Election fever has receded now as two-family dynasties take control of the new government. What happens to economic policymaking remains to be seen until the announcement of the finance minister, energy/power minister, the International Monetary Fund (IMF)’s new programme and the budget announcement(s).
The ever-empowered outgoing caretakers did take good care of the economy in arguably the worst economic period in decades. Let’s recap some of the right – not popular – steps taken.
Increase in gas and electricity prices: Subsidising energy costs is clearly out of the equation now. The fiscal space is so constrained that additional wastage is adding to sovereign risks.
Energy companies are on the verge of default and surviving on a day-to-day basis without any ability to expand, let alone transform.
Passing the costs was step one along with much-needed improvement in losses, theft, recovery, energy mix, infrastructure, and molecule availability.
Privatisation: A lot of groundwork has been covered on the privatisation front, especially in the case of Pakistan International Airlines (PIA).
With clear focus and resolve to drop the deadweight once and for all, new tribunals and Privatisation Commission rules are being set to expedite pending deals to attract investors and resolve disputes. We need to make headlines by bringing new foreign investors, not just from Arab countries. DISCOs handover: After several rounds of to and fro on whether provinces would take control of the loss-making DISCOs, the cabinet has finally decided to hand over management of these tax-sucking machines to the private sector on a long-term basis.
The proposal of setting up a Performance Management Unit (PMU) to be headed by an army officer didn’t fly and is not a long-term solution either. Only bottom-line-driven, empowered management to hire/fire and incentives-aligned teams can reduce the size of the hole on the balance sheet.
Read: General elections and economy
Adherence to IMF: While being underappreciated, the caretaker government successfully continued to honour its commitment to the International Monetary Fund (IMF) after a long hiatus coming out of the verge of default. The last IMF review was one of the smoothest in years, paving the way for continued multilateral lending, an increase in reserves, improved sovereign bond yields, rupee stability, and decreased economic uncertainty.
FBR restructuring: Pakistanis remain victims of taxing the taxed, squeezing the middle class, and being mired in corrupt practices. Most of the tax is collected at the import stage and in the form of customs and sales taxes requiring less effort and doesn’t require an army of the workforce. Granted, political interferences prevent collecting fair taxes from traders, landlords, and real estate, but it is hoped the new structure with renewed focus on digitalisation will make real changes instead of tweaking here and there.
Refinery policy and gas sales: After long deliberations, the brownfield and greenfield refinery policy is being finalised to attract $5-6 billion in refinery expansion and probably $10 billion greenfield refinery with Aramco and Sinopec. Long gestation projects require a lot of homework and planning, but government incentives are timely and welcome.
Similarly, the Council of Common Interests (CCI)’s decision to allocate 35% of gas to third parties on commercial terms will help exploration and production (E&P) firms to drill more wells and reduce the burden on imports.
SIFC-led initiatives: The whole of the government approach or the need to combine military and civilian policymakers have come in handy to reduce speculation in the currency market, control theft of electricity and gas, assure foreign bilateral friends of policy continuity, make quick decisions on matters of economic security, and accelerate privatisation as well.
In essence, the Special Investment Facilitation Council (SIFC) appears to be a governing and approval body for matters pertaining to economic policymaking.
Growing IT sector: Some 3% research and development (R&D) for smartphone assemblers, permitting companies to retain 50% of their export revenues in USD, allocating Rs2 billion for the Pakistan start-up fund, setting up e-Rozgar centres for freelancers, and encouraging Paypal, Stripe, and Starlink to enter Pakistan were key notable positive events under Dr Umar Saif.
To summarise, the caretaker government was the most empowered team of people to make decisions for long-term policymaking. Some of the key members in finance, energy, and IT must be retained for their good work to reach its logical conclusion in one form or the other.
Half a year of economic stability is just the beginning, but much more effort is needed in the next 12 to 24 months to steer the country out of the no-growth trap. Start with hiring competent policymakers.
The writer is an independent economic analyst
Published in The Express Tribune, February 26th, 2024.
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