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Speaking on the economy
After two months in the shadows, the prime minister’s finance adviser has come out of hiding. In a press conference...
After two months in the shadows, the prime minister’s finance adviser has come out of hiding. In a press conference on Wednesday, Dr Hafeez Shaikh laid out his vision for managing the Pakistani economy. In our view, it lacked nothing, except vision. Perhaps we were too optimistic in our expectations of him, but Dr Shaikh seems to be relying on the generosity of the IMF and the ‘Friends of Democratic Pakistan’ to bridge the country’s fiscal deficit. Our equivalent of a finance minister does not feel that solving the country’s problems is part of his job, though he seems focused on suppressing the symptoms. Perhaps we could offer him some suggestions.
In terms of ease of paying taxes, Pakistan ranks 143 out of 183 countries according to the “Doing Business Report” by the World Bank. It estimates that compliance with Pakistani tax regulations takes 560 man-hours a year, compared to the South Asia regional average of 285. If the minister announced an initiative to computerise and simplify the taxation process he would move the country towards an efficient taxation system. Dr Shaikh pointed out that the economy would benefit from having an export-driven orientation without specifying what initiatives the government will take to ensure this. The tax system is already skewed to promote exports versus producing for the local market and exporters in several sectors receive subsidies. What other initiatives does the government plan on taking? Dr Shaikh did not clarify. What was most troubling was that he did not articulate a clear, pragmatic vision to move the nation to a prosperous economic future. In bleak times, it is easy to forget long-term goals. Amongst Pakistani policy-makers, long-term thinking has been deemed optional but this economy craves a path that leads us in the direction of prosperity. The minister is not alone in deserving the blame, it’s also the fault of the journalist community, hardly any of whom have training in economics and none of whom seem capable of asking the minister tough, relevant questions. But the failure of the media does not exonerate the good doctor from prescribing a cure for what ails the economy. Dr Shaikh, we don’t need an economics lecture. We need leadership.
Published in the Express Tribune, May 15th, 2010.
Reader Comments (3)
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I think this is a rather harsh Editorial. I don’t think the Advisor was hiding anywhere. It is good he waited, got some understanding of the lay of the land and so on before speaking. However, I agree he could have been more explicit and articulate with a vision of where he wants the economy to go and how he intends to get there.
There is no harm in factoring in the aid pledges from the FODP or the IMF when we do our arithmetic on financing the economy’s two-gaps. The point is that the financing assumptions should be realistic, not fanciful, like this year.
On one point the Editorial is way off the mark. This is in regards to exports. The domestic market is probably twice as profitable as exports. This is because the domestic market is dominated by concentrated oligopolies and there is litte competition. Ask the CCP. In the export market, competition is fierce and price-cost margins very thin. Yes, trade, tax, interest rate and exchange rate policies do try and tilt the incentive structure towards exports. But on balance there is a strong anti-export bias and the results are plain to see: an export to GDP ratio which is flat or sloping downwards. Or put another way a ratio of exports to imports that has not changed much in 62 years.Recommend
Ahhh!! Frustrating! Why wont we help ourselves! its every patriotic duty to pay taxes and our government should be bending over backwards to accept the domestic inflows. I guess its easier to deal with your former colleagues at the IMF and WB, rather than holding yourself accountable to the Pakistni people. As long as we rely on external inflows our political and military leaders will have split constituencies. Money talks…after all elections only take place once every 3 or 4 years if we are lucky, impotent sloganering insures the votes, obedience to foreign diktats insures the funds; and everyone avoids paying taxes. Win-Win situation?Recommend
Dr Hafeez Sheikh has been there for only two months and should not be blamed for all the economic ills. Unfortunately Mr. Shaukat Tareen, who often gets very good press reviews had not been able to achieve anything although he had over two years to do so. During his tenure, most of the reforms done during the period 2001 to 2004 were undone and we went back to where we were in the 90′s. While textile and automobile lobbies had their way, everyone else suffered. By resorting to regulatory duties and import surcharges on imports, he curbed domestic economic activity and also moved the focus to collecting taxes on international trade. Dr Sheikh has to see that reducing trade deficit should not be his only goal. Other successful emerging economies like Turkey, India and many others have huge trade deficits but they do not try to overcome their deficit by restricting international trade. It is important that for creation of jobs, economic growth, more revenue and attracting investment that the economy is allowed to grow. This growth has to come from all activities whether it is services, manufacturing or agriculture. During the last two years, government has been rather unfair to the services sector. For example, it tried to curb the growth of telecom sector which was one of the star performers for many years. Also every effort is being made to make collection of taxes more difficult. Fortunately the government has finally put together an excellent economic team and hopefully in due time they will be able to put the economy back on track.Recommend