Here are some thoughts on what is needed to be done urgently on the down-sliding economic front.
The malady is potentially alarming. Its symptoms are clear: a precipitous decline in the value of the rupee fuelling rampant inflation, a declining stock market, an alarming increase in current account and budgetary deficits, a steep increase in debt liabilities and a sharp decline in foreign exchange reserves that may make it difficult to meet international loan repayment liability.
All these symptoms are directly or indirectly connected to the uncertainty surrounding restoration of the IMF assistance package accentuated by the continuing political uncertainty.
Few doubt the urgent need to put the IMF extended facility on rails so that the economy gets a fillip in terms of international credibility, removing the spectre of insolvency and bringing in much-needed external aid.
How the steps to withdraw the relief on oil prices and increase in electricity charges are counterbalanced with the need to protect the poor from price escalations should not be impossible but needs to be taken as a challenge while not compromising the fate of the IMF package.
The sharp imbalances on the external and budgetary fronts need to be tackled on a war footing with certain drastic measures. Bitter pills are unavoidable to jump-start the economy back to vibrant life.
To reduce non-development expenditures, all perks, privileges and entitlements of bureaucracies across the table, of all hue and colour, must be discontinued.
Besides curtailing all avoidable non-development expenditures, there is need for urgent action on several fronts. Development projects not due for completion can be carried over to the next year.
Import of all luxury items must be banned and tariffs on inessential items raised to staunch the leakages on the current account, which is causing depreciation of the rupee while the dollar keeps soaring.
Loan rollover is another option, which must be seriously pursued, so that the debt servicing burden on foreign reserves is alleviated.
The super-rich must contribute their due share to the sagging national economy. Wealth, corporate and death taxes on the rich must be enhanced.
The 0.1-0.5% of the very wealthy must be made to pay progressive taxes while affirming considerations of fairness and equity.
Subsidies are eating away annually nearly Rs2,000 billion of public monies and most of them are tilted in favour of the elite. These must be drastically cut and the subsidies allowed only to the peripheral poor classes.
Prices of oil have to be brought in line with international prices – the relief allowed by the previous government with more political rather than economic motives, cannot be sustained.
The government has to pay nearly Rs4 billion per day on account of oil price differentials. In order to reduce the burden of oil price enhancements on the disadvantaged, targeted subsidies could be introduced and the data base of NADRA can be utilised for the purpose.
The losses of state-owned enterprises (SOEs) are another area that needs attention. There are proposals to offload to the private sector about 20-30% of the capital of selected SOEs along with transfer of management while retaining state majority shareholdings.
These need attention, which should considerably reduce the resource crunch on the government.
Agricultural tax is another holy cow. Until now any attempt to raise tax revenues from this protected sector raises resistance from the big landowners and feudal elite that hold great political clout in any government.
A break with the past needs to be made and the tax brought within the purview of FBR. Ways and means need to be evolved so that the agriculture sector, particularly the wealthy absentee landowners possessing more than 100 or 150 acres of land, make their justified contribution to the running of the state.
Opening up of trade and commerce with India must be given serious attention. The restoration of the office of Trade Commissioner in Pakistan High Commission in New Delhi, which has remained closed for a long period, is a step in the right direction.
The size of India and Bangladesh trade is about $15-20 billion per annum and India, despite its border dispute, has trade worth nearly $150 billion with China.
It is estimated that if trade is opened up and the Most Favoured Nation (MFN) status is granted to each other’s goods and services and with the removal of non-tariff barriers, trade between Pakistan and India can approximate to the value of $20 billion per annum, which is two-thirds of the total expected Pakistan’s exports of around $32 billion this year.
Trade creates growth and employment, resulting in raising the standards of living of the people. Increase in economic activity raises incomes and taxes.
While these are some of the steps that are required to be taken on an urgent basis, long-term structural economic reforms cannot be ignored.
Commercialisation of agriculture by bringing about real land reforms, upgrading and diversifying the manufacturing productive base towards higher value addition and export-led growth, advancing towards a knowledge-based economy, broadening the tax net, making the taxation system more progressive by moving away from overdependence on indirect taxation, which is essentially regressive and iniquitous in nature, are areas that require serious attention.
Short of an equitable and just land reform, which doesn’t prescribe ownership limits on an individual basis but lays down limit on ownership on the basis of a family, progressive agricultural taxation must be introduced to reduce the incidence of absentee landlordism, which inhibits agricultural productivity and commercialisation of agriculture.
That is one of the reasons why Pakistan has from an exporting country become a net importer of wheat, having to import nearly half a million tons of the commodity this year.
An overhaul of the power generating, supply and maintenance system is badly required to balance costs with revenues and drastically cut down on losses and theft.
A bold policy of either revival or privatisation of public sector enterprises needs to be evolved and put into effect vigorously so that the permanent drain on state revenues is retracted and essential savings enabled.
The economy needs a strong dose of medicine today rather than the day after. Each day counts. The time keeps ticking and doesn’t wait for an inadvertent or unintended wisdom delayed.
Now is the time to act boldly. Victory may not be lauded but defeat has no friends.
The writer is former chief secretary of Khyber-Pakhtunkhwa
Published in The Express Tribune, May 16th, 2022.
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