Economic management is largely about the diagnostics of a problem and the design of a solution and its implementation. Diagnostics are easy if we can pose, to some extent, the right queries. Let us...
Economic management is largely about the diagnostics of a problem and the design of a solution and its implementation. Diagnostics are easy if we can pose, to some extent, the right queries. Let us set the stage for a useful discussion with simple estimates.
One is intrigued, and more so if economic discourse is close to one’s heart, that estimated growth for Pakistan by the IMF is a paltry one percent for FY21. One cannot but have sleepless nights after realizing that this feeble growth pales into oblivion when compared to FY21 growth estimates of 6 percent for India, 5.9 percent for emerging markets and 3.4 percent for Sub-Saharan Africa respectively. All three engines of growth for Pakistan – industry, agriculture and services – are pointing to a slow recovery at best, which should be unacceptable.
Fundamentally, we must ponder: do we have a growth strategy at work? What are the fundamentals of Pakistan’s growth strategy? Let’s be certain that development spending is not a growth strategy, but part of public-sector investment, which spurs growth. Whenever the Covid storm fades away, the damage is likely to be substantive: public debt levels will be uncomfortably high, people will be poorer and many of them jobless. The significance of this ‘growth query’ is a lifeline for Pakistan’s economy as countries with a well-defined growth framework are likely to have a faster rather than floundering recovery.
The second string of related queries can help us glide out of a lingering stalemate. So we may ask: Do we have the ability to untangle the economy from the clutches of being perpetually in a ‘stabilization mode’? Crucially, do we have some kind of a homegrown structural shock therapy to break that mould? Economists have been able to show a positive impact on growth of comparably wide-reaching structural reform packages that have taken place through time and geographies.
In a post-Covid era, there is an evolving thinking about remodeling capitalism, which poses new queries. Do we understand the need to create markets – or more so, a free market economy? Getting market regulation right creates efficiency and lowers costs. Therefore, we must ask: are we moving to ensure the right regulation for the markets. And if so at what pace? Do we have the wherewithal to fix market failures and its access? Is the productivity agenda on the cards – especially in a financially constrained economy? How do we understand productivity in changing to a mechanized high yield agriculture output, and a digitalized industry and services sector? Is the economy geared to catch the emerging tech trends of new technologies and industrial revolution 4.0?
A reshaped capitalism post-Covid era under the banner of ‘we all are in this together’ makes us ponder: is there a distributive strategy at work in Pakistan or more appropriately, do we have an inclination of ensuring a distributive framework? What are the fundamentals of such a distributive framework? They can be elimination of Rs1,000 billion of yearly tax waivers and concessions, moving away from a zero inheritance and wealth tax, increasing manifold the meager collection of Rs2 billion of agriculture tax from a size of Rs800 billion in agriculture production and formalizing an untaxed economy of $200 billion yearly. Such steps are likely to aspire confidence of a well-thought-out distributive framework. The commendable assistance of the income support programmes are just the tip of the iceberg.
The last set of queries is persistent; it relates to precious domestic revenues. So we may think: Why have fiscally driven policies not produced the desired outcome of improvement in tax-to-GDP ratio hovering around 11 percent, and are we doing something different this time? An encouraging response is not at-least obvious. At a more theoretical level we may ask if fiscal federalism has produced the desired outcomes, and how we reframe the debate to be beneficial.
Some of our queries may have promising answers requiring minor work in the respective areas and forward our quest of revamping economic management. The second order issue is to ask: what is the quality of work in areas of growth, revenues and distribution and what is the time of delivery? The enquiry is likely to tickle our minds, make us think more clearly – that in itself would be a superb beginning rather than merely signing or delaying less researched government summaries which make little impact on creating a change management framework.
Most consequential is for us to ask: who is framing – and more so anchoring – an economic agenda in the country? How do we ensure all stakeholders pull in the same direction? This is not a rhetorical statement, and so let us put a perspective to it. The political leaderships, the establishment paraphernalia along with the judicial discourse and academia need to all vaguely agree to identify one qualified person, who is smart enough to present, before taking the job, a plan and an execution framework of simplified taxes, digitized services and in the end a faceless revenue service in five years.
This is our bare minimum starting point. She/he if able to ensure part of the Rs8,000 billion potential of levied taxes in the country, will eliminate fiscal issues and consequently create debt sustainability and alter the debt profile as accumulation of debt is the yearly fiscal deficit of the economy. Transfers to provinces will be substantially increased to meet education and healthcare needs. This is economic survival.
To some it may sound like a simple assertion. That may be so, but it is not naive – the hard part of course is for those responsible to take this step and get everyone on board. So a more natural question we must ask is how to move our thinking from a reactive framework to a more forward-looking mindset. We must keep asking questions and answering some to the best of our ability which helps address the simple notion of Karna Kya Hai.
The writer is former advisor, Ministry of Finance, Government of Pakistan.