Stabilising national economy

Pragmatic measures are necessary to curtail waste

Stabilising national economy


any analysts hold that the current chaotic economic situation is partly due to institutional interventions. It is heartening that the army’s command has changed smoothly with a clear commitment not to interfere in politics. Gen Asim Munir has taken charge as chief of army staff after he was nominated to the office by Prime Minister Shahbaz Sharif on November 24, putting to rest all speculation in the media.

Earlier, politics around the appointment of the COAS had created a furor in the country. The PTI leadership had been trying to pressure the government by demanding an extension in service for Gen Bajwa or calling elections before his retirement. The undue importance given to the matter, despite the fact that a third of the country was inundated by flood waters, inflation hovered around 26 percent, policy rate had risen to 16 percent, stock exchange had witnessed continuous slide and foreign exchange reserves were down to a level that was not enough to meet the imports for one month.

Pakistan is currently in an International Monetary Fund (IMF) programme. The eighth review has been completed. An IMF delegation was expected to visit Pakistan in the month of November. According to Reuters, the IMF has resumed negotiations with Pakistan for the upcoming ninth review of the ongoing Extended Fund Facility (EFF) programme.

Pakistan has already shared fiscal data with the IMF team, including details of flood related expenditure. The IMF is now reviewing ahead of the delegation’s visit to Pakistan. An exact date for the completion of the review and release of the next tranche has not been announced.

Recent writings by Miftah Ismail, the former federal minister, have appeared to support the view that Pakistan is close to an external default. He has also raised concerns about the successful completion of the IMF programme. Despite facing severe challenges on the fiscal front, including the risk of default, the PDM government appears unwilling to undertake fiscal reforms.

Successive governments in Pakistan have failed to implement the reform agendas agreed with the global lender, what to speak of undertaking fundamental structural reforms related to governance, judiciary, agriculture and land use. The IMF has extended the EFF programme until June 30, 2023 with an augmentation of access by SDR 720 million subject to implementation of corrective measures and policy commitments.

In its country report, released on September 1, the IMF specifically mentioned that the overall programme performance had remained weak since the completion of the last review and until recently. Several quantitative criteria were not met and there were gaps in implementing the fiscal and structural reforms agenda.

The report specifically sheds light on Pakistan missing four indicative targets: (i) targeted spending under Benazir Income Support Programme (BISP) due to a slower than envisaged enrollment in the unconditional cash transfer (UCT); (ii) inadequate allocations for health and education because of less expenditure on both Covid-19 vaccine procurements in FY22 (Q3) and education due to the implementation of Covid restrictions; (iii) net accumulation of tax refund arrears due to administrative delays; and (iv) power sector payment arrears due to delayed tariff adjustments and higher-than-expected generation and financial costs. The report further notes that these targets were missed in March 2022 as well due to the same reasons.

Successive governments in Pakistan have failed to implement the reform agenda agreed with global lenders, what to speak of undertaking fundamental structural reforms related to governance, judiciary, agriculture and land use.

Our political elite have been ignoring reforms in the state-owned enterprises (SOEs) to improve their governance, ensure transparency to curtail financial risks and increase efficiency. Though the National Assembly adopted the State Owned Enterprises (Governance and Operations) Act 2021, on June 6, 2022, it is still pending in the Senate for approval. This fact has been highlighted in various international reports, including that of the World Bank showing that the profitability of the SOEs is rapidly declining.

The World Bank, in its report Hidden Debt: Solutions to Avert the Next Financial Crisis in South Asia, specifically mentions that the income-dropping rate is recorded at approximately 57 percent on average from 2014-2017. It further highlights that 95 percent of the SOE revenue in Pakistan came from the energy and transport sectors.

The report reveals that the SOE sector in both Pakistan and India is larger than the international benchmark. No government in Pakistan has been interested in reforming it to avert heavy losses to the national treasury on their account. The money could have been invested in the social sector to raise the living standards of the citizens.

Apart from the SOE reforms, Pakistan needs basic structural reforms to improve inefficient and outdated governance through a comprehensive control system so that all the institutions should work in their defined domains and are subject to meaningful and effective accountability.

The real estate sector is another area that requires immediate reforms. The PDM government has tried to impose taxes on non-productive assets vide Finance Act, 2022 but the quality of the legislation is poor and in disregard of the provisions of the constitution. These measures are devoid of enforcing documentation.

The government should develop a transparent system of electronic titles to property, utilising identification and monitoring tools. The government should also introduce reforms in the agricultural sector. A substantial part of our population is dependent on agricultural income. We should provide facilities to them for increasing production. At the same time, the provincial governments must introduce fair taxation for the high earners, especially absentee landowners.

It is an undeniable fact that the purchase of petroleum products and the generation of electricity consume a major portion of revenues. The huge circular debt for both electricity and gas is another daunting challenge. We have the opportunity to minimise losses by introducing alternative sources of energy, e.g., solar and wind but import restrictions limit these options.

The government must realise that we cannot be rid of the fiscal mess until we take pragmatic measures to curtail the waste. The sooner they realise this, the better it will be. It is clear that seeking funds from the IMF or bilateral arrangements to meet fiscal targets will not help us much. We are a country of over 220 million people; we cannot survive on one billion dollar tranches from the IMF or pledges made by China and Saudi Arabia.

Dr Ikramul Haq, an advocate of Supreme Court and writer, is adjunct faculty at Lahore University of Management Sciences (LUMS)

Abdul Rauf Shakoori is a corporate lawyer based in the USA

Stabilising national economy