Fixing the fundamentals of economy
By Sahibzada Hussain Mohi-ud-Din Qadri
Pakistan’s recourse to the International Monetary Fund (IMF) and the World Bank (WB) for much needed foreign exchange to prevent default on its external obligations shows country’s predicament. Despite promises and claims by successive governments, both military and civilian included, about breaking the proverbial begging bowl, Pakistan continues to remain trapped in the vicious cycle of IMF. It is a classic case of “the more things seem to change, the more they remain the same.” Given the surge in economic activity caused by growth in the telecom sector, stock exchange, foreign remittances and flow of international aid and investment, an impression of ‘economy being on the track’ was created, which led the then Prime Minister to claim that Islamabad had said final good bye to IMF and had achieved economic sovereignty.
Upon taking over, the PPP-led government found itself sandwiched between fast deteriorating security situation in the country and rising oil prices, which inflated the import bill and caused the depletion of precious foreign exchange reserves. Pakistan’s engagement in internal war on terror had also very huge economic cost. The outbreak of energy crisis further aggravated the economic situation and served to slow down economic development.
While international financial crunch did have its toll on our economy in ways more than one, however, most of our economic woes have owed their origin to the very manner in which we have been managing our economy. Some analysts are of the view that Pakistan got least hit by the recession in international market because its economy is loosely linked with international financial architecture. This may be true at its face value. However, Pakistan’s economy was affected indirectly. Consider:
The destination of most of the country’s exports is mainly Europe and the US. The economic crunch did decrease the purchasing power of the people, thereby decreasing the demand for our exports. Secondly, no country can make progress without foreign investment and inflow of foreign capital. Precarious security situation coupled negative portrayal of the country’s image in the international media and economic crunch brought investment from the Europeans almost to a zero level with horrendous consequences for the national economy. Thirdly, the foreign remittances by the local expatriate community, which are a major source to strengthen foreign exchange reserves, were also reduced.
The government had little control on these factors nor could it do much to stem the downward slide. The economy could still have borne shock had our successive governments paid attention to fixing the fundamentals of economy. It is unfortunate that our governments have had ad hoc economic strategy. They have been reacting to the economic crises rather than taking on them proactively. The previous government led by General Pervez Musharraf had the golden opportunity to undertake policy reforms and reorient the direction of our economy. However, it used the breathing space in building ‘bubble economy’, which got busted at the first available test.
No reform effort can succeed without acknowledging the due importance agricultural sector occupies in our economy. But it is equally unfortunate that this important sector has not received the kind of attention which its potential warranted. Pakistan is blessed to have fertile lands, hard-working farming community and conducive weather. The focus on this sector cannot only be instrumental in achieving economic development and self-sufficiency but can also earn much needed foreign exchange through export of agro-based products. As indicated in the Economic Survey released on June 11 this year, agriculture sector alone showed signs of growth by 4.7% contrary to poor performance of other sectors.
Secondly, we need to work hard to increase our exports and decrease imports to allow economy space to grow. Presently there is a huge gap between our exports and imports much to the detriment of the national economy. Heavy import bill consumes precious foreign exchange. Pakistan is a front-line state against terrorism suffering huge sacrifices both in man and material. The government needs to put forward its case strongly before the international community and ask for giving maximum market access to our products.
Thirdly, the tax regime, currently in vogue in the country, is highly discriminatory. The major share of our tax receipts is through indirect taxes, which puts heavy burden on the poor and downtrodden sections of society. There is a need to shift from indirect taxes to the direct taxes so that the more affluent sections of society are made to contribute to the national kitty in accordance with their levels of income. Equally important is the task to broaden the tax base. Untaxed sectors need to be brought within the tax net.
The government should also cut down its non-development expenditure. This writer is of the considered view that if our political leadership develops consensus on keeping the non-development expenditure to the minimum, it could go a long way in bridging the fiscal deficit. The policy of simplicity and austerity at the top level could bear fruits motivating people to follow suit.
The welfare of the poor people should be the linchpin of our economic policy-making. Instead of passing the burden on to the poor, the government would do well to ask more affluent sections to bear cost of their material progress. Let them share develop the feeling of ownership of state, a state which cares for them. It requires paradigm shift in approach and out of box thinking.