Way forward for reviving economy

Pakistan must try to get out of FATF grey list as it costs economy $10b annually

ISLAMABAD:

Among the numerous challenges which the new government would have to confront, the most pressing one would be to restore the economy.

This would be possible only if the economy’s ills are identified and appropriately addressed. There are some issues that can be tackled in the short term while others would need a longer time frame.

First, Pakistan should try to get out of the FATF grey list on an urgent basis. Estimates suggest that our being in the list costs the economy at least $10 billion annually.

Since being placed on the grey list in 2018, Pakistan has complied with 32 of the 34 action points. Progress is underway on the two remaining points: investigating terror financing and prosecuting UN-designated terrorist groups.

Getting out of the FATF grey list would remove a significant obstacle to attracting investment into the country.

With her foreign and economic affairs background, Hina Khar, the former external affairs minister, can be a helpful resource person to coordinate and get us out of this nightmare.

Secondly, the National Accountability Bureau (NAB) should be abolished or reformed. Ever since its creation, NAB has proved to be a major impediment to the country’s economic development.

The fact that Pakistan’s ranking in the Transparency International’s Corruption Perception Index has been deteriorating shows that the bureau has been ineffective.

One recent instance of NAB’s incompetence is the case where Pakistan fruitlessly paid out over $20 million due to a faulty agreement with a shady international investigative agency.

Thirdly, since 2016 when the then CJ Saqib Nisar ruled that all financial, fiscal or legislative decisions have to be approved by the cabinet, decision-making has been painfully slow.

There is a need to legislate and empower the ministries and relevant departments/ boards to take all routine decisions as is the standard international practice. In the absence of necessary legislation, the audit department as well as courts can raise serious objections to any decision taken without approval of the cabinet and its committees.

Also, the bureaucracy would be reluctant to implement the decisions that have not been approved by the cabinet.

Then there are other issues which may take longer but work on which would have to start immediately.

The most significant challenge would be to raise overall exports and thus close the large trade deficit gap, which is expected to surge to an all-time high of $50 billion this year.

To ameliorate this, the trade, tariff and taxation policies would need to be reviewed. We would need to normalise trade with the regional countries, including India, and conclude long-pending bilateral free trade negotiations with other countries.

This normalisation would also help save precious foreign exchange and make exports more competitive.

Now is an opportune moment as all major political parties in the new ruling alliance and the security forces are favourably disposed to this change.

Currently, the government’s strategy for enhancing exports is through subsidies in energy prices for the textile sector. Essentially, this is an energy export subsidy for a country with energy deficit.

Instead of subsidising energy for some and raising prices for others, the overall energy cost can be reduced by improving the fuel mix and using efficient power plants, as was done during 2015-18.

Unfortunately, many of those policies were reversed. We are back to using expensive furnace oil and prioritising lower-efficiency power plants.

Another daunting task would be to tackle the prevailing unbridled inflation, especially in food prices, which have more than doubled during the last three years.

Covid-19 and surging global commodity prices have contributed to this to a certain extent. Still, it is not the whole story since our neighbouring countries, India and Bangladesh, have managed to keep inflation under relative control.

In most cases, the scarcity and the resulting high prices were caused by the authorities’ inability to forecast and monitor crop production accurately. There is a need to have a better forecasting system.

Stagnant productivity is another factor and a critical supply-side constraint, mainly due to poor quality seeds, non-availability of fertiliser at the right time and poor irrigation management.

The current average yield of crops in Pakistan is not even half that of the global average. There has been a significant fall in agricultural production in general, not merely of food crops.

For example, cotton production in 2022-23 is expected to be around 6.5 million bales compared to over 10 million bales produced in 2014-15. This decrease would mean that we may have to import over 5 million bales now, costing over $2 billion.

Reducing the government’s footprint by eliminating its role in the procurement of wheat would considerably minimise wastage and increase productivity.

The recent imposition of sales tax on all agricultural seeds and fertilisers should be reversed immediately. Also, greater attention has to be paid to certification processes as currently low-yielding seeds have been given undue protection.

The writer has served as Pakistan’s ambassador to WTO and FAO’s representative to the United Nations at Geneva

 

 

Published in The Express Tribune, April 18^th, 2022.

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