to bear the consequences come what may, none of the international donor care if we do not care for our economy. Political hostilities exist in every country but are forgone when it comes to policies related to economic affairs of their countries, a case which is otherwise in our country. Every time political parties in our country prevail in elections, either abandon previous government’s policies or protract their approvals during their tenure which not only cost common citizens but the national economy. So what can be done is to develop policies and framework contrived on collective consensus and continuing them despite change in political regimes. 

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Syed Sadaqat Ali Shah

Syed Sadaqat Ali Shah is a researcher and works on banking regulations, competition and reforms.

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