PBC endorses PM’s ‘home-grown economic plan’

KARACHI: The Pakistan Business Council (PBC) has welcomed the PM’s statement about the ‘home grown economic plan’ to liberalize the economy.

In its post on X (formerly Twitter) published on Monday, the PBC said that the plan is primarily based on economist Prof Stefan Dercon’s recommendations, which, according to Dercon, are not different from those articulated by many, including the PBC.

These call for higher tax revenue through level playing field, optimization of public finance, privatization and reduction in government’s footprint, focus on exports including IT and agriculture, power sector reforms and the digitization of the economy, the PBC said.

“For balancing the external account, Dercon recommends focusing on exports instead of import substitution. To achieve this, he proposes reduction in protection provided to the domestic industry through import tariffs, especially on intermediate items that are inputs for the export sector.” The PBC added that long-term protection discourages modernization and innovation of domestic manufacturing and undermines consumer value.

Dercon’s recommendation on reducing import protection would carry more weight if the domestic industry could obtain energy and other inputs at a competitive cost. However, when the local industry has to pay up to twice the cost for power, use generators when power supply fails, fend for itself for security which should be provided to tax payers free of cost, procure water through tankers, deal with poor infrastructure, suffer from low productivity due to the state’s under-investment in human capital and deal with the FBR’s harassment, then Dercon’s proposition takes a ‘chicken and egg’ turn, the PBC explained. Which should be fixed first, tariffs or the provision of competitive inputs? If tariffs, who will carry the responsibility for layoffs, particularly as creating a million jobs is one of the objectives of the home grown economic plan? Who will compensate for investments now rendered redundant? The plan also fails to factor the role that production for the domestic market plays in reducing the marginal cost of exports in businesses that address both the local and export markets.

A more logical approach would be to move quicker to remove protection for sectors in which Pakistan will never have a comparative advantage and to provide protection to those that through the scale of a 250 million population market can operate without it in a short, predetermined time limit. For that, the PBC added, the country should have an industrial policy, which appears not to be part of the home grown plan.

The PBC added that it has consistently advocated policies to make it easier, faster and less costly to do business. The council is one of the largest contributors to the Board of Investment-led Pakistan Regulatory Modernization Initiative, shaped along the World Bank’s regulatory guillotine model.

“We are encouraged by the PM’s initiative to reignite the effort on EODB for which it is contemplating hiring foreign consultants,” it said, adding that it has engaged with consultants and is impressed by their success in several countries.