There is no denying that Pakistan’s economy is not performing well these days. It is swiftly drifting towards stagflation- an economic condition characterized by high inflation rate coupled with stagnant economic growth. The so-called twin deficits continue to plague the economy. The country’s accumulated public debt has more than doubled during the last decade. Pakistani Rupee has also been in free fall during the last few months. Even more worrisome is that the Kaptaan-led PTI’s government looks clueless about how to stabilize the country’s troubled economy.
Admittedly, the PTI government has inherited a fractured economy from the last PML-N government. It is, however, not the only job of any incumbent government to blame or bash previous regimes for misgovernance. The government is, indeed, mandated to proactively rectify such governance maladies. Stabilizing Pakistan’s volatile economy has certainly been somewhat a Herculean task. It essentially requires employing some effective macroeconomic fiscal and monetary tools to stimulate economic growth. Disappointingly, we have hardly observed such endeavour on the part of the incumbent government to substantially improve the state of the country’s depressed economy so far. The government has only been playing to the gallery by announcing some insignificant austerity measures besides remaining busy in its corruption-related rhetoric against certain leaders of the opposition parties. It obviously failed in setting the country’s future economic direction. Consequently, there only prevailed the economic uncertainty in Pakistan.
Led by former Finance Minister Asad Umer and assisted by an 18-member Economic Advisory Council, the PTI government adopted an economic governance model to manage the economy soon after coming into power last year. Such governance model, however, failed to steer the country’s economy out of crisis. Consequently, Kaptaan decided to discard this model after reshuffling his economic team. So, Finance Minister, Governor State Bank of Pakistan and Chairman Federal Board of Revenue (FBR) were shown the door. But unluckily, the new appointments made by the government on the country’s key financial slots have just given rise to more controversies and confusions rather than setting things right in Pakistan economically.
Probably inspired by a ‘presidential form of government’, Kaptaan has reconstituted his economic team largely comprising professionals/technocrats instead of parliamentarians or career bureaucrats. The crucial finance and commerce miniseries are currently being looked after by two Advisors to Prime Minister. And Petroleum Division is being run by a Special Assistant to Prime Minster. An economist of the IMF has been appointed as Governor State Bank of Pakistan. Similarly, a renowned tax consultant and practitioner has been appointed as Chairman FBR. At present, these crucial financial appointments recently made by the incumbent government are being criticized by many. The critics are of the view that these appointments involve certain conflicts of interests and violations of the merit. Indeed, Kaptaan has been an ardent proponent of such golden governance principles in the past.
The last Finance Minister Asad Umer can’t be held responsible alone for the miserable state of the economic affairs in the country. In fact, it was the collective failure of the entire economic team of the government, including the prime minister. There should certainly have been made some crucial, quick but politically unpopular decisions to stabilize the economy which could only be made by none other than the prime minister. Asad Umer should have not been made relinquish the charge of ministry of finance at this stage. He is the face of the PTI who has been presenting all future economic plans of the party. And above all things, he is a politician and parliamentarian who has some personal and political stakes in the country unlike the incumbent Advisor to Prime Minister on Finance who is only seen in Pakistan when he is offered a lucrative slot. I just fail to understand the logic behind this important appointment as he delivered nothing extraordinary when he was in-charge of the ministry of finance during the last PPP regime.
The appointment of Reza Baqir as Governor State Bank of Pakistan was quite surprising and rather shocking for many. He has been made to assume the responsibility of heading the central bank of Pakistan only after relinquishing an IMF assignment in Egypt. There is currently a perception that he has been appointed in Pakistan as part of the IMF conditionality. Indeed, the timing of his appointment just reinforces such perception as Pakistan is currently looking for an IMF bailout. It is really perplexing that an IMF economist will now formulate the monetary policy of a sovereign country like Pakistan. So, one may presume whether he will safeguard the IMF’s interests in Pakistan or vice versa.
The position of Governor SBP is also important in the context of Pakistan’s current case at the Financial Action Task Force (FATF). State Bank of Pakistan, along with the Financial Monitoring Unit (FMU), has a role to play in ensuring compliance with FATF’s recommendations on anti-money laundering and counter-terror financing (AML/CFT) in Pakistan. Pakistan is still trying to avoid the risk of being blacklisted by the FATF. It is more regrettable as all these things are happening under the very nose of Kaptaan who has long been preferring death over going to the IMF.
As a matter of fact, FBR occupies a pivotal position in the centralized taxation system in Pakistan. It is one of the key state institutions as it generates revenues for both the federal and provincial governments. Sadly, the PTI government has also yet not succeeded in selecting and appointing a competent, suitable and non-controversial individual as Chairman FBR. Initially, a grade-22 officer of Pakistan Administrative Service (PAS) was appointed on this slot, who obviously failed in achieving the revenue targets. Thereafter, the name of a junior Customs officer surfaced for this position. Finally, the government has appointed Shabbar Zaidi, a well-known tax consultant, as Chairman FBR for 2 years on “honorary and pro bono basis”. I do certainly not dispute his professional integrity or expertise on tax matters. There would, however, arise the issue of the conflict of interest as he has long been associated with a leading tax consultancy firm in the country. Moreover, there is every likelihood that his appointment would be challenged in the court. Earlier in 2013, the Islamabad High Court has declared the appointment of former Chairman FBR Ali Arshad Hakeem illegal in a similar case.
It is quite unfortunate the federal government intends to run the affairs of the FBR on ad hoc basis. Constitutionally, no tax can be levied in Pakistan without the authorization of the Parliament. Moreover, the minister-in-charge of the Revenue Division, with the approval of Economic Coordination Committee of the Cabinet, is responsible for formulating the overall taxation policy in the country. The FBR is simply supposed to implement such taxation policy. So, the post of the Chairman FBR is essentially an administrative one. Ideally, a competent senior officer, preferably from Inland Revenue Service, can perform well on this position. Expanding the tax net, documenting the economy, and promoting a healthy culture tax culture have been major taxation challenges in Pakistan. Such challenges obviously demand a strong political will and resolution on the part of incumbent government. The government sets the pace and direction of the taxation policy. The professional/experts like Shabbar Zaidi sholud certainly advise the government on tax affairs. It is, however, not appropriate to select a tax consultant or representative of the corporate sector to be the custodian of the public revenues.
It is advisable for Kaptaan to review and reconstitute his economic team which should be comprised of some dynamic, competent, dedicated but non-controversial individuals. He should also proactively lead such economic team to steer the economy out of crisis. No doubt, a strict fiscal discipline and an efficient taxation regime are desirable. But before these things, there should be a focus on stimulating the economic growth in the country after restoring the confidence of investors and businessmen in the economy. At the same time, there should also be brought an end to the poisonous and zero-sum politics which is severely damaging the economy after polarizing the nation.