Wednesday May 18, 2022

Navigating in the dark

January 21, 2022

LAHORE: There is a need for dialogue on economic issues between all stakeholders as businesses need clarity of policies particularly in the present murky times, while the government needs to understand the issues impeding growth.

Businesspersons are deeply disturbed by trade and fiscal deficit. Government debt and its huge appetite for loans are crowding out credit for the private sector.

Inflation is a scourge that can only be controlled through prudent fiscal management. Continued reduction in the annual development programme of the government is further taxing the already ruined infrastructure.

The tax to GDP ratio is too low for sustained functioning of the government. No government has sincerely tried to broaden the tax base.

Ever-increasing unemployment is the combined result of acute energy shortage and very high policy rates. Businessmen need clarity on economic issues to chalk out their future.

Those who are committed to stay in their beloved country no matter what comes would plan a different strategy if they are assured that the high interest rates are going to stay, rupee would remain volatile, and bureaucracy would remain a major rent seeker.

In that case they would evaluate whether it is viable to invest in industry or go for more lucrative commodity business. They might as well be tempted to invest in the services sector where the profit margins are higher.

In the present uncertain times, businesspersons are holding back investment because they do not know if the government would ever be able to balance its budget or resolve its governance issues ever. Last but not the least, entrepreneurs are not certain as to what will happen in the next 45 days.

Moreover, a taxpaying entrepreneur would always remain on edge if the nontax paying parliament continues to decide on the levy and use of taxes without representation of taxpayers.

Successive governments remained indifferent to the demographic bomb that can explode into anarchy if three million jobs are not created every year in the next decade. The incumbent government faces criticism for the usual economic depression in the country.

Critics are justified in that because no government, particularly the present one has reduced the miseries of the poor. Every government devised policies that favoured the rich and hoped that the trickle-down effect of growth would finally benefit the poor as well. Trickle-down impact works in economies where poverty is low, and rule of law is supreme.

The comfortable span of every elected government in the last two decades lasted for less than half of their term. After that they start fire fighting, consuming more energy to save their rule while the economy and other matters are left to the bureaucrats to tackle.

Bureaucrats are the permanent feature in running the state with or without a permanent government.

Bureaucrats use every discretion available with them to their advantage. Rent seeking a new normal. The rent starts from the lowest grade 1 employee and goes to the top. Weak governments have failed to ensure strict compliance to the rules.

These governments have also failed to eliminate discretionary powers of bureaucracy. In fact, these discretionary powers enable bureaucrats to provide favours to many on the desire of the ruling government.

In this scenario the dialogue on economic issues is rarely conclusive. The ministers listen to the point of view of different stakeholders instead of applying their own mind to try and accommodate all who come up with unviable policies.

Take for instance the auto sector. The two major stakeholders are the auto assemblers and the auto parts vendors. But the government included car importers (car dealers) in the talks, ignoring the fact that import of used cars on a commercial basis is not allowed in Pakistan.

The used car facility is for overseas Pakistanis. But used cars are imported by car dealers commercially. Shiploads are cleared periodically. The duties of used cars are fixed, although it should be based on current prices and then a monthly discount of 1 percent on duty should be calculated.

The government should either open the used cars import or make these cars imported in the name of overseas Pakistanis non-transferable for five years after import. Localisation should be encouraged.

In textiles, there are numerous stakeholders. Providing protection to yarn and fabric means depriving the value-added apparel sector from importing their basic raw materials – yarn and fabric - at competitive rates to produce cheaper apparel for the export markets.