These days there is this pointless war of words going on in the political arena and also, to some extent, in the civil society. A segment of some pseudo socialist writers and opinion-makers are accusing the government of not enforcing the lockdown the way it should have been done and for allowing key businesses to operate. They claim that this is just because the government wants to support the country’s elite and businessmen so that they can keep on making their profits at the expense of human life. Unbelievable, as nothing could be more absurd and further from the truth. Ironically, these critics not only themselves belong to the so-called ‘elite’ class they pick on, but also represent the publications that primarily cater to these elite. And as for the substance of the criticism itself, one can only say that they either do not properly understand the very underlying dynamics of corporate functions or are simply indulging in some inopportune point-scoring at perhaps the most difficult time in our nation’s recent history. Given an across-the-board the compression of aggregate demand in the markets; an extremely demanding compliance environment to re-open manufacturing; the sheer ethical burden on an entrepreneur to keep workers safe during work; and numerous other supply chain and distribution challenges, running a businesses these days is at best an exercise in ensuring employment generation cum maintaining a semblance of national industrial life. Thereby, signifying that the country thankfully is still alive and kicking – certainly not profiteering, as is being implied, of any kind. More like a national service by giving something back to the economy through perhaps a symbolic gesture of economic activity that ensures hope does not fade away.

However, the job for the government is far from being done. In fact, it is just beginning. Restarting industrial engines is always the most difficult part that not only requires patience and perseverance, but also commitment on the part of the regulator to support domestic businesses despite strained resources. So, what should the government do? Well, interestingly the answer is not too hard, as it basically requires a simplistic two-pronged approach: a) Give the private sector a free hand along with a level playing field and let the entrepreneurial juices do the rest and b) From the government’s self-management perspective, preserve cash. To explain the latter first: what it means is that the government should endeavour to balance the upcoming budget by relying on its internal resources. With COVID-19 have also come some opportunities for economies like Pakistan’s – who have been historically heavily dependent on imports – in the shape of low oil prices and a growing wave of protectionism, which has forced the WTO to let its guard down, even if temporarily. This is an ideal time to look inwards. And it is in this context that one was relieved to see this government not passing on the entire benefit from the fall in oil prices to the consumers. As per its latest announcement on the petroleum product prices, the reduction on a whole amounted to an of average 26 percent, or PKR 22/litre on average from the previous level, which is about 70 percent of what its determining body OGRA had suggested, and similarly the CNG prices were reduced by about 15 percent, which again was a partial passing of the benefit going by the applicable correlation contract formula to Brent.

A brief summary being: Petrol by Rs 15 or 16 percent, reduced to Rs 81.85, but more importantly, the breakdown revealing that despite the reduction, government’s coffers in essence became richer since taxation in effect increased by 14 percent and OMC margins up by 6 percent. The reduction given to the consumers however, is still quite generous when compared to our regional neighbours like India, Sri Lanka, Bangladesh and Myanmar. The writer has always maintained that needlessly reducing fuel prices for direct consumers is sometimes like squandering the advantage up in smoke. People just burn it away in non-productive social habits. India across the border and even some oil producing countries like Malaysia and the UK, have always been far more prudent in this regard, by earning revenues that can be put to better use or towards greater good. Inflation for now is well under control and headed in the right direction. Clocked at 8.50 percent in April 2020, with global commodities crashing and a compressed domestic demand, one will not be surprised to see it reduced to around 6.50-7 percent by June 2020. Just the 26 percent decline on average in petroleum products should have an estimated direct impact of around 2.6 percent decline in the CPI inflation in the coming quarter, which is good, both for the masses and the economy at large. This takes us to the other single most important measure of further reducing interest rates by June 2020, possibly to 6-7 percent. This alone will give the national exchequer a revenue injection of around Rs1,500 billion. Combine this by any savings that the government can manage by giving a long-awaited hair cut to its own size and the outlook for Budget 2020-21 already starts to look quite promising.

On the second part, the unavoidable downside of such lockdowns is that purely owing to the nature of governance required during pandemics. The footprint of governmental oversight invariably grows significantly and unless quickly curtailed back to previous levels, it can become counterproductive and prove to be a main obstacle in regaining economic momentum. Especially, in countries like ours where the bureaucracy is mostly compromised or largely incompetent or just outright corrupt, the fallout can in fact be quite grave. Already, there are horrendous stories floating around of extortion and mishandling of businesses, factories and markets, all in the name of oversight. Again, as proposed so many times, the unlocking compliance needs to be handled professionally through third party evaluations by independent international and national bodies like Moody’s, SGS, Bureau VERITAS, PSA, Chambers, etc. As Ayn Rand said, “Ethics is not a mystic fantasy, nor a social convention, nor a dispensable subjective luxury. Ethics is an objective necessity of man’s survival, not by the grave of oversight, nor due to your competitors nor of your whims, but by the grace of reality and the nature of life.”

By now it is a given that COVID-19, by comparison is going to have a far more devastating effect on developing economies, leaving them even more resource-strained than before. So, the key for us is in finding out-of-the-box solutions for providing the much-needed stimulus. Measures that do not require dole outs in shape of capital from the government, as it is low on cash in any case, but instead are more to do with policymaking.

The obvious policy measure that immediately comes to mind is the coercively high prevalent sales tax rate, which is crippling the markets by stifling business transactions, and needs to be quickly rationalised. Again, a cursory look around us and for some odd reason we find that Pakistan’s sales tax (or value added tax) rate is amongst the highest not just regionally, but also globally. If from 17 percent (even higher in certain cases) is brought down to around 5 percent and side by side if zero-rating is restored on the five main sectors of exports, the government in all probability will end up collecting more revenues than what it is getting now. No rocket science in deciphering that as business transactions grow and the incentive for off-books settlement erodes, the overall inflows increase. As per a recent survey of entrepreneurs by McKinsey, optimism for post COVID-19 economic revival was almost found to be double in countries where taxation was low or recently reduced versus where taxation still remained exorbitantly high.

“Incentivising by going back to basics: Capitalism through Market Forces – the Unknown Ideal.” Ayn Rand.