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August 17, 2019

Policymakers’ indecisiveness jeopardises future of businesses, workers


August 17, 2019

LAHORE: Numerous factors impact Pakistan’s economic recovery from the very low national saving rate, dubious sovereign rating, and absence of government’s writ to implement decisions seamlessly, to weak regulatory institutions and bleeding public sector.

The oft repeated claim that the economy is on the road to recovery would not work. We need to have a timeframe in this regard. Most Pakistanis now know that the economy would remain in stress for the next two years. But what are the growth estimates after that? The indecisiveness of the policy makers is going to prolong the recovery period.

Budget for instance became effective on July 1, 2019 but many matters relating to tax on traders and the CNIC conditions are still in limbo. Moreover, the growth in investment from domestic resources would only come when the saving rates improve.

In the current stressed environment, when households are left with no consumable surplus, the saving rates would further decline. In the past, we financed our investments through foreign inflows.

These inflows are also under severe stress. We do have the appetite to take more loans, but we lack the capability to service them. Our industries need technology upgrade without which the exports would go up to only a limit because of devaluation, as well as capacity and quality constraints.

Improving tax collection would not remove the above mentioned flaws. Economy improves when all factors impeding growth are addressed. Provision of space to taxpayers was necessary to not only increase revenue, but also grow sustainably. This current targeted approach to increase tax revenues would not work.

Businesses need finances to scale up; they need prudent regulators that ensure level playing field for all. They need a government that does not protect public sector companies by slapping protective duties to conceal their inefficiencies.

They need a government that musters the courage to remove all political appointees from the boards of public sector companies. The boards must be fully accountable and do not have any bureaucrat as ex-officio member.

Business enterprises have to be run by professionals and not bureaucrats. These professionals should be fully accountable. The government should have no role in the award of contracts and appointments in these institutions. The best way to move forward is by strictly adhering to the rules and regulations and doing away with discretionary powers that breed corruption.

The government has completely ignored the regulatory institutions of the country that are an integral part of economic management the world over. Three important regulatory institutions are the central bank, Security Exchange Commission of Pakistan (SECP) and Competition Commission of Pakistan (CCP).

The first institution in Pakistan is person centric with no professional input from its board of governors. The interest rates have been increased on IMF dictation.

The SECP and CCP are passive institutions failing to perform the job they are supposed to do. Recently through an executive order, the government diluted the independence of many regulators by placing them under bureaucracy.

Another very serious problem faced by the local industries is the ever declining demand forcing even the best to curtail production. This is inevitably accompanied by reduction in workforce. It is indeed very depressing to ask your loyal workers to leave particularly at a time when the job market is very tight. In fact, there is no job creation.

Because of financial constraints many companies have no option but to part with best brains that affects quality and service. At the same time, the retained employees face challenges of putting in extra efforts to increase productivity with fewer resources.

Manufacturing sector in Pakistan has been fighting an uphill task to cope with the high costs and dwindling sales. Most companies have been forced to prune their workforce to cut cost. But after doing the exercise many companies found that they didn't have anybody inside their organisations who knew how to downsize.

Firing workers is a risky job because there is a possibility that you fire a competent worker that might end up working with your competitors. Some of the better managed companies have benefitted from reckless firing by panicky companies and have actually been able to pick up talent that otherwise would not be available in the market. Layoffs however cannot be avoided after the meltdown in economy; but it should be an effective layoff that actually improves efficiency rather than inflicting strategic damage by releasing even the most skilled and sought after workers just to cut cost.