Priorities for new government

While digitalisation is imperative across all depts, it is most critical for FBR

ISLAMABAD:

The new government’s steadfast commitment to economic revival and proactive approach to building upon the groundwork laid by the caretaker administration are encouraging signs.

The government’s swift action in initiating negotiations with the IMF for another loan programme is necessary to address the substantial external financial deficit and prevent a repeat of the past six years’ default scenario. This marks a significant departure from previous practices, where new administrations often delayed similar actions for months for political reasons.

Another astute government decision is the appointment of Muhammad Aurangzeb as its finance minister. This choice offers numerous advantages.

Among his achievements in his previous role as the head of Habib Bank, he spearheaded extensive digitalisation efforts, facilitated increased funding for the modernisation of agriculture, and fostered collaboration with the Bank of China to leverage CPEC for enhancing Pakistan’s regional and global integration.

Pakistan is significantly behind in these areas at the national level. While digitalisation is imperative across all government departments, the most critical needs are those of the FBR. Its performance has been much below par.

Almost one-third of the revenue is estimated to be lost due to tax evasion. Only 3.6% of the population files tax returns, with half declaring no taxable income.

It would greatly ease the FBR’s borrow-to-improve problem if its tax collection, at 8.5% of GDP, were brought on a par with India’s, which is almost double at 17%.

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We could seek assistance from Singapore’s tax digitisation efforts, where filing and payment processes have been simplified to such an extent that three-fourths of individual taxpayers benefit from a no-filing service with pre-filled data fields.

At Habib Bank, Aurangzeb’s other major achievement was the establishment of a dedicated subsidiary, HBL Zarai Services Limited. With its financial resources and efficiency, this institution will make a significant contribution to the government’s recent initiatives for catalysing the second Green Revolution.

Pakistan currently imports $10 billion of edible oils and other food products. The greater focus on agriculture should not only bring us self-sufficiency but also position us to significantly elevate our agricultural exports.

During the last eight months, exports of food products jumped by 54%, or from $3.2 billion in FY 2023, to $5.97 billion in FY 2024. There is a need to build on this momentum.

If the Netherlands, which is 19 times smaller in size compared to Pakistan, can export over $100 billion worth of agricultural products, there is no reason why Pakistan, with its much better climate, should not be able to export at least $30 billion of agricultural products.

Aurangzeb, leveraging his years of experience working there, can utilise his knowledge and connections to attract joint ventures with Dutch companies.

Another forward-thinking initiative led by Aurangzeb was establishing a formal strategic partnership between Habib Bank and the Bank of China. This partnership aims to enhance economic empowerment and regional connectivity, fostering seamless trade opportunities across South Asia, the Middle East, Central Asia, and Africa.

Achieving regional connectivity at the national level necessitates the shifting of Pakistan’s economic outlook from inward-looking to outward-looking. Currently, Pakistan ranks as the world’s seventh most protected and inward-looking economy, with import tariffs nearly twice as high as the global average and three times higher than those in East Asia (World Bank).

Opening up the economy poses a significant challenge from the vested interests, but during our lifetime, many Asian leaders have successfully transformed their nations. There is no reason why Pakistan cannot achieve similar success.

Over the last five years, the World Bank has conducted significant work in this area and has developed a roadmap for modernising Pakistan’s trade policy. Their key findings suggest the necessity of comprehensive import tariff reforms and reducing trading costs.

A World Bank team is currently collaborating with the Customs administration on a new digital management system to fully modernise the clearance system, aiming to reduce time and costs. Pakistan Single Window has already considerably facilitated cross-border trade, replacing manual processes with digitalisation.

However, there have been no initiatives thus far to embark on import tariff reforms. Without substantial reforms in this area, Pakistan risks remaining isolated. We stand on the brink of transformation. There’s a growing awareness that we must fundamentally alter our existing policies and resource allocation.

Given the enormity of the task, the government ought not to hesitate in leveraging the expertise of outstanding technocrats from the caretaker setup, who have demonstrated a remarkable ability to swiftly transform the outlook and economic performance from despair to optimism.

Embracing such an arrangement would not only ensure continuity but also accelerate the pace of reform, thereby propelling the nation towards sustained progress.

The writer is a Senior Fellow at PIDE. Previously he has served as Pakistan’s ambassador to WTO and FAO’s representative to the United Nations at Geneva

Published in The Express Tribune, March 25^th, 2024.

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