Continuing on the policy actions and the reforms recommended to the government to turnaround the economy, following measures are additionally suggested to address some of the fundamental flaws in the economy and to bring about the much needed discipline and rigor to economic management:

Clarity on driver(s) of growth: Going by the commentary of various economic advisors appointed by the government there seems to be a confusion on identifying the key drivers to economic growth over the next 5 years - The scheme to construct and distribute 5 million houses at a cost of Rs1.5 million/house and with a debt: equity ratio of 90:10 or 80:20, is being projected as one of the principal growth drivers in this regard. Caution must be exercised here, as given the already high share of governmental borrowings from the national commercial financial institutions; this may not be a very good idea. Not only will this add to the existing contingent liabilities of the State, but with rising interest rates (projected to touch double digit levels by early 2019) and given the high inflationary environment, it will become increasingly difficult to control both, implementation-costs and debt servicing for such mega capital outlays. While the plan in essence may be a very good one, the prudent way forward for now would be to only work on creating a facilitating environment for the private sector to take up this endeavour of providing low-cost housing to the general public, albeit to the extent practically possible. Trust me; we do not want another Yellow Cab debacle on our hands and that too with a grossly compounded magnitude! As for the government, its best option is to just focus on backing “Exports” as the main driver of growth, since it neither adds to the national debt nor does it deviate from the main issue being faced by the economy of a colossal trade deficit resulting in shortage of precious foreign exchange in the exchequer’s kitty.

Concentrate on arresting de-industrialisation: Pakistan’s manufacturing sector for quite some time now has been grappling with the impact of high cost of production and unfriendly government policies, resulting not only in closure of the installed capacity, but also in failing to attract fresh investment to create new jobs. Adding new factories and manufacturing has simply been unviable of late and arresting this de-industrialisation in the economy will be the key for PTI to deliver on its promises. According to the recent release of the National Human Development Report: Youth unemployment in Pakistan surged to 9.1% in 2015 from 6.5% in 2007. Further, the report added that in fact the International Labor Organization (ILO) has put the unemployment figure for the 15 to 24’s age group at 10.8%. Clearly investors’ confidence is low and adequate creation of new jobs in Pak economy is absent. A good policy here would be launch a “Made in Pakistan” initiative to shore up ‘domestic manufacturing’, whose share in the economy from being about 20% of GDP in 2005, today stands reduced to under 17%. Also, Pakistan’s labour and oversight laws are restrictive, imposing all kinds of red tape on factories employing more than 10 workers, which discourages businesses from thinking big. Add to this one of the highest cost of energy in the region and it becomes obvious why manufacturing in Pakistan struggles to remain competitive.

Key would be to quickly use the limited window of positive sentiment due to the new government’s goodwill to implement fundamental reforms that align trade, fiscal/taxation, energy and agriculture policies in a way that promotes domestic industry and removes the anti-manufacturing cum pro-import bias. These reforms entail reviewing existing power agreements; privatising Discos; considering off-grid renewable power solutions; move away from formulating tax policies that merely focus on collection targets and instead shift to a consistent tax regime that boosts investment. That is taxation policies that broaden tax base and encourage capital formulation; aims at harmonising federal, provincial and local taxes; provides zero-rating to exporting industries and automates refunds, where applicable. Also, there is an urgent need to look at rationalising sales tax slabs to spur competitiveness. And last but not least, it is recommended that the new government makes the costs, benefits and financial flows of all CPEC undertakings fully transparent, and ensures that in the next upcoming second phase of CPEC, the concessions in the proposed SEZs do not undermine the domestic industry in any way.

Increasing exports while defending the value of the Pak Rupee: It is imperative that the Rupee is not allowed to devalue beyond a certain point, as in such a case the repercussions on the long-term sustainability on development and growth can be disastrous. One can only hope that the new government will learn quickly by not only looking at experiences of like-to-like developing economies that have recently suffered on this account, but by also realising that unless Pakistan addresses its own specific issues vis-à-vis Rupee’s parity, it will simply be sucked into the larger global cycle currently at play, where the gradual but consistent strengthening of world’s reserve currencies is resulting in capital erosion of the smaller economies. Also, economic history tells us that there is no empirical correlation between currency devaluations and sustainable increase in national exports. The reality is that owing to a significant dip in home manufacturing, the country has failed to generate any export surplus in the last ten years and this sheer dearth of goods to export is now taking its toll. From the present position, a turnaround in Pak exports will be a slow and tedious task requiring a holistic approach that entails revisiting all elements starting from addressing the elementary ‘ease of doing business’, ensuring the supply chain of raw materials and input imports that ultimately get converted into value-added exports, to the more complex part of renegotiating relationships and poorly envisaged trade agreements with our existing trading partners.

Privatising the state owned enterprises or giving them on 10/20 years Management Lease: Pakistan’s second largest expenditure is incurred on meeting the losses from the Public Sector Enterprises like PIA, the Pakistan Steel Mills, power sector and Pakistan Railways. Either there should be a clear roadmap to privatise them or an innovative out of box solution should be evolved to turn them around. In wake of constant political challenges to sell them, perhaps a good compromise would be to give them out on a 10-20 years management lease.

A strategy that has already been previously tested in Pakistan during Zia’s time, which not only partially achieved its objectives of curtailing institutional losses, but also ultimately paved the way for disbanding institutions such as the State Cement Corporation and Ghee Corporation of Pakistan, thereby ultimately leading to the privatisation of the cement and the Ghee (edible oil) industries in Pakistan.

 

The writer is an entrepreneur and economic analyst.

kamal.monnoo@gmail.com