Can PTI escape an economic failure?

An economic failure of the PTI government would be an unfortunate event of historic proportions for Imran Khan’s lifelong political struggle, the nation’s morale and the democratic process in Pakistan. Despite its good intentions, the PTI government has only a few achievements or positive signals so far regarding economic performance. Let me share what has gone wrong during the initial months of this government and whether it can reverse some of the mistakes.

The first thing is to get out of the task force mode of governance. People have given the mandate of reforms and governance to Imran Khan and other political leadership. But the prime minster has been forming task forces. Most of the members of the task forces are retirees and lobbyists with strong vested interests. These task forces lack diversity and due representation of youth and women. The task forces and many appointed (or informal) advisers of the PM have been complicating the decision-making process through a set-up parallel to ministers. The PM needs to empower his cabinet members and then hold them accountable. The ministers may form task forces and committees if and when required.

Secondly, the PTI announced many initiatives in its early days without realising the ground realities and real dynamics of the markets. One such announcement was about establishing a sovereign wealth fund or a holding company for State-owned Enterprises (SOEs). Indeed, it was yet another step to delay tough decisions. As of today, there has been no progress on the holding company except an announcement and its incorporation as Sarmaya Pakistan. It seems impossible that the PTI will ever be able to transform the loss-making SOEs through this company and would ever be able to transfer companies from energy and communication sectors to this holding company. Resultantly, this holding company will exist only on paper and with redundant and insignificant companies on its portfolio. Instead the government needs to disband the Pakistan International Airlines, Steel Mills and other such uncompetitive companies putting burden on the exchequer and then appoint independent and professional boards of the remaining SOEs. Let the boards run SOEs! The government, through the finance ministry, needs to give performance targets to the boards and companies and then hold them accountable.

The single act by PM Khan that has won hearts of many is the establishment of shelter homes in major cities. Simple actions based on compassion and sincerity can go a long way to serve marginalised people. One such area that needs to be focused is the provision of drinking water. The PM, instead of focusing on the provision of drinking water and developing small dams in Balochistan and interior Sindh, has been carried away with the narrative of mega dams. Provincial governments and other agencies may be giving fancy presentations to the PM on drinking water projects, but every Pakistani will attest to the fact that nothing practical is happening on this front. So, the PM needs to facilitate investment and improve governance in the drinking water sector and construction of small dams.

While visiting China, Malaysia and Turkey, the PM said to every country that he wants to learn from them about their economic model. Indeed, there is no secret about the model adopted by some of these countries. The key was the strengthening of the state capacity and enabling business environment for the private sector. On the state capacity, the PM has been relying on task forces and advisers instead of taking concrete steps in this direction. During early days of the government, the abrupt removals of Inspectors General of Police of Islamabad and Punjab sent a negative signal for establishing an independent and merit-based bureaucracy. Moreover, the recent accountability drive has deterred bureaucrats to take even rightful actions. Resultantly, there is a state of inaction in the executive set-up. Secondly, on enabling the business environment, someone has misled the PM that it’s about improving Pakistan’s ranking in the Ease of Doing Business indicator of the World Bank. Instead of focusing on cosmetics of indices, the PM should lead reforms of the tax machinery and the judicial system. These two steps will stimulate the same economic activity that took place in China, Turkey and Malaysia.

The PTI also needs to infuse confidence in the market about their economic management. No doubt the IMF package comes with tough economic conditions, but the country should understand that borrowing from friendly countries may have political costs which may overweigh economic costs in the long run. The government should have gone to the IMF immediately because alternatives are costlier. Moreover, there is a need to merge the Board of Investment, Ministry of Industries and Production, Ministry of IT and Ministry of Science and Technology into Ministry of Commerce to form a Ministry of Private Sector Facilitation. For foreign investment, the PTI government should engage the private sector of other countries instead of talking to their governments. In addition, there is a need to restructure half-a-century-old Planning Commission and planning processes in the federal government.

Finally, this is the first government which has announced an ambitious programme of housing for middle- and low-income families. However, the government is designing housing initiatives akin to the Ashiana scam. Hardly any government in the world has been able to successfully implement effective programmes for public housing. Our state capacity and the financial system are not capable of providing the leverage to meet the ambitious agenda of five million houses. But there is a simpler and more cost-effective way to fulfil the promise. Removing limits on high-rise construction, strengthening construction regulatory agencies, ensuring fire insurance of every high-rise building and putting a ban on sprawl of cities which is encroaching agricultural and industrial lands, are some of the potential initiatives that can provide cost effective housing to low and middle-income people. Unrealistically, high prices of land caused by speculation is the key factor discouraging investment in productive sectors of the economy. By allowing high-rise accommodation in cities, the government can efficiently generate housing activity, investment and jobs.

Pakistan neither deserves nor can it afford an economic failure of the current government. The PTI government needs to realise the seriousness and implications of the aforementioned issues in order to avert such an eventuality.

Published in The Express Tribune, January 9^th, 2019.

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