The writer is an
analyst and the
President of All
Prime Minister, Muhammad Shahbaz Sharif says the idea of the Charter of Economy is the need of the hour and the government is starting a process of consultation with all political stakeholders to build consensus on the Charter. Pakistan has suffered severely from the chronic economic crisis, even before the pandemic, for many years. Low growth rates, high levels of debt, inflation, low productivity, and poor competitiveness have, among other factors, contributed to widespread poverty and slow development in Pakistan. Balance of payment figures, the rate of economic growth, tax policies, and other economic topics have been discussed time and again, and with good reason – but all this talk has not solved the economic problems of Pakistan, much less the problems of the common people. Pakistan requires a political consensus on economic policy. Freeing the country from its economic calamities should not be a matter of party affiliation, but a common task for all political actors who want to see Pakistan flourish. There is a dire need for a functioning economic strategy, and for continuity in its implementation, if Pakistan’s economy is to be dynamized. Pakistan per capita earning of Pakistanis has slipped to the lowest in the sub-continent. Despite an agriculture base, 40% of our children are stunted. The pandemic exposed the critical shortfalls in our healthcare. 44% of children do not attend school regularly. The majority that does, receives mediocre education. Large parts of major cities are slums, lacking basic utilities, including safe drinking water. An estimated 5 Mn people are unemployed and we struggle to find jobs for the 2 Mn that reach the age of employment each year. The country has deindustrialized prematurely. We have lost our share of world exports. The economy is consumption-based, reliant on imports even for basic goods. Pakistan suffers from one of the highest electricity tariffs in the world. It also has one of the lowest productivity rates. Our agriculture is in a poor state. Not only are food shortages leading to an unbearable burden of inflation, unchecked, but they also threaten food security. Our per capita income earning, which once exceeded China, India, Bangladesh, and Sri Lanka, has eroded to just 12% of China’s and is now 30% lower than India and Bangladesh’s. The long-term GDP growth rate has halved to under 4%, grossly below the 6-7% required to generate badly needed jobs. Our exports are narrowly focused – 60% reliant on Textiles and 50% directed to Europe and the USA. In none of the five major crops does Pakistan’s per acre yield exceed 50% of the global best.
There is a dire need for a functioning economic strategy, and for continuity in its implementation, if Pakistan’s economy is to be dynamized. Through the National Charter of Economy, political parties and other stakeholders can unite on policies for a better Pakistan.
Pakistan needs nearly $37 billion for the next year for the purpose of paying loans to various agencies and countries, controlling the current account deficit, and building the required foreign exchange reserves but these could be done only with the signing of a program with the International Monetary Fund (IMF). In these circumstances, through the National Charter of Economy, political parties and other stakeholders can unite on policies for a better Pakistan. The need to change is clear. Political differences should not deter this. Not surprisingly, they start with improving the standard of living of the people of Pakistan. The government should focus on discouraging import-led growth in the economy, whereas the manufacturing sector should be given preference to enhance exports. Employment through which people can earn a decent living and save for a rainy day. In order to deliver the aforementioned objectives to improve people’s quality of life, it is necessary for the government and the private sector to work together to raise revenues. The essential elements of this teamwork are: Recognizing that it is the private sector’s role to create jobs and the government’s responsibility to provide an enabling policy and environment, accepting that profit is not a dirty word and jobs are a product of legitimate wealth creation. The legal and policy environment should be enabling and trusting rather than a controlling legacy from colonial times. Public spending necessitates a broad tax base and political will is required to formalize the economy; Smuggling, counterfeiting, under-invoicing, and adulteration hurt consumers, government, and business; Public Sector Enterprise (PSE) losses cannot be allowed to bleed resources required for investment in socio-economic development. Restructure or privatize the PSEs; Industry in particular, and the public in general, need relief from Asia’s highest tariff for electricity. LNG terminals, gas storage, and transmission require urgent investment to offset depleting reserves of natural gas. Also, domestic gas needs to be priced right to minimize waste; Manufacturing cannot forever be burdened with a disproportionate share of taxes. The exchange rate needs to remain competitive to support exports and act as a check on imports. Cascading tariffs, with zero duty on raw materials not locally available, will promote the industry. The industry should not be burdened with bureaucratic and complex claim procedures and the government should re-engineer its processes to prevent the accumulation of tax and other refunds. Cost, reliability, and speed of logistics need to improve substantially; Fundamentally flawed taxes like turnover-based minimum tax be phased out; Reliance on advance and withholding taxes, which sap the cash flow of business, be reduced; Government needs to stop crowding out the private sector from bank credit, banks to prioritize lending to the SMEs.
Exports need to be cleansed of all taxes, duties, and levies so they are globally competitive, export of services should earn rebates and other incentives similar to the export of goods. The gap between exports and imports is standing at 12% which should be reduced to 6% and to zero in the next few years. Acquisition of overseas brands and development of Pakistani brands abroad should be facilitated. Investment in plants and machinery should be fiscally incentivized, development Finance Institutions be established to fund long-term loans and equity investments. Foreign Direct Investment needs to be directed at export-oriented sectors; Special Economic Zones must become a reality; Corporate tax rate is brought down gradually to 25%; Tax returns are simplified and federal and provincial tax returns are integrated; Regulatory Guillotine is conducted to remove redundant regulations, and to simplify and digitize. Civil service is reformed to save public expenditure. NAB law to be reformed to address the paralysis in government decision-making and to encourage private sector participation in Public-Private Partnerships. An agriculture emergency is declared to assure food security, supply of industrial inputs and promote exports. Standards be globally aligned and applied on a one-country, single-standard principle across Pakistan. The role of unbanked money in circulation be curbed to promote the formal sector.
The government should work on revolutionizing the agriculture sector, which will particularly meet the local demand for food items. Pakistan should focus on its food and energy security on a priority basis, and focus on technology services, which have immense potential to enhance exports and local productivity. Moreover, there should not impose any ban on traveling, raw materials, and essential items but only on luxury and non-essential items. Also, the tax rate should not be increased on the income of the people. In this regard, the saving-to-GDP ratio and tax-to-GDP ratio should be increased with incentives and schemes in the next five to six years. The privatization of the State-owned Enterprises is a must as these are eating up over Rs 1 trillion of the valuable revenues every year whereas the government’s expenditures and debt of the country should be reduced gradually. We have to focus on capacity building of our youth in every sector which will ultimately produce results in the economy. We have to make an enabling environment for freelancers, which are growing in numbers in Pakistan. We need a stronger education foundation, starting with the school curriculum in Science, Technology, Engineering, and Mathematics (STEM). Strengthen higher education in technology along with the Indian Institute of Technology model. We also need nationwide e-connectivity through affordable high-speed internet to facilitate e-commerce, digital banking, e-schooling, software development, and IT-enabled services. Reduce the incidence of taxation on all facets of connectivity. Establish IT parks to cluster IT talent and develop specialization streams. Invest in innovation especially in medical and diagnostic devices and agriculture to address healthcare and food security. Build bridges between Defence and Civilian technology and between business and academia in research, focused primarily on import substitution and exports. Public-Private venture capital funds must be focused on funding digital innovation. Render manpower is suitable for an aging world. Develop and export skills in healthcare, care of the elderly, hospitality, IT development, etc
Pakistan needs inclusive and sustainable growth for a long period of time. Pakistan, with all its resources and opportunities, cannot afford to continue to muddle through economically any longer but needs a better, functioning, and prosperous economy. The future of the country, and of all its citizens, will depend on overcoming the economic crisis, there are no short-cuts or quick-fix solutions available. The earliest a consensus can be developed, the better it would be for Pakistan. It is high time that all the political parties arrive at a consensus to formulate a Charter of Economy, detailing a long policy roadmap that should be supported by all the parties irrespective of which side of the floor they are sitting on.