The budget stands announced and leading up to it, good or bad, whatever has happened has happened! The government naturally defends its performance arguing how such massive and rapid devaluation is in the interest of the country; why such abnormally high interest rates are necessary to curb consumption (ironically the government itself is the largest national borrower); or why a sudden influx of taxation and tightening measures are necessary to sustain day to day governmental operations, while of course the critics feel the opposite. Implying that quite a few of these pains may have been avoided and how due to part inexperience and part lack of any real affinity with the Pak economic scene, the new economic managers may have gone overboard in enforcing policies that may not only damage the long-term economic prospects of the economy, but even in the short term are likely to end up unleashing a wave of inflation, unemployment, poverty and discontent in the general public. After all the common man is neither responsible for the high debt burden that the country faces today, nor is he a stakeholder in the misuse cum loot of the national treasury. So, why then should he be punished for the sins he never committed!

Without getting into what is by now an academic debate on who is right and who is wrong or whether or not such abrupt cum extreme actions were avoidable – on a more important note - let’s try and analyze that given today’s dispensation of economic management, what really does the future hold for the prospects of the Pakistani economy and its people. While admittedly Pakistan’s problems are peculiar in many ways that it has a burgeoning population with a low skill set that almost every year invariably results in a negative per-capita net-productivity and that its sheer geographical location coupled with the fact of being the only Muslim nuclear power poses unique security challenges, it however, does not in any way mean that its recipe for economic success will also have to be peculiar when compared to the other regional or global economic success stories. And it is in this very context that one finds it a bit odd that some of the core current day economic policies not only differ starkly from other successful economies, but also at times defy elementary economic principles. We all know the basic formula for economic success – reform wholesale, followed by reform retail, plus good governance, education, infrastructure, and the ability to globalize. What we don’t know though is the answer to the question of why one country gets its act together to do all these things in a sustained manner and why another one doesn’t. The answer perhaps lies in two intangible things: One, A society’s ability and willingness to pull together and sacrifice for the sake of economic development and Two, presence in a society of leaders with the vision to see what needs to be done in terms of development and the desire of these leaders to use power for change through choice rather than to bring about a change through coercion. It seems this is where we are failing ourselves. Shock and awe tactics and branding everyone as a thief not only divides the society, but ends up killing the very entrepreneurial cum investment drive, which is key to any country’s success to attain economic independence. Regrettably, in the overzealousness of the new revenue managers a very wrong signal is going to the markets that business and industry in the present state are in fact undesirables. When introducing stricter tax laws, missing are the necessary notions of reciprocity, encouragement and reforms that ensures distancing the tax collector from the taxpayer.

Instead a culture of intrusiveness is being introduced, which unless checked, risks the danger of dismantling the entire operational economic structure of the country. “To build may have to be the slow and laborious task of years. To destroy can be the thoughtless act of a single day.” ~ Sir Winston Churchill. It is nice to give examples of India and Bangladesh, but what we forget is that they shunned such negativity as far back as in the 90s and have reached where they are today by encouraging documentation cum tax collection through incentives and not by coercion and control. India today consciously encourages it corporations to go global, honors its businessmen and taxpayers by naming key national landmarks after them and Bangladesh has undertaken three sets of new generation tax reforms since 1985, which allows its businesses and exporters a harassment free work environment to a large extent. Ironically, we here today are trying to achieve some very unrealistic revenue targets with the same set of decadent collection machinery that has hardly gone through any modern day reforms in the art revenue generation and sadly was responsible for pushing the country in a black hole of corruption, extortion and wealth depletion through the lost decades of 70s and 80s.

In addition, the present rising interest rates phenomenon at home amidst a global environment where discount rates are deliberately being kept low in order to encourage investment, manufacturing and job creation, is nothing but baffling, to say the least. When it comes to providing the right tools and environment to a country’s businesses to take the economy forward, two books come to mind. One by the economist David Landes, Wealth and Poverty of Nations, where he argues that a country’s economic success among other things largely depends on the degree to which it internalizes the values of hard work, tenacity, patience, thrift, honesty and on the inherent right of its private sector to low cost capital. The other by Lawrence E. Harrison, titled, The Central Liberal Truth: How Politics can change a Culture and Save it from Itself, in which he opines that societies that maintain focus on developing and aiding its business institutions through making capital available to them at competitive cost, as an integral part of its corporate cultural continuity tend to do better than the ones which don’t. And Schumpeter’s famous quote stating that, “If you want to fatigue an economy, make its capital dear.”

Last but not least, we need to remain clear: Pakistan’s main problem is that of its external account deficit and look at this in any which way one wants, devaluation can never be a help in fixing it. While periodic corrections in accordance with international trends or inflationary-adjustments to retain industrial competitiveness can and are always a part of prudent currency parity settings, value erosion in excess of 30% just does not make any sense. One has written time and again that there exists no empirical evidence (or data) to establish any type of real correlation between devaluation and sustainable growth in a country’s exports. The stories of successful exporting countries climbing the value added chain over the last decade come out as being no different. In fact a very detailed WTO study on value addition (2008) points to a stable currency environment as one of the main pre-requisites to a sustainable value-addition drive in an economy! As if this folly by itself was not damaging enough, the removal of zero-rating and imposition of a sales tax slab as high as 17%, defies logic. And in all this, still missing is any mechanism to ensure an expeditious refund to the exporters; if previous history is anything to go by, refunds at the time had a backlog of 18 to 24 months with nearly a 10% level of disallowances or deferment. End result: The already cash starved exporters now suddenly have an even larger liquidity crunch to grapple with!

In comparison, Bangladesh’s central bank guarantees its exporters their refunds in 3 working days from the date of export receipts and in many cases where its exporting units are either located in the EPZs or if their export sales account for 90% or more of their turnover, they are simply allotted a zero-rated registration. Further, this levy of such an exceptionally high rate of Sales Tax or VAT (value added tax) raises the larger fundamental concern of further increasing the cost of doing business in Pakistan – an indicator on which we already fall fairly short! At a time when other countries are trying to shore up industrial competitiveness by lowering sales tax we have instead opted to move in the other direction? For example, today in Sri Lanka ST stands rationalized to 13.50%, in Egypt 14% and in more conscious economies like South Korea to 10%, Japan 8%, Thailand 7% and in Malaysia to 7%. Indonesia this year did a second reduction by bringing it down to10% and in Nigeria to 5%.

To summarize, what we need to realize is that we need to follow economic policies of the other successful countries – No point in swimming against the tide. As is evident, economic success lies in expanding the pot (GDP Growth) and not in contracting it, in lending confidence to the investor and not in shaking his trust and in exports through productive connectivity and not via currency devaluations. Look how differently than us has Vietnam connected itself with China – Theirs is an export surplus while ours is an import surplus (something to ponder upon when configuring the make-up of the SEZs with China under CPEC). More importantly, it will do this government a lot of good by taking a long-term view of things rather than being merely stuck in a time warp. No point in moaning about what the British did 70 years ago by living in large bungalows while enslaving the native Indian or for that matter by single mindedly blaming the previous governments for all its woes – Time to transition to the present and take responsibility.