KARACHI: With Pakistan’s gross foreign currency reserves at an alarmingly low level at $9 billion, a trade deficit that touched its peak, and external financing needs projected to be around $11 billion a year, the country has its work cut out.
Talks of another bailout gained momentum much before Pakistan’s 11th general elections, which showed that the voters have now opted for a change. As Pakistan Tehreek-i-Insaf (PTI) gears up to form the government, The Express Tribune looks at the party’s manifesto, and the change it promises to deliver.
Turning around state-owned entities
In its election 2018 manifesto, it said that it would turn around state-owned enterprises (SOEs).
Currently, these entities are running into heavy losses and adding to the tax burden. Pakistan Steel Mills and Pakistan International Airlines – once giants in their area – are classic examples of the failure of previous governments in running and then ruining their profit-and-loss accounts. The financial condition of PSM has continued to deteriorate over the years, and now its losses stand at a whopping Rs200 billion. Same, if not worse, is the case with PIA, which is incurring losses worth Rs406 billion.
Addressing the need to improve state institutions, PTI aims to create a wealth fund and depoliticise these institutions. The idea of a wealth fund is modelled on the concept of Khazanah in Malaysia, which is a sovereign wealth fund of the government. It holds and manages selected commercial assets of the government and undertakes strategic investments on behalf of the nation.
“We will launch transformation programme for SOEs by appointing and empowering non-political and autonomous boards, signing performance contracts with boards and agreeing on KPIs, selecting outstanding professional CEOs on merit through boards.”
The small and medium enterprises (SMEs) are considered to be the backbone of every economy, as it is an employment creating sector. Considering PTI’s statement of generating 10 million jobs, and more than 3.2 million SMEs in the country, the party states it will establish SME incubators across Pakistan.
SMEs constitute nearly 90% of all the enterprises in Pakistan; employ 80% of the non-agricultural labor force; and their share in the annual GDP is close to 40%. However, unlike large enterprises in the formal sector, a small and medium enterprise is constrained by financial and other resources. “We will launch a ten-year incentive plan for rapid growth of the SME sector including tax holiday on new investments for the first three years and 50% tax rate in next seven years, and a withdrawal of minimum tax on turnover for the first three years and then tax at half the rate for the following two years,” states the party manifesto.
The manifesto also talks about boosting IT exports, as it draws parallels with the neighbouring India, whose ICT exports have increased to over $126 billion, while Pakistan’s exports hover around $2 billion.
“The primary reason that Pakistan is uncompetitive in international market is due to the repressive policies enforced by FBR [Federal Board of Revenue] along with lack of quality human resource, IT infrastructure, government sponsorship and innovation,” according to the manifesto. The party aims to launch a digital transformation initiative programme for digital infrastructure, citizen services and other e-government programs.
“We will create and implement the national digital policy to ensure privacy, security, standardisation and data sharing across all stakeholders.”
However, the Pakistan Muslim League-Nawaz (PML-N) already made the country’s first national digital policy. It also approved the cybercrime bill. Unlike the previous governments, the PML-N made great strides in the sector. In 2014, the PML-N introduced next generation mobile services through the spectrum auction for provision of 3G and 4G mobile services in the country. This auction generated $1.2 billion for the exchequer, according to the Economic Survey 2017-18.
Pakistan has received very bad press over the years. Its image as ‘a state harbouring terrorists’ has discouraged foreigners from visiting the country, thus resulting in losing potential revenue.
“PTI will turn around the tourism industry to improve international image and increase its direct contribution to GDP. In order to boost tourism we will; promote and position Pakistan as ‘Asia’s Best Kept Secret’, champion tourism in places including and beyond the northern areas, develop 20 new destinations in five years, implement a framework to incentivise private sector investments.”
Published in The Express Tribune, July 27th, 2018.