As Pakistan takes the first step on the path of economic reforms, Washington-based World Bank has advised the new political leadership to remain consistent in its efforts and take bold decisions by fully exploiting the window of opportunity in its honeymoon period.
The World Bank has advised the new government on how it can steer the country out of economic crisis and put it on the path of sustainable economic growth that could ensure jobs for a large number of youth.
According to the Country Economic Memorandum of the World Bank, Pakistan is facing formidable challenges and a bold approach is needed to focus on growth as well as stabilisation.
“Simultaneous action on various fronts and a break with past economic trends will be crucial to putting Pakistan back on the path of prosperity,” said the WB’s Pakistan policy note.
It added strong leadership with clear vision and sustained implementation will be critical to bringing about economic reforms that have eluded Pakistan.
It also observed that in the past a strong political will and consensus to implement difficult policy decisions were missing. Owing to the previous government’s failure to take necessary steps, the WB had suspended budgetary support to Pakistan.
The new government has announced first meaningful reforms by taking on challenges in the energy sector. As a first step, it will increase power tariffs for all consumers including residential consumers.
The government is also committed to privatising state-owned enterprises, which is a condition in the IMF programme as well.
“Unfortunately, stop and go policies are the rule rather than an exception in Pakistan’s experience with structural reforms,” the WB observed.
It cautioned that implementation of reforms on an ad hoc basis and in piecemeal will not yield results, as each area of reform will reinforce the others but if not pursued, will undermine the others.
It was of the view that the current approach to taxes and subsidies not only distorts business activities and creates avenues for corruption, but it also reduces the government’s ability to supply electricity. Shortage of electricity, in turn, undermines business competitiveness, reduces trade and slows growth and job productivity.
It added partial implementation will, therefore, undermine desired results. If prompt solutions are not found to reduce losses incurred by state-owned enterprises, they will continue to constrain the fiscal space and keep jobs unproductive.
It said a solid start by the government to move forward comprehensively across many areas in the first 100 days will be essential. “A carefully chosen set of front-loaded measures would earn the government the political capital to make further medium-term advances on the reforms agenda.”
It suggested that the most important reforms to initiate is in the power sector, as progress in all other areas, including fiscal management and the private sector, depends on it. It proposed a single-point power authority having managerial autonomy and also sought initiation of accountability in power utility firms.
The bank advocated a clear timeframe for power tariff increase to recover the full cost of electricity generation.
Listing revenue mobilisation as the second most important reform, it proposed bringing an end to ad hoc taxes and withdrawal of tax exemptions given through Statutory Regulatory Orders. It advocated withdrawing all tax exemptions except for priority medicines and food items for the poor.
Reforming the FBR and withdrawal of SROs are also part of the IMF programme. The WB proposed simplified customs tariffs with maximum three slabs besides giving full autonomy to the FBR having greater enforcement capacity.
The lending agency also wanted privatisation of public sector enterprises immediately and an end to red tape. It proposed strengthening governance and accountability mechanisms.
However, it said far reaching reforms will require both leadership and building consensus and warned that powerful groups and individuals will continue to avoid changes, particularly in the areas of taxation, agriculture and trade.
Published in The Express Tribune, August 3rd, 2013.
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