PSDTF's set of policies

In a letter written to President Zardari, Shahid Javed Burki, Chairman of the Private Sector Development Task Force (PSDTF) of the Planning Commission, has proposed a set of policies to resolve the present economic problems of the country and lay the foundation for sustainable economic development. Most of them, however, are already well-known and have been repeated a number of times by various economic analysts and institutions like the State Bank.
For instance, PSDTF has urged upon the government to restore confidence of the investors by focusing efforts on political stability, reduce inflation rate to a single digit by the adoption of appropriate fiscal and monetary measures, raise the tax-to-GDP ratio without hurting investment but by constraining consumption, mobilise more domestic resources to narrow the saving-investment gap and launch a well focused effort to increase the level of investment by reducing the discount rate if the monetary situation improves, rationalising the tariff structure by encouraging the import of capital goods, allowing accelerated depreciation for investment by companies to improve the educational and skill levels of their workers and facilitating the exit of companies that have turned "sick" by establishing a Resolution Trust Corporation. Some of the other proposals include the implementation of the programme to computerise land records on a fast track basis, expediting the process of privatisation, strengthening the Security and Exchange Commission of Pakistan and the Competition Commission of Pakistan and development of poverty, nutritional and other "maps" to better focus subsidies on the poor and backward regions of the country.
The issue of a realistic exchange rate seems to have been especially highlighted by the PSDTF. Its Chairman has strongly emphasised the need "to maintain a realistic exchange rate that constraints domestic consumption while encouraging exports." It was also proposed to set up a federal secretaries committee, co-chaired by secretaries of finance and planning.
The committee should also have secretaries of all economic ministries as members including the Chairman of Provincial Planning and Development Departments and may be required to meet every month and issue its agenda and the minutes to the press. The chairman of the committee should also be required to appear before the appropriate Senate and National Assembly committees every quarter.
We feel that almost all the proposals submitted by the PSDTF to the President, though not entirely fresh, make very good sense and fit perfectly well in the present economic situation of the country. There can hardly be any argument, for instance, against the need to raise the tax-to-GDP ratio, narrow the saving-investment gap, reduce the inflation rate, create highly conducive conditions to promote investment by removing all kinds of obstacles, and target the subsidies on the poor and underdeveloped regions of the country.
In fact, the future of the economy undoubtedly depends on the faithful implementation of the relevant policies geared to achieve these fundamental objectives. However, as the members of the PSTDF would be aware, the actual problem is not the lack of knowledge about the present state of the economy and the possible policy options to get out of a dismal situation, but the real difficulty is in pursuing the necessary reform agenda vigorously in the related areas to stabilise and activate the economy.
For instance, everybody is aware about the impediments to raise the level of investment, tax-to-GDP ratio and reduce subsidies. Unfortunately political considerations have come to dominate the economic imperatives, leaving little room for the government to make the right decisions in different areas of economic policy. Some of the minor decisions like strengthening the SECP and the Competition Commission and better targeting of subsidies could, however, be taken easily and without much fuss. Government would probably have no plausible excuse to delay them.
The need to put so much emphasis on realistic exchange rate is, nonetheless, hard to comprehend when the country is already pursuing the right policy in this field and reaping the benefits in the form of higher exports and a steep rise in home remittances through official channels.
Such a proposal to the President would have been pretty useful if economic managers of the country were thinking about intervening in the foreign exchange market at a substantial scale or a fixed rate regime about which we are not aware. In our view, the most solid contribution of the PSDTF is the suggestion to set up a federal secretaries policy implementation committee which would also include secretaries of all related ministries from the provinces.
The formation for such a committee was direly needed because the forums like ECC had neither the time nor the expertise to analyse various economic policy issues thoroughly and come up with the right solutions. The committee would also be particularly relevant and could play a crucial role after the NFC Award and the granting of more autonomy to the provinces after the recent amendments in the Constitution.
A higher level of co-operation between the centre and the provinces at the bureaucratic level is now certainly required to chart out a more effective mechanism to collect taxes at various levels and raise the tax-to-GDP ratio to a respectable level to meet the rising expenditures. It is strange that while in most of the other countries, provincial governments mobilise a considerable proportion of revenues themselves to meet their expenditures, no such effort is made in Pakistan to lessen the financial burden on the Federal Government.
We believe that if such a committee could adopt a strictly professional behaviour and guide the political leadership properly, unnecessary squabbling among the centre and various provinces could also be reduced to a certain extent and overall policy formulation could be improved by injecting more analytical content into the debate.