Unprecedented floods, perilous economy weigh on business environment

LAHORE: Pakistan is facing unprecedented floods amidst a perilous economy, where both optimism and pessimism are at extremes in reference to what the future holds for an enabling business environment.

This was the focus of the discussions that were held at the conference on “Evolution of Social, Political and Economic Order, past, present and future: and its impact on creation of enabling business environment” organised by the Lahore Chamber of Commerce and Industry (LCCI) on Tuesday.

Speakers included Dr Ayesha Ghaus Baksh, Raza Rabbani, Dr Ishrat Hussain, Shabbar Zaidi, Syed Yawar Ali and others.

Minister of State for Finance and Revenue Ayesha Ghaus admitted that Pakistan’s economy was in the middle of a perfect storm. This storm she added was created by global crisis, climate change, polarisation of society and institutional dysfunction.

Ghaus said donors, including the International Monetary Fund (IMF) did not trust us. “We have recovered from a grave situation,” she said, adding that our economy needs assistance on a yearly basis.

Since 1988, Pakistan has entered into an IMF programme 23 times. Unfortunately, during this period, the much-needed structural reforms remained pending. The economy boomed on foreign assistance and busted when assistance was denied.

She said periods of high growth always ended in a balance of payment crisis as imports overshot exports by a long margin. “We will have to learn to live within our means,” the minister said, adding that the floods have put unbearable pressure on the economy.

Former governor of the State Bank of Pakistan, Dr Ishrat Hussain said, “From 1947 to 1989, we were one of the fastest growing economies in the world. Our GDP growth averaged over 6 percent during that period.”

India at that time was growing at 3 percent, while Bangladesh was a basket case. He said during 1947-1989, our institutions were very strong. People managing these institutions were men of integrity, who were selected on merit.

Our finances at the time of independence were so weak that the government was not able to pay salaries. Still, the nation braved the influx of 8 million refugees, tolerated the 1965 war with India; the East Pakistan loss did not hurt the economy, and even the nationalisation of the PPP regime did not dent the growth of the country. All this was possible because of strong institutions.

He regretted that Pakistan did not invest in human resource and the literacy rate was still 62 percent. On the other hand, Bangladesh invested heavily in its human resource and has achieved 100 percent primary enrolment.

Dr Hussain said Pakistan needs a strong state, perfect law and order, security, infrastructure, and macroeconomic stability. Government, he added, has no business in doing business. If 85 state-owned enterprises are privatised immediately, the government would save Rs1,000 billion annual losses. A relief of one trillion would reduce the fiscal deficit substantially.

The economist advised the private sector to invest in big industrial projects instead of investing in real estate, and urged the civil society to play its role in handholding the poor farmers.

Former chairman of the Federal Board of Revenue, Shabbar Zaidi from the onset had declared that this company would not last and would go down. “It will be better if we realise and admit the fact that we were bankrupt,” he said, regretting that the nation was not ready to listen to the truth.

The former FBR chairman also categorically declared that the China-Pakistan Economic Corridor was not a viable project.

Speaking of tax filers, Zaidi said, “We have hardly 3 million tax filers, while Modi in three years added 30 million new fillers in India.”

Zaidi said only 400 companies paid 60 percent of the tax collected in Pakistan. Around 30 percent tax was collected in withholding mode, while the tax collected from the salaried class came in automatically. FBR only collects 1 percent of the total taxes through its efforts.

He reminded that the revenue board employed massive human resource, 23,000 strong, to collect that 1 percent tax. “FBR needs a workforce of at most 5,000,” Zaidi said, adding that when as FBR chairman he floated the idea of hiring the FBR staff on market rates, there was mutiny in the organisation after which he resigned.

He said agriculture, retail, and wholesale plus exports account for 75 percent of Pakistan’s GDP but they contributed only 5 percent in the total taxes. He said industry accounts for 25 percent of GDP and contributes 50 percent in the total tax collection.

“This country is best suited for trade and not viable for industry that has to pay a cumulative tax of 40 percent. The state must decrease the taxes on industry to promote industrialisation.” This he added was not possible until other sectors were brought into the tax net.