Economic tasks for interim govt
Despite the IMF lifeline, Fitch and Moody's have warned of continued risks to Pakistan's economy as the government stares at a $25 billion debt repayment hurdle in the year starting July.—PHOTO: file
As we are heading towards an interim government, it may not be a usual transitional government due to unprecedented political and economic challenges. While it is not expected that any of the interim governments will delve into long-term or structural issues in economic policy, the current situation may not permit business as usual. The question of policy margin or flexibility with this interim government, however, is still to be probed further. Assuming the enabling governance framework and sufficient policy margin or flexibility, the following tasks may be a priority for the forthcoming interim government.
First, ensuring compliance with the ongoing IMF’s programme. In fact, there is no option otherwise. It is imperative, however, to take care of the commitments and assurances that the Government of Pakistan has given to the IMF during the last review. The interim government may be in a better position to implement some of the committed policy actions that the current one may not feel comfortable with, due to the political cost of such actions. It may be even more practical to implement some of the difficult policy decisions during this period, such as the exchange rate compatibility with market realities.
Second, conduct a comprehensive and objective assessment of the existing subsidy of the public support mechanism. This should include direct and indirect subsidies in all sectors of the economy. The economic efficiency or output of such subsidies should be benchmarked. There are many subsidies and support mechanisms that are not touched upon due to either the political cost or sheer negligence. It is high time to repurpose the subsidies and public support mechanisms in Pakistan. It is also important to highlight the total burden of such subsidies which may be astonishing due to the huge volume and the size of foregone revenues.
Third, a comprehensive efficiency audit of the public expenditure. There are plenty of areas requiring a review in terms of efficiency, distributional and allocation problems and outcome impact. It is particularly true for the non-development expenditure and the operational expenditure of federal and provincial governments. It is quite rare to probe into many heads of expenditure at the time of the budget process, except for changing the allocations slightly. There is a need to dig deeper into the need and utilisation of such expenditure headings.
Fourth, it is imperative to do a deep and realistic analysis of the Pakistani Rupee in order to find out the real exchange rate. It may not be practical to tinker with an exchange rate of the Pak Rupee at this stage, but at least finding the true rates and value would be useful for future economic planning and governance. It is one of the IMF conditionality as well, to check the difference between inter-bank and market exchange rates.
Fifth, an efficiency audit of the State-Owned Enterprises (SOEs), along with concrete recommendations to improve these, or privatise. It has been quite a contentious issue dealing with SOEs. However, many of the SOEs may be incurring losses due to business management and could be turned around into profitable entities. A realistic fact sheet may be useful to do such assessment. Privatisation is not the only or optimal solution for SOEs, rather management outsourcing or restructuring may be a better option.
Sixth, it would be useful to identify new national income sources to reduce the burden on existing taxpayers. There has been mentions of non-traditional exports for a long time but not with a realistic analysis of the new markets and products. It may be useful to do a quick factual analysis to identify the new potential exports and markets. Moreover, it is also necessary to find out and market new investment avenues in Pakistan. This analysis should include the opportunity with feasibility and indicative numbers, along with guaranteed support mechanisms for regulatory and related issues. This is particularly timely in the context of the National Investment Facilitation Council.
Lastly, it would be of immense use, if the interim government issues a white paper on economic facts, without political considerations. While we have the Economic Survey of Pakistan and regular statistical bulletins from the SBP and the Statistics Division, these are reported in a set format and pattern and may not be reader friendly for a majority of the citizens. It would be very helpful if each and every citizen is aware of, at least major, economic numbers, data and trends. This will help in creating national ownership of economic situation.
It may sound like a daunting task for an interim setup that may last only for 60 or 90 days, but it is certainly doable and will contribute positively to economic governance and planning with lasting impact.
THE WRITER IS AN INTERNATIONAL ECONOMIST
Published in The Express Tribune, July 24th, 2023.
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