Saddam Hussain
Pakistan economic policy has always been inconsistent. The economic engine churns on with varying results, but nothing seems to signal a stable and long term-approach to the chronic economic problems the country faces.
At present, Pakistan’s favorite model to emulate is the failed economic archetype of Egypt. Economists know that the Egyptian model was a credit bubble, which could be destabilized within hours by playing with interest rates and international financial stability ratings, which is precisely what happened. The same was true of the East Asian economies, which were also experiencing the credit bubble at the time.
Later, those East Asian Economics, Malaysia in particular, took a different trajectory and focused on productivity, which generated employment opportunities, earned forex and harnessed sustainable growth.
State Bank of Pakistan (SBP) is apparently experimenting the same archetype, knowing that result may not be different. The stabilization has to go beyond monetary tightening and exchange rate adjustments, as too much of the same medicine could be counterproductive. Fiscal austerity, financing other than commercial banks, and issuing Euro and Sukuk bonds – which will get the country enough time to discipline its fiscal problems – is needed. The focus should not be on getting hot money by playing with the interest rates.
However, the situation is not all gloomy. Pakistan’s economic policy espoused by the sitting government of Pakistan Tehreek-e-Insaaf (PTI) – spearheaded by Prime Minister Imran Khan – during the last one year, has accomplished some noteworthy results.
The surge in taxation scale, the alteration of development focus, and the optimization of foreign-related cooperation are some of the outstanding features of the country’s new economic vehicle. These positive changes can lay a decent foundation for the development of the country in the next stage, if properly executed and implemented.
Meanwhile, the PTI Government recently released its first year progress report. It claims that the economy has emerged from the crisis phase and is gradually moving towards the stabilization phase. It also mentioned that the government’s arm for attracting foreign investment has approved the establishment of 11 special economic zones to be established in all four provinces. Likewise, the government is also focusing on cultivating new economic growth poles in high-potential areas. However, the overall pace seems glacial.
The same report shows that the tax reforms implemented during the last year have achieved remarkable results. In July this year, the total domestic tax revenue of Pakistan was 234 billion rupees (about 1.45 billion US dollars), an increase of 60% year-on-year and nearly reached the target of 236 billion rupees.
The expansion of tax revenue is inseparable from the increase in taxpayers. In the fiscal year of 2018/2019, the number of new taxpayers in Pakistan increased by 350,000, an increase of 137% over the previous fiscal year. This indicates that clamping down the tax evasion problem plaguing Pakistan for decades has been accelerated, and is bringing results.
Additionally, to improve the ease of doing business, Islamabad has congruently implemented a series of reform measures. For an instance, the registration for the establishment of a new company can now be completed just within one working day; the power supply can be in place within three months to four months; and the new building construction permit can be approved within about three months. In the course of business, taxes, social security, and pension payments can be made online. Moreover, the government has also set up a 24-hour hotline to answer questions and provide convenience for investors.
Under the influence of such encouraging steps, the ranking of the Bar Business Convenience Index has steadily increased from 147 to 136. The increase tax collection will help alleviate the fiscal deficit as well. As long as this positive momentum is maintained, the situation of the Pakistan’s fiscal deficit will gradually ease.
Another important success of the government in the past year has been the expansion of the connotation of the China-Pakistan Economic Corridor (CPEC), which further includes market access and industrial development along with conventional priorities, such as energy projects and infrastructure initiatives. Inclusion of new areas such as poverty alleviation through the people’s livelihood, agricultural modernization, and the marine economy have enabled the corridor to keep pace with the times and better meet the needs of Pakistan’s economic development.
Moreover, Federal Board of Revenue (FBR), after a long time, looks thoroughly committed to bring the reforms on the ground. Apart from many other structural changes, it is digitalizing the whole system to ensure impersonal exchanges possible, leaving little room for corruption and obstructionism. In the last few days, it released a mobile application operational for the salaried persons for the purpose of filing tax returns. The revenue authority has also completely changed the valuation system at Custom Stage (CGO 19 of 2019 has been issued). Now, Pakistan is in line with international best practices for appraisement: a paradigmatic positive change for industry and trade.
Lastly, a major challenge was resultant uncertainty in the economy. However, with the aforementioned, and addressing current accounts and fiscal deficits, the economic trajectory is hopeful. Pakistan need not pursue a credit driven economy for long, as it has the potential to crash suddenly and bring economic instability. The policy makers need to think outside the box for the long accrued economic troubles. The significant step in this regard would be to improve governance and lessen regulations – which does require any money to be spent –, allowing merit and accountability to move the economy forward in a sustainable manner.
