ISLAMABAD: A close analysis of the government’s economic policies reveals that since forming its government, Pakistan Tehreek-e-Insaf (PTI) government has been burning the midnight oil during the last two years to steer the country out of multiple challenges like economic recession, debt retirement, current account deficit, money laundering, power generation and deficiency of housing units.
A number of initiatives were started at micro and macro levels through an overall reforms agenda in agriculture, manufacturing and services, taxation and other sectors with special focus on mega water projects, power generation, construction of houses for poor, Ehsaas programme and austerity drive.
There are some noticeable successes in the fight against the coronavirus pandemic and some early signs of spring in an otherwise harsh economic environment.
The situation to which the newly elected government came across in 2018 was rampant corruption that was hindering in the way of economic progress in the country. The PTI government decided to take the bull by horns and diligently pursued the agenda of accountability to cleanse society of the corrupt elements.
When the Pakistan Muslim League-Nawaz (PML-N) government concluded a $6.64 billion EFF programme with the International Monetary Fund (IMF) in 2013, Christian Legarde, the managing director of IMF, had advised PML-N “to continue strengthening resilience by building fiscal and external cushions to be adequately prepared for future economic shocks.”
Unfortunately, the government then eyeing upcoming elections was in no mood to follow the IMF’s advice and instead went on a spending binge whose bills, the country is still struggling to pay.
Therefore, on August 18, 2018, when Imran Khan was sworn in as the prime minister, he was confronted with a Hobson’s choice of either immediate default or go for another IMF programme designed to stabilise the external hemorrhaging.
This was a very hard pill to swallow for the new government and for almost a year it tried to raise the needed cash to avoid an economic crash. But in spite of massive support from Pakistan’s friends and stringent home-grown measures, the country still needed an IMF package.
After the start of the IMF programme, Pakistan has met the quarterly performance targets set by the IMF. It has been able to slash the current account deficit to a negligible level, weathered a tsunami of inflation, stabilized the rupee at around 164 rupees to the dollar.
Exports have started their long journey towards growth, reserves are building up, interest rates have peaked and recently been slashed, investment is recovering.
The China-Pakistan Economic Corridor (CPEC) has moved into a new phase that comprises investments in the agriculture, manufacturing, and services sector. Long-delayed mega water projects have been started. A very favorable Free Trade Agreement (FTA) has been signed with China which gives Pakistan unprecedented access into the vast Chinese market. Trade relations with the European Union and the United States have been strengthened and the economy has started moving back from the edge towards recovery with investment opportunities for both export promotion and import substitution.
The real challenge is progress on the economic reforms at the micro-level. These long-delayed reforms are critical for Pakistan’s economic development and prosperity but are intrinsically intertwined with the accountability process and hence very difficult to implement. Fierce political resistance from the status quo forces slows down the accountability process and hurt the credibility of the reform effort.
Fortunately, PM Imran has not bowed down to any pressure and is determined to wipe out the cancer of corruption in economic decision making at the highest level of government.
He firmly believes that a system distorted by corrupt practices is at the root of Pakistan’s debt crisis and economic difficulties; Furthermore, he is convinced that regulatory and decision-making processes have been undermined, distorted, and compromised to facilitate rent-seeking, kickbacks, money laundering, and tax evasion.
The government has analyzed very quickly that to liberate the economy, supply chains have to be deregulated, processes simplified and competition has to be enforced and cartelisation of the economy was not allowed. An entrenched corrupt system was fatal for Pakistan and had put it on a path of destruction. Reforming the system was thus a lynchpin of his commitment to the people of Pakistan.
The PM has commissioned several economic, administrative, and criminal investigations on a number of burning issues involving public debt, power tariffs, sugar, and wheat crisis. The objective was to get answers, break the nexus between corruption and decision making, assign responsibility.
On the revenue generation front, the Federal Board of Revenue (FBR) has succeeded in expanding the tax net and boosted tax collections as the prime minister took on the gigantic challenge of reforming FBR and tax administration.
The rapid transformation of the informal economy into a formal economy requiring unpopular tough reforms to document the economy and create a new tax culture in Pakistan is underway.
Government, traders and the business community are deliberating to devise a suitable tax system in Pakistan which is fair and equitable and can finance the development of the country
When the Covid-19 pandemic affected severely and disrupted the urban economy in Pakistan. Manufacturing and services supply chains faced shutdowns. The government moved decisively to create the National Command and Operation Centre (NCOC), mobilised to equip and strengthen health facilities across the country, digital, provided billions of rupees of direct cash transfers to millions of affected poor families, preventing wide-scale hunger and devastation. By instituting a policy of smart lockdowns, with effective trace and track arrangements it has managed to cushion the economic impact of disruptions and market shutdowns.
To further cushion the economic fallout of corona, the PM was able to arrange debt relief from the G7 countries and has taken the lead in developing global consensus for debt restructuring and relief for developing countries on a larger scale.
In a move to create massive employment opportunities to compensate for the job losses during corona, the government has incentivised the construction and housing value chains in the country.
Under the personal leadership of the PM, weekly meetings are held to remove the regulatory burden on the construction industry. As a result, it has seen more ease of doing business reforms and deregulation in the past five weeks than in the last fifty years.
These reforms have been institutionalized all across the value chain from urban master planning and unlocking of land banks to digitising approval systems for quick and automatic approvals and rejuvenating sustainable systems for construction and mortgage finance by the State Bank of Pakistan (SBP).
The measures like streamlining the availability of utilities for development sites, reviving REITs financing and tax rationalization, creating incentives for low-cost housing, and facilitating home ownership across the country, were introduced.
This model of applying fast track reforms guillotine under the leadership of the premier and involving administrative machinery of both the federal and the provincial governments is all set to roll out across major value chains involving the manufacturing, services, agriculture, and knowledge economy.
Background homework has been completed and reforms packages are ready for implementation by mobilising the government machinery and public-private partnerships.
Analysts say that Pakistan can benefit from the current global opportunities for the relocation of production centers by being competitive with other regional countries. The prime minister is moving forward briskly to boost Pakistan’s image and international rankings in investment, productivity, and competitiveness from the bottom quartile to the top quartile in the next three years.