PTI govt’s economic plan

Business Recorder

Prime Minister Imran Khan chaired a meeting of the Economic Advisory Council (EAC) on Sunday with a focus on improving ease of doing business which envisaged no longer allowing fiscal policy to drive all other policy decisions, separating the policy and administration functions of the Federal Board of Revenue (FBR), and clearing the backlog of pending refunds with the State Bank of Pakistan directed to give its clearance subsequent to confirmation of the letter of credit on the basis of export proceeds.

These are welcome decisions particularly no longer allowing fiscal policy to drive all policy decisions because in the past, inordinate focus in budget after budget was to raise revenue. This accounted for actions that became impediments to increasing productivity, with reliance on advance taxes to meet unrealistic budgeted revenue targets declared illegal by the Tax Ombudsman, withholding refund payments that led to serious liquidity issues experienced by exporters, reliance on advance collections from large taxpayers, and, last but not least, proposing to raise taxes on items/services to meet the revenue target based on ease of collection rather than on taxing those with ability to pay. In other words, this decision alone, if followed in letter and spirit, would go a long way in improving the country’s business climate.

Pakistan’s ranking in the ease of doing business, compiled by the World Bank, improved from 147th place amongst 190 economies in 2017 to 136th position in the current year – an improvement sourced to the formulation and subsequent implementation of recommendations identified under the International Monetary Fund’s three-year Extended Fund Facility (September 2013-16). Be that as it may, the government would need to further focus on ending red tape which has, so far, been resistant to change.

During the EAC meeting, it was reportedly also decided that all the recommendations on increasing exports made by the Advisor to the Prime Minister on Commerce Abdul Razzak Dawood would be approved. In principle, this is a good decision because many a previous commerce minister had been overruled by the finance minister as fiscal policy drove all other policy decisions. However, it is necessary that there must be a thorough discussion within the cabinet on recommendations proposed by Commerce Minister to ensure a balanced approach to decision-making. In this context, it is relevant to note that Dawood’s proposal to revive the Engineering Development Board has been approved by the cabinet.

The EAC was informed that the government plans to reconnect with the IMF after the Thanksgiving holidays in the US. This is indicative of the fact that the IMF option has not been abandoned though it was noted that the government would be compelled to take politically challenging decisions if it decides to go on a Fund programme. The Prime Minister reportedly directed the Finance Ministry to prepare a Plan ‘A and B’ – an approach that can be supported. The prevalent thinking in government circles is that the entire external requirements would be met from friendly countries though the PTI government, like its predecessors, is silent on which of the three friendly countries – China, Saudi Arabia and the UAE – would provide what assistance and at what terms. The argument that unlike the three friendly countries, Pakistan is a democracy and hence loans procured must be debated in parliament is likely to be ignored by the PTI government as well. We have consistently maintained the Fund conditions are unlikely to change irrespective of how much the government decides to borrow from the Fund. And that notwithstanding pledges of assistance it would be necessary to go on an IMF programme because Pakistan exports a very small amount to these three countries, the most desired form of earning foreign exchange, as well as issuance of diaspora bonds at a reasonable rate of return would benefit from being on an IMF programme.

The press release issued by the government on the EAC meeting claimed that the government is engaged on a social protection framework aimed at overcoming challenges of poverty, health, education, low growth and promoting youth employment. This focus is fully supported but unfortunately, at present there is not enough money in the treasury to allow the government to proceed with this objective. Theory dictates that economic stabilisation, the principal objective of the IMF, must precede social sector improvement.