An open letter to ‘a big believer in the free market’

Taking a look at the 10 most important free market pledges PML-N made

ISLAMABAD: Dear Mr Miftah Ismail, in your interview to Reuters, published on December 29, you remarked that “I am a big believer in the free market”. As the founder of Pakistan’s only free market policy think tank, this is music to my ears.

If you are looking for viable, sound and useful policy ideas for the six months you have before the government completes its term, you do not have to look any further than the manifesto of the PML-N, which offers a sound roadmap for economic prosperity. A cursory review of the “free market” promises made by PML-N will reveal, however, that not much has been delivered on this front except achievements on the infrastructure front.

As a keen observer of the implementation of PML-N economic manifesto, let me humbly remind you of the 10 most important free market pledges undertaken by PML-N, and urge you to take solid steps to materialise these pledges.

In the manifesto, under the chapter named “Economic Revival” and “Energy Security”, your party promised the following:

Bring down budget deficit to 4%

It is hovering above 5%, and you should aim that the revenue deficit must be brought down to zero, and ultimately, legislation to gradually bring down the budget deficit to zero, thus producing a balance budget, within five years.

Limiting government borrowing

Independent economists agree that the government has failed to ‘limit’ government borrowing and there is a clear case of crowding out private investment, as the government gets the lion’s share of commercial credit. You must announce one major reform to limit this borrowing under the ambit of Fiscal Responsibility and Debt Limitation Act.

Decreasing tax rates

I know this is on the top of your “to do” list. You should announce a comprehensive tax reform bill, aiming at rationalisation, simplification and lowering of taxes. We have built the case of introducing flat taxation in Pakistan, which is already implemented in more than 50 countries. As a trained economist yourself, you must be aware of the Laffer’s Curve. There is a strong need to bring his ideas in the Q-block now.

Opening up markets to encourage regional trade

Pakistan’s economy, relatively speaking, has become a closed economy over the years with increased tariffs and especially trade taxes, which are amongst the highest in terms of their contribution in total tax revenue in the world. This has dampened our exports tremendously. If you want Pakistan to regain its position in the regional trade, start with slashing trade taxes.

Improved regulatory environment on a national level

In the last few years, the interference of federal government in the regulatory affairs has increased, causing the quality of independent regulation to decline. You must arrest this phenomenon by making pronouncement of independent regulators across the regulators. Also appoint independent and professional boards in the state-owned enterprises.

Make ample credit available to the private sector

PML-N is a strong supporter of the private sector yet its policy of large scale domestic borrowing by the federal government has dried the credit lines for the private sector. Announce a speedy roll back of the government from commercial lending and see how the demand for credit will grow while at the same time bringing down the interest rate due to intensified competition, which has eroded due to risk free borrowing.

Completion of privatisation process

It is unfortunate that during last four and a half years, not a single transaction of privatisation, in the sense of government exiting from a business, has been completed, except some capital market transactions. It is unlikely that you will have enough time to initiate anything now, but you can speed up work on the privatisation transactions where a lot of ground work has been done already.

Nepra-determined tariffs
to be notified

The PML-N promised complete autonomy to the National Electric Power Regulatory Authority (Nepra), but unfortunately it has been stripped off its existing powers to notify tariffs following a decision by the Council of Common Interest (CCI). Please restore its autonomy immediately so that the investors can be assured of certainty.

Decentralising and creating a wholesale market for electricity

You will recall that your predecessor claimed to wipe out the circular debt several times, but this has been rearing its ugly head continuously. Please remove the condition of government as the single buyer of electricity and allow the parties to directly negotiate and create a wholesale market under a strong and autonomous regulator. Lastly, please rest assured that good economics is also good politics. Your actions will be rewarded by the voters.

The writer is the founder of PRIME Institute, an independent think tank based in Islamabad

Published in The Express Tribune, January 8^th, 2018.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.