Growth hurdles

LAHORE: The normal ingredients of economic growth include political stability, consistency of policies, and transparent governance. Unfortunately, these primary ingredients of growth are absent in Pakistan, diminishing the chances of any growth.

Political stability has eluded Pakistan since the 2013 elections, after which every elected government faced stiff opposition in the streets. The parliamentary proceedings give the impression of a rowdy classroom that has gone out of control of the teacher (speaker in this case). There is disunity in the opposition and in the ruling party. The coalition partners openly oppose the privatization policies of the government and provide ammunition to the opposition for further agitation. All political parties look towards foreign powers for support. The judiciary is not allowed to work freely by both the ruling party and the opposition. The main opposition party does not want to talk with the ruling coalition but prefers to have dialogue with the army, which it claims calls the shots. The chaos thus created has confused the few investors that were planning to invest in this country.

There is so much fuss created on social media by those having no idea about the economy that now every Tom, Dick, and Harry considers himself an economic expert. Each comes up with a unique solution which, when properly analyzed, makes no economic sense. The state has lost its writ; it has no control over fake news, which spreads faster than mainstream media. The confusion thus created has created chaos in society never seen before. Populist policies that are against the principles of the economy are propagated to pollute the minds of the masses. The state, under immense pressure, settles for softer policies that further aggravate our economic problems.

To move forward, we must follow the path that suits our current economic situation. That path would not please either the rich or the poor because the government must squeeze both. But in the end, the state ends up choosing the softer target instead of the stronger one. The poor get the thrashing to the full extent, and the rich are either spared or treated mildly. The major issue in Pakistan is to collect enough revenue to wipe out the fiscal deficit. But the required revenue can never be generated even by doubling the indirect taxes, which are, in fact, a tax on the poor. The solution lies in reducing the indirect taxes and levying much higher direct taxes. But direct taxes would come from the moneyed class, the tax evaders, and influential segments of the economy. Revenues would come when tax exemptions are withdrawn. Government coffers would fill when all unethical commercial practices are stopped. This needs transparency in governance, elimination of discretionary powers, and courage to confront tax evaders of all types.

When we talk about the consistency of policies, we see that where the government is serious, it provides sovereign guarantees to the investors. Many of the clauses of those guarantees are unjust and irrational, but the guarantees are protected by international law. One glaring example is the independent power producers first introduced in our system by the second Benazir government. Every party said the agreements spanning over 25 years are unjust, but the Musharraf regime signed almost the same sovereign guarantee with another set of IPPs, and then the Nawaz government of the 2013 era signed a similar deal with Chinese power companies. All these agreements ensure consistency of policy for over 25 years. The agreements are unjust as they contain few beneficiaries. We must announce long-term policies of at least 10 years' duration through sovereign commitment for all sectors that provide a level playing field to all.