Pathways to Pakistan’s prosperity
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Finding the pathway to Pakistan’s prosperity demands a multi-directional approach and given our policy complexities and constraints, economists alone cannot undertake this job.
Similarly, setting up advisory councils with business tycoons who are beneficiaries of a rent-seeking system is an exercise in futility. Likewise, politicians who come from grassroots may represent public sentiments, however, their decisions are usually overshadowed by constituency interests.
We need an intellectual environment where economists, businessmen, bureaucrats and public representatives can work with synergy. At the 3rd Pakistan Prosperity Forum organised by PRIME, an environment was created to discuss pathways to Pakistan’s prosperity and in this article, I will share key takeaways from this exercise.
According to Shahid H Kardar, “servicing of the external and domestic debts looks increasingly unsustainable”.
There are various indicators to look at to assess whether public debt is sustainable or not. As a stock, one needs to know that the gross public debt is 667% of revenues, compared with the average of 214% in more than 20 comparative countries.
The most important perhaps is that debt servicing cost now stands at 120% of net federal revenue. The net federal revenue is important as provincial governments do not share the responsibility of debt servicing.
Read IMF sees $8b dip in debt in two years
As an expense item, debt servicing has grown faster than any other item over the last few years. I would even say that the government – or rather taxpayers of Pakistan – is now working for the creditors, and to be precise for our banks. We have become beholden to commercial banks on the back of an unending hunger for more debt by the government.
Debt restructuring sans reforms is futile
Looking at the example of Sri Lanka, which defaulted on its debt last year, and has recovered fast since then, at least at the macroeconomic level, all creditors including domestic institutions will have to take haircuts or accept similar requests. However, to make any debt restructuring plan credible for negotiation, we need a package of structural, institutional and economic reforms.
No economic reforms can be complete without revamping the tax structure. The current mantra of tax reforms is enforcement and compliance.
While it is the mandate of the government, it must be accompanied with a serious discussion on tax reforms. This means that tax rates will have to be brought down and any discriminatory taxation such as super tax should be done away with. This also means that no economic activity should be exempt from taxation and the rate should be business neutral. The state should be taxing income and not transaction.
Govt is part of the problem
A common refrain in the Forum was how the government and its finances have become a barrier and an obstruction to economic growth.
The commonly held Keynesian view that public spending helps propel growth was challenged. Instead, it was recommended that the government will be better off by freezing the PSDP and closing some departments.
The government has failed, in its most essential function, ie tax collection, where, according to an economist, only 3% of revenue is now collected through FBR’s own efforts. Thus, the FBR should be abolished.
Read ‘Domestic debt restructuring will be painful’
Reforms should not lead to more govt
Each government claims to undertake public sector reforms but ends up creating more departments. Any reform which does not end up in reducing the size of the government is not a reform.
An example is Pepco, which was created in 1998 to transition towards the privatisation of electricity distribution companies. Today, Pepco exists but privatisation plans of distribution companies have been shelved with the exception of K-Electric.
Govt should regulate, not compete
With the existence of at least 87 commercial state-owned enterprises (out of a total of 212 SOEs) under the federal government, the government continues to be active in the business. This should change by a drastic and radical privatisation programme.
Tourism is often presented as an important growth driver with significant potential. Government should not be running tourism business but rather facilitate tour operators and travel companies. The example of National Tourism Development Corporation remains a case in point, which is still under government control. Its devolution has only transferred assets from the federal to provincial governments without changing anything on ground.
Competition is engine of prosperity
The efficiency which a market economy seeks to establish can only be achieved through ensuring competition. Continuous protection of inefficient local industry, under any name, continues to obstruct competition, and hence prosperity for greater number of households.
Everyone agrees that the engine of growth is the private sector and without a competitive private sector, our nation’s prosperity cannot be materialised.
The writer is the Executive Director of PRIME, an independent economic policy think tank promoting ideas for economic freedom since 2013
Published in The Express Tribune, December 4th, 2023.
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