The leadership – economic managers, bureaucracy, politicians, and establishment - these days is busy convincing the masses and the corporate stakeholders on how the economy stands turned around and happy days are just around the corner. Well, in essence, nothing wrong with it since perception is sometimes important in economic turnarounds, but on a more prudent note, our economic managers need to be careful with their claims, because sooner than later these need to be backed by some competent economic management, key reforms and sustainable results. Also, the danger is that often such persistent cum exaggerated rhetoric can get delusional where the policymakers actually start believing their story, thereby taking their eye off the real reforms and dispensing the economic governance that is truly needed to correct the course. Needless to say, if the managers carry the baggage of past failures and some poor economic decisions in the past that perhaps led to the present quagmire in the first place, the repercussions of this make-belief world could be rather grave, thereby pushing the country towards yet another lost decade or maybe even longer! The government today is taking credit for an improvement in macro-economic indicators, such as inflation, interest rates, current account deficit, reserves, and a relatively stable Pak Rupee, and then of course for sealing a deal with the IMF, and finally for increasing revenues through an aggressive tax regime. However, what is important here is to realise that in reality, the macro-economic indicators are more of a global phenomenon than Pakistan-specific ones, since interest rates and inflation are generally coming down in almost all global economies; as for our reserves, they stand on rather thin ice, since the figure, in essence, stems from borrowing with an almost $108 billion debt payment/restructuring staring at us from the other end of the barrel; the Rupee stability is largely owed to house-correction within the governmental corridors rather than via the preferred way of an investment cum surplus bulge resulting in a currency momentum; and for securing the IMF and the draconian tax policies, one is not sure whether to celebrate or lament them. Meaning, that unless a sustainable and growth-based strategy with a clear medium to long-term vision is unleashed quickly, these seeming victories can wither away quickly.
Also, the prided taxation drive that overtly depicts the tenacity of the economic managers in extracting revenue from the markets, in effect could be extremely foolhardy, as it has been carried out without first ringing the much-awaited reforms in the FBR. The lopsided draconian powers handed out to the tax authorities, sans accountability, have not only been enhanced but the ensuing witch hunt of the legitimate taxpayers cum coercive tactics are bound to prove counterproductive as we go along. These strong arms tactics invariably discourage investors and legitimate businesses. so little wonder that we today see a bee line of businesses and professionals in exploring exit strategies – in fact quite a few remaining MNCs today are looking to disinvest on a fast-track basis. Also, missing from this purpose less tax drive are important elements like using tax as a tool to promote equitable demographical growth & investment and to help build focus on desirable sectors of the economies (ironically the opposite has been true by targeting the export sector); usage of behavioural sciences in framing tax laws to promote reciprocity and induce people towards taxation instead of forced extraction; any kind of sensible slab formation to encourage a tax culture rather than discouraging it (penalising the savers is just beyond any logical rationale) – we know through a history of tax strategies (latest being USA between 2016-20) that economies tend to collect more revenues by finding the right equilibrium between a growth-based taxation structure and by tapping public confidence cum trust in the collector! Meeting a group of select business may be a nice gesture, but the truth is that a) amnesties never help, because it is sort of punishment to the honest taxpayer for playing by the rules. Also, in any case, apart from a select few no will even take another amnesty scheme seriously after a breach of trust by the government by reneging on previous commitments, and b) the reality is that a genuine investment can neither be dictated nor requested, instead it has to be enabled. And this is where the policymakers are coming out short. The government has been expanding its footprint, which in itself is detrimental to operative efficiencies in an economy, but the immediate downside is that these created inefficiencies require ever-expanding capital outlays compounded by a natural tendency of government functionaries including politicians for self-aggrandisement, something that leads to further discontent and polarisation – we see this in Pakistan today where the self-rewards being doled out neither bear any correlation to performance nor are commensurate to the work output. Economic Management is a complex science that encompasses all tangibles and intangibles facets in an economy to reach a market-based operative model based on transparency by adhering to anti-trust mechanisms, placing rent-seeking safeguards and ensuring an environment free of conflict-of-interest. It does not matter how successful an entity or a conglomerate is or the quantum of taxes it pays as a private or public sector enterprise, because what matters is that the business case in question operates purely on market principles. The litmus test of good economic governance in essence lies in successfully creating an operative environment that lends confidence to investors, both domestic and foreign, to come and invest by finding the destination a sustainable platform for business growth and producing competitively through well-framed laws and the relative ease of doing business. Sadly, today we see these very underlying notions to create an enabling environment being compromised, due to an unnecessary obsession with unwarranted tax drives. The sheer urgency to suck productive capital out of the documented markets through a poorly thought-through collection mechanism depicts a short-sightedness on not being able to see beyond one’s own nose; something that will sooner than later likely to boomerang to come and haunt the economy yet again – unfortunately, the negatives of poor economic policymaking in economies do not surface instantaneously, just like in the case IPPs or all the other unsustainable state-run investment decisions, it is only after some years that the fall-outs come to light.
We seem to be talking a lot about Bangladesh these days and somehow it is fashionable to draw South Asian comparisons India being in another league now), so perhaps it would be good to know that despite a lot of shinning Bangladesh rhetoric under the then prime minister Hasina Wajid, the team of some world renowned Bangladeshi management professionals put together by Dr Yunus, opine that the recent economic downturn in the country can be largely attributed to a blatant disregard of corporate transparency and an excessive short-term focus rather than setting medium to long-term goals on vision and strategy; and this especially post the IMF program. The economic taskforce being headed by the renowned Dr. KAS Murshid and having members like Dr. Mushfiq Mobarak (Yale), Dr Selim Raihan (DU), Syed Nasim Manzoor (a private sector industry captain), and others, has identified the almost over a decade and a half how there remains an absence of a viable sustainable and inclusive development strategy, with no real focus on plugging glaring leakages directly linked to gross conflict-of-interest amongst people in power across the different tiers of governance. The task force plans to submit its first report by November this year, outlining where Bangladesh should be ten years from now, which sectors it would like to grow in, what should be the desirable mix of its economy, and last but not least, what should be the demographic spread of its industrial, agricultural and trade development to weed out the deeply manifested frustration and a sense of neglect rooted within its societies across the entire Bangladeshi spectrum. Reckon, a similar exercise if also undertaken at our end wouldn’t hurt!
Dr Kamal Monnoo
The writer is an entrepreneur and economic analyst. Email: kamal.monnoo@gmail.com