PTI’s economic policy proposals: flawed and tried-and-failed

As a PTI supporter, I find its economic and governance plans disappointing. They are full of clichés and wishes, and quite similar to plans of the PPP, the PML-N and the regime of General (retd) Pervez Musharraf. The heroic claims on employment, growth, reform of state-owned enterprises (SOEs), investment, circular debt and deficit reductions, exports, appear to have been drafted by someone who does not have a good grasp of basic economic issues. The proposed plans are flawed, timid and not credible. They will not translate the groundswell of hope that the PTI has generated into real change on the ground.

The plan’s Islamic welfare concept is as fuzzy as the PTI’s vision of dealing with the Tehreek-e-Taliban Pakistan. The system in the world that is actually closest to the version of an Islamic welfare state is one found in Scandinavian countries, where the tax-to-GDP ratio is around 50 per cent, where the governments are squeaky clean, and the majority of citizens law abiding and honest.

The ‘Rural Governance Plan’ is mostly full of clichés — employing vague phrases like “power to people where it belongs” — and lists many actions (such as “community based projects”), which have already been tried before. Also, the hypothesis that village councils (VC) will not be prone to being captured by the rural elite is naïve. Also the VC is too small to be a viable unit for delivering most public services. The proposal to have each council perform banking functions, resulting in 50,000 micro-banks, is unworkable, imprudent and bizarre. The plan should have built upon, and improved, the local government reforms carried out over the last decade.

The Economic Plan is most disappointing. Its key recommendations have been tried before for two decades, with little success. There is absolutely no credible ‘how to’ on raising taxes, improving expenditure management, reducing fiscal deficits and SOE losses, increasing exports or resolving the energy (and the impending water) crisis. The proposed recommendations are, in fact, quite timid and are akin to tinkering on the margin — reflecting perhaps, a fear that the PTI does not want to upset vested interests and unions.

The proposed tax reforms are meek and no different from past efforts, and there is nothing new of substance which will give confidence that tax collection will rise if the PTI comes to power. The party’s economic plan seems to shy away from a fundamental overhaul of the Federal Board of Revenue and the more difficult, but urgent, task of introducing a broad-based VAT at the retail level — something that seems to be the only logical way to significantly increase taxes. The recommendation that “provinces would have to do more” is a cop-out. Also, there is no mention of the need to reform the National Finance Commission.

The proposed expenditure reforms are not creative or bold in the least. Other than symbolic actions, no concrete proposals, which are necessary for any real change in government spending, have been made. No specific actions have been mentioned, such as, for example, reduction in number of forces’ personnel, postponement of major armament procurement or a reduction in defence expenditure. Similarly, no substantive and credible action has been proposed for reducing or prioritising current and development expenditures.

The party’s proposed reforms of SOEs are totally unremarkable and have been tried before — with no success. For fear of upsetting the unions, the PTI has shied away from the urgent need to privatise the SOEs — especially the NBP, oil and gas companies, PIA, the Pakistan Steel Mills and the electricity distribution companies. Instead, a Malaysian model, which was tried in Pakistan in the 1970s, is being proposed without any assessment of whether it will work or not. A plan to have autonomous SOE boards has been tried as well, over the last two decades and without any success.

Energy sector reforms ignore the urgency for increasing pricing and fundamental governance reforms for reducing theft which amounts to between Rs300 to 350 billion in losses. The PTI’s claim about reducing circular debt is not possible without pricing and deep governance reforms. The proposed reform fails to recognise that energy is an imported good and will be expensive. Tall claims about reducing the cost of production are based on the Thar coal reserves, a plan which is yet to take off, and a flawed pricing policy of domestic energy products. The recommendation that regulators will go after gas and electricity thieves is nonsensical as nowhere in the world do regulators do such things.

Civil service reforms are meek as well and have also been tried before — unsuccessfully. For fear of annoying the bureaucracy, the PTI has made no proposal on overhauling its ossified and unionised service structure. While the intent to raise spending on health and education is laudable, it ignores the reality that effectiveness of spending is much more important than the amount that has been set aside for spending. For example, there is no credible programme on how the PTI will deal with reform ‘blockers’, such as the textbook mafia or the 500,000 teachers who are unionised, politicised and poorly trained .

The proposed reforms to accelerate growth and exports have also been tried before, again with not much success. The fantastic-sounding assumptions about raising investment ratios are without any basis, and proposals to tap mineral resources ignore the ground reality and the reduction of foreign direct investment in this sector — especially after Reko Diq.

The party has failed to articulate a credible strategy for dealing with the impending water crisis. The proposed reforms fail to incorporate issues of canal water pricing, reform of the irrigation bureaucracy and the need to get out of low-value, high-water use agriculture (such as growing sugar cane).

Reforms of NAB do not incorporate any lessons learnt from the study of successful anti-corruption agencies in other countries (such as in Hong Kong or South Africa). Also, the issue of overlapping responsibilities of FIA and NAB has not been addressed.

The PTI’s proposed plans will not change the status quo and are more of a ‘drizzle’ and less of the ‘tsunami’ that the party keeps talking about. Claims about doing better than others are not credible at all because they have no basis in reality. Fancy and glossy power point presentations are not a substitute for real reforms. For the PTI to deliver on its promise of change, it will have to be bolder in its reform programme and discard outdated ‘tried and failed’ solutions.

Published in The Express Tribune, September 3^rd, 2012.