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The game plan

Opinion

April 6, 2021

A real challenge for Pakistan’s economy today is one of dynamism – the capacity to generate new ideas, products, business models and production techniques, and diffuse them quickly through the economy.

Keeping that perspective in mind, and the need for solving the sticky current issues, a game plan has not been easy to formulate. But we know better. Our economic future depends so dearly on what we do today in showcasing a game plan. Game plans are good. They signal certainty for the economic actors to make their decisions. They show the leadership is serious and in control of the economy.

A right mindset is always helpful in getting us somewhere. Replacing a tinkering mindset with one that focuses on fundamental changes in the economy will be worthwhile. At an intellectual level, Pakistan’s economic game plan at this moment in time should be anchored in coordination as a key function for success. It should keep the political economy in perspective for delivery in the near future. The game plan should preserve yet deliver beyond the IMF program. It should have at its heart a push for moving the economy to a higher growth trajectory. With this in mind, let us deliberate a few ideas. Let us envisage a non-fuzzy plan, laying down clear contours of where to go and how to get there.

Plato said: “A good decision is based on knowledge and not on numbers”. He seems to have spoken for Pakistan, a country where reliability of data remains murky. Many times decisions of the availability of agricultural produce are based on incomplete data. Most of those times they have led to shortages and price rises. Coordinating food and agriculture domestic supplies, engaging with associations and outfits like Kissan Ittehad, for stabilizing domestic supplies and smoothening imports by moving to freeing trade is imperative is simply beyond an iota of doubt.

The country signed an IMF program initially in July 2019. The program remains under consistent discussion and is subject to quarterly reviews where new benchmarks, performance criteria and indicative targets are open to negotiations which form the basis of a Memorandum of Economic and Financial Policies (MEFP). The idea is to coordinate a whole-of-government approach necessary to do our homework for each review. This crucial work can help us put together our own MEFP document, one that we can own and deliver. One that is in the best national and economic interest of the country. The good folks at the Fund would appreciate such an effort and would be more amenable to a favourable way to move forward.

Coordination of key deliverables in the energy sector is an absolute must. The idea is to increase demand for electricity. Incentivize DISCOs to sell more electricity, move to a new tariff regime based on oversupply and reduce GST on electricity bills. Principally, rectifying policy inefficiencies and a few structural issues, and over-coming administrative fault-lines, has the potential to considerably stem the haemorrhaging creating circular debt. Divestment of assets is an ideological challenge not only in Pakistan but in many economies. That is why it is time to work with new ideas. Asset recycling, management controls and public-private partnerships rather than outright sale and transfers can be formulated. Initial Public Offerings would be a good start to revive investor confidence.

Pakistan's macroeconomic challenges are structural: a revenue system that is unable to meet the government's financing needs and a consumption-led growth that relies on external flows (remittances, aid) for its sustainability. In the coming years, creating self-reliance through Domestic Revenue Mobilization will be survival. The emphasis needs to be on reducing the tax gap by improving tax compliance, rather than levying new tax measures. Strict progress monitoring of the field offices against assigned monthly targets based on sectoral segmentation, budgetary and administrative measures will help achieve the overall collection.

Coordination between the federal, provincial and local levels will help identify risks, analyze compliance behaviour, and determine and implement treatment strategies for improved tax compliance. There is a need to overhaul the legacy system at the FBR to create an automated and risk-based revenue authority by modernizing tax systems, harmonizing tax policies and putting in place a new operating model for customs based on real-time processing and risk management.

Last, but not the least, Pakistan’s growth model should be much more than investment in bricks and mortar and debt-funded infrastructure projects. It has to be about agricultural productivity; it has to be about scaling up and technologically equipping small and medium enterprises to become part of global value chains. The growth model has to be about smart regulations for services and manufacturing sectors to innovate and bring out entrepreneurial rigour. Additional steps of qualitative and quantitative interventions for marketization, supply chain reforms and reducing state intervention to strategic reserves can create an agriculture base for exports.

An investment shock through a growth agenda could create as many well-paid jobs in tech and services as it would in manufacturing. With an outward looking process and being part of the Belt and Road Initiative, Pakistan has established a network of ties with neighbouring economies. Putting our house in order at this juncture will ensure these channels are used for export. This growth agenda will be the real turning point for the Pakistani economy with incremental GDP coming from multiple sources.

A higher-level task – but close to one’s heart – is distributive justice in our society, triggered through some form of inheritance tax, an effective capital gains tax regime and a property tax. However, we leave this discussion for another day. Sensible economic governance is to keep the long-term perspective in mind yet know the urgency of solving current issues. Pakistan's economic management is no different.

The writer is former advisor, Ministry of Finance, Government of Pakistan.

Email: [email protected]

Twitter: @KhaqanNajeeb