The PML-N on the economy

Published: April 14, 2013
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The writer is a former caretaker finance minister and has served as vice-president at the World Bank

The writer is a former caretaker finance minister and has served as vice-president at the World Bank

Upon reading the manifesto of the Pakistan Muslim League-Nawaz (PML-N), I was reminded of a meeting I had in 1999 with a Brazilian politician. Luiz Inacio Lula de Silva then was getting ready to start his campaign for his country’s presidency. He went on to win the election and for eight years (2002-10) guided his country’s economy towards becoming one of the more vibrant ones in Latin America. As vice-president at the World Bank, I was then looking after Lula’s continent. He called on me to find out what kind of help the Bank could provide his country were he to be elected president. He gave me a long list of reforms he would introduce into Brazil’s economy and its social sector. It was an impressive list. “How would your government pay for all the wonderful things you say you will do once you became president?” I asked. “You should pose that question to my economists” was his response. Since he came alone to my office, I could not go much deeper into the question of financing the promised reform effort.

The PML-N’s 104-page long manifesto has correctly read what ails the Pakistani economy and society. What it would do if it gained power in Islamabad after the elections on May 11 also makes sense. What the party is less clear about is its plan to find the money to finance the effort it wants to launch. Like Lula’s list, the PML-N’s programme is also ambitious. That said, the most puzzling statement in the document is that in the 21st century, Pakistan will “emerge as one of the top 10 economies of the world”. This would be quite an achievement. At this time, Pakistan, by my reckoning, is the 42nd largest economy in the world, behind Iran, Israel and Egypt. It is promises such as these that reduce the credibility of a manifesto. That apart, the manifesto has many worthwhile suggestions.

The PML-N has a correct diagnosis of the problems the country faces — high and unsustainable fiscal and balance of payments deficits; high and rapidly increasing burdens of domestic and external debts, which have resulted in large debt servicing; poorly performing public sector enterprises; no controls on non-development public sector expenditure; declining government outlays in such critical areas as education, health and skill development; very serious energy shortages; and very little investment in improving the economy’s  technological base. Among the promises it has made are major improvements in all these areas.

The manifesto is strong on the need for improving the physical and human resource base of the country. It promises that the state will work closely with the private sector to build roads, bridges, ports and (presumably) improve the railway system. It also promises to increase the amount of electric power that is generated, especially by using the country’s enormous coal reserves — Thar coal, we are told, has 175 billion tonnes of reserves, enough to generate 100,000 MW of power for a hundred years. Exploiting this, along with renewable sources of energy will help to close the inequality of access that currently exists. The manifesto indicates that power shortage is causing a loss of $5 billion a year to the economy and a loss of a million jobs. This has also reduced export earnings by $2.5 billion. As much as 40 per cent of the population does not have access to electricity. Recognising that the provinces under the Eighteenth Amendment now have a lot of authority in economic matters, the party makes two interesting proposals. It will set up a wholesale market for energy, presumably one in which the energy-surplus provinces could sell to those who are in deficit. It also tackles the shortage of public funds for the building of needed infrastructure by allowing cities to raise capital from the market. Credit-worthy cities could sell infrastructure bonds to raise the amount needed for specific projects.

This brings me back to the conversation I had with soon-to-be-elected President Lula. The job of financing the programme he was promising to deliver to his people would be worked out by the economists on his team. The PML-N manifesto team had plenty of experienced people who helped draft the programme. Two former finance ministers and one former planning minister were called upon to develop the proposals in the manifesto. It would have helped if the entire programme had been costed out and the way for finding the needed resources more clearly spelt out.

The promise to increase the tax-to-GDP ratio by more than one percentage point a year and reach 15 per cent by 2018 and to increase the Public Sector Development Programme so that more gets invested in education and health will need more money coming into the state’s coffers. But how will that happen? The party promises full documentation of all transactions that take place. It should have promised that in achieving this objective, it will not succumb to the political pressure of small shop-keepers who are part of its constituency. It has promised not to raise the incidence of taxation but not to spare any sector from being taxed. Does this mean that incomes from agriculture will pay the same amount as tax as the incomes from other parts of the economy? It would have helped if such a promise had been made explicitly in the manifesto. What about a value-added tax? The manifesto promises that a uniform sales tax will be levied. Is that a veiled reference to a value-added tax? To rephrase an old dictum: the intentions are good but the proof will be in their implementation.

Published in The Express Tribune, April 15th, 2013.

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Reader Comments (12)

  • Apr 14, 2013 - 10:42PM

    In this article the author has rightly pointed out what has to be done and wondered how will it be done.Documenting economy is such a big task in a country where tax payers are less than .05 of total population and all transactions are by and large in cash.Will N open bank accounts data to FBR and knowing by their track record N will not do it.Second inceasing GDP 1% every year is hardly a good goal and to bridge expeniture and reciept.What stopped SS in generating 50 W on run of rivers for which no permission from centre was needed.Last if it tax traders,its main voters?It did not and Its to be FM is good in managing figures himslef paying less than two lacs has capacity and transparency isssues

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  • Falcon
    Apr 14, 2013 - 11:09PM

    Isn’t PMLN the very party, who couldn’t push the provincial taxation responsibility post 18th Amendment above 0.5% of GDP? In fact tax revenues as % of GDP have declined in Punjab (if I remember it correctly). If they are so scared of losing votes that they are not willing to raise tax in a single province, how will they raise the level of taxation in the whole country? And if their vision of spending on education is Danish Schools and laptop schemes, they better give this money to someone who can spend it more wisely

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  • Nadir
    Apr 14, 2013 - 11:25PM

    None of the manifestos published thus far explain how any of the plans will be financed. Figures and numbers and phrases such as “we will exploit XYZ” litter all the parties manifestos. When the time comes, the more things change, the more things remain the same.

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  • Aqeel
    Apr 14, 2013 - 11:40PM

    Sir, with due respect, what you missing is the political will, above all. Mr. Lula vs Mr. Shareef. Thats pretty much a point of conflict.
    We all have seen a lower middle class worker, who raised his family from ashes and his sons and grandsons ends up with business empires. On the contrary, a feudel’s spoiled son, who just wasted his ancestors empires and converted them into ashes. In, my layman’s wisdom, i conclude it with ” good intentions”…

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  • yousaf
    Apr 15, 2013 - 12:22AM

    No country gets fruits of foreign investment until and unless they have strong justice system and we need reforms in our justice system and with PMLN in power its impossible because current system favor them big time so they will never do it…… i read khans manifesto yes its also full of wish list but atleast they are taking about the structural changes which is very much needed.

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  • Bxxxx
    Apr 15, 2013 - 12:51AM

    Worst gdp numbers in his tenure now and in the past. Manifestos of all parties are somewhat similar. Its depends on the person that will implement them. The solution to Pakistan woes are a plenty put none of these dishonest and corrupt special interest people will do anything. Time to vote for someone else.
    The blame for future problems will lie squarely on the people who vote for these people or dont vote at all.

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  • gdfh
    Apr 15, 2013 - 1:50AM

    PMLN and media is too much concentrated on middle class but there is no mention of poor people( which is the largest number of people in pakistan) ; how food will be provide to them at less rate;will the banezir income support program will continue with next govt. or not., what about their roti, capra or makan. Those poor people need more concentration if pakistan has too grow without them pakistan can grow in patches but not ininterepted high growth.

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  • LOK
    Apr 15, 2013 - 4:49AM

    Anyone but PML-N on economy please. We still remember when Nawaz put sanctions on foreign currency accounts, what a disaster was that.

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  • Tanveer
    Apr 15, 2013 - 8:01AM

    PML (N) has a good team for the implementation of his manifesto as well has prepared it with great care realizing the country’s issues and potential. I guess other parties have just copied their manifesto.

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  • concerned
    Apr 15, 2013 - 9:51AM

    They do have the capability, but they severely lack the willingness to undertake whatever they’ve said. Their party members have high stakes in the agriculture business. Its a HUGE conflict of interest. They will NEVER tax agri income, which has been one of the main reasons for the currently high Fiscal Deficit (agriculture forms almost 25% of Pakistan’s GDP and contributes negligably to Tax Revenues).

    Whenever PML-N has come in to power, the country’s Fiscal Deficit has escalated. In the last 5 years, Tax to GRP (Gross Regional Product) for Punjab was way below than that of Sindh and only narrowly above KPK and Baluchistan, despite the fact that Punjab receives significantly higher tax revenues based on its population according to the NFC Award formula (population has a 82% weight for the redistribution of revenues from the centre to the provinces). As a result, the corporates of Karachi have mainly been financing this Tax to GDP ratio of below 9%, which is the reason why Sindh’s Tax to GRP stands way above the other provinces.

    With Pakistan looking to approach the IMF in the near term, the latter would push the authorities to increase Tax Revenues even more. If PML-N comes in to power, this will most likely result in a significant increase in the tax rates of the already highly taxed, corporates of Karachi.

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  • Naveed
    Apr 15, 2013 - 11:03PM

    As for increase in tax-to-GDP ratio the PML(N) did not take measures to increase revenues through direct taxes like personal and corporate income tax during its previous two tenures of power.Likewise, it refrained from imposing tax on agriculture income because PML(N) is a political party dominated by feudal lobby who also owns sugar and cement industries.In his speech at a public meeting in Mansehra (KPK) the other day, Mian Nawaz Sharif promised economic explosion like the nuclear counterblasts of 28th May,1998.Will he fulfill this promise made to the people, or once again be fool them with the hollow slogans like making Pakistan World Tiger, futile scheme of Qarz Utaro Malk Swanroo and whimsical program “Pakistan 2020″, the dominant political themes of his second tenure of government?

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  • Khalid
    Apr 15, 2013 - 11:20PM

    The road map to prosperity laid out by mian is and will remain a pipe dream because his power base lies in cities and for traders and industrialists documentation is anathema

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