Polarised forces of production

Political polarisation affects the market sentiments. Pakistanis should understand this country belongs to all of us. Governments may come and go. Economic progress depends on sentiments that we create globally about Pakistan.

Politicians should realise that polarisation will hurt the country and not the government. When we portray a bleak picture of our country it is being watched by the world.

When investors in developed economies consider investing in Pakistan, they seek the advice of their think tanks on Pakistan. These opinion makers simply put forward the clippings of our media and recordings of our channels about the dire state of the economy. They do not have to put in their own opinion as media reports from Pakistan are enough to deter the investor.

We are not marketing Pakistan properly. Every year at the World Economic Forum in Davos the Indians send 200-400 members delegation comprising ministers, businessmen, bureaucrats, and media. They represent India in all discussion forums.

Pakistan hardly sends a dozen persons at that forum and in all discussions that they participate in, the talk is mostly focused on terrorism. Global economic environment is not suitable for Pakistan. Buyers are still reluctant to come to Pakistan and when buyers do not come how they can place orders. Insurance premium for visit to Pakistan is still very high in line with the premium charged for Iraq, Syria, or Afghanistan.

The only positive is that Pakistan is still under the International Monetary Fund’s extended fund facility programme.

Foreigners have confidence in the IMF although we may not trust the institution. This adherence to the IMF programme could bring about a change. But that change will be slow and gradual. Now even the IMF programme is in doldrums. The ruling elite succumbed to the opposition pressure to deviate from terms agreed with the Bretton Woods institution.

As far as the economic policy of the country is concerned, all the three main political parties are on the same page when we study their manifestos. The sad reality is that the parties in opposition oppose those very policies that they implemented during their tenure.

This creates uncertainty. Businessmen invest when they have confidence in the consistency of the policies. Investment is a long-term phenomenon and they cannot risk their money when changes occur after every election.

Implementation of governments’ economic policies is very weak because of either political weakness or weak institutions. As far as the common man is concerned most of his problems relate to local governments that do not exist.

Issues like health, education, law, and order and even job creation could be addressed at local level. People find it easier to approach their representative at the union council level than to seek an appointment with his member provincial assembly or national assembly for resolution of his issues.

There are structural problems in our economy. Our savings and investment rates are very low. With average saving rates of 14 percent of gross domestic product and investment rate of 13 percent of GDP in Pakistan, it was not possible to sustain a higher growth rate. No country has ever sustained a higher growth rate in such a situation.

Saving rates in India and Bangladesh are 35 and 30 percent, respectively. The affluent middle class of Pakistan should go for saving instead of living beyond their means. Savings come from the affluent middle class and not from the poor who barely survive on their incomes. Growth in our trade has not kept pace with global or regional average. In 1990, the share of Pakistan in global trade was 0.15 percent and that of India and Bangladesh was 0.67 percent and 0.5 percent.

Our share in global trade has declined to 0.10 percent, India’s has increased manifold and Bangladesh's share in global trade is now higher than Pakistan.

Our dilemma is that we give greater protection to our domestic industries. These protections and subsidies have made our industries generally inefficient and non-competitive for the global markets.

Instead of improving efficiencies and working on upgrading the skills of their workforce, they continue to demand for subsidies.

Development of the small and medium enterprises is another aspect that needs to be worked on, as those are the engines of employment and growth. Without focusing on the small and medium industries, growth would never be sustainable. All forces of production need to be developed, including the human resource to achieve sustainable growth.

In Pakistan, this focus is not only lopsided, the informality of the economy is also a problem. It puts a strain on revenue generation.

The documented sector of Pakistan pays 17 percent sales tax, as well as a corporate tax, whereas the informal sector of the economy pays no taxes. We are increasing the burden of taxes on the compliant sectors without making efforts to bring the informal sector into the tax net.

Dire need is to bring tax evaders and those who are part of the informal economy into the tax net, so revenue generation goes up. It would also help in improving the skills of the workforce.

The solution lies in the documented evidence available with Federal Board of Revenue (FBR) that there should be 3.2 million taxpayers (not tax registered that file zero tax returns) in Pakistan instead of the current one million.

To do so, tax laws need to be simplified as well. For the moment, tax laws are so cumbersome that they give rise to discretion providing opportunity for corruption. In the current technological era, everything should be computerised and digitised. This too would reduce the loopholes that are often used by even the documented sector to avoid taxes.

The writer is a staff member