Have an open mind

The budget framers need to pay attention to the recommendations made at an Institute of Policy Reforms seminar recently. What is more important is the message and not the messenger. If the incumbent Finance Minister , M. Ishaq Dar, does not see eye to eye with his predecessor in the last PML (N) government Dr Hafiz Pasha it hardly matters. But Dr Pasha has hit the nail on the head when he says stabilisation programme agreed with the International Monetary Fund by the PML (N) government now needs to change its course and the government needs to pay more attention to economic growth. The implication - without Dr Pasha saying so, is: PML (N) needs to prepare itself for the next elections by adopting economic policies that spur growth and create new job opportunities.
Stabilising the economy was indeed a must as default on forex obligation was never an option. The priority was to somehow increase the forex reserves and not just generate but also deliver more electric power as well as natural gas to domestic constituents in particular and the industry in general. We agree that forex reserves have soared considerably. However, the challenge of power generation has only just begun but enhanced delivery is yet to be achieved.
Therefore, we now need to walk the talk and convince the Fund that a course correction is indeed needed. An 'expansionary monetary policy' advocated by Dr Pasha is just one of the options. This implies a more drastic cut in existing SBP's policy rate (8 percent) in order to be ahead of the curve and not behind. We do agree with IPR's suggestion that a 100 basis points (bps) and not 50 bps slashing is needed; while the space is available to SBP with inflation easing off for sometime. This would need not require persuading the Fund's staff and undertake intense negotiations with them. Do we have the required expertise to argue and negotiate?
Further, Dr Pasha is again right, when he advocates that the challenge is to collect more taxes by broadening the base instead of hiking the rates of tax. He also stressed on the need to find ways to reduce expenses. People should feel an improvement in their lives. Businesses need to be incentivized to create more jobs. As such, Pasha underscores the need for bringing the corporate tax rate down to 30 percent instead of gradual one percent cut every year promised by the government.
The Chinese investment can make a difference only if there is political stability and major improvement in law and order situation. Enhanced focus in raising exports is needed. We do understand when the incumbent's focus is more on checking the quantum of public debt and its servicing cost as one rupee depreciation adds Rs 65 billion to public debt servicing. However, we cannot allow exports to continue to decline month after month. Cutting the PKR parity with the dollar may not be the chosen course for a fiscally-strapped government. But the government needs to understand that economic choices are not without consequences. Exporters can be compensated with a reduction in export refinance (Pasha says 5 percent). And, adopting a quicker refund mechanism of their liquidity held up by the FBR and SBP.
The tax base (direct) has not increased significantly. FBR's tax collection target had to be revised downward twice. Perhaps, we need to do away with unrealistic target setting, ie, agree to a fiscal deficit with the Fund and then work backwards to fix a target for FBR.
The problem of circular debt still persists and the investment to GDP ratio has not picked up. Big government-owned and mismanaged corporations such as Pakistan International Airlines, Pakistan Railways and Pakistan Steel continue to bleed - and need help of subsidy from the budget. If oil prices have given Pakistan a breather - so have the prices of export commodities like wheat and sugar that have considerably softened. In the past they earned dollars besides cotton and its ancillary industries.
Dar has done well to arrive at a political consensus with PTI, with the establishment of a Judicial Commission. Arranging a briefing of heads of political parties on the China-Pakistan Economic Corridor is also a feather in his cap. But the country would need to provide the rupee component from the Public Sector Programme for the Chinese investment to materialise. Further, good governance is what is needed. Otherwise, the financial sector (banks) will demand a higher price. In fact, banks have already started doing it.
It is easy to be an arm-chair critic. But once you have to take decisions, they would have both favourable and adverse consequences. One can adopt good policies but if implementation is weak - the desired result would not be forthcoming. It is implementation where our weakness lies. Mere photos-ops and propaganda adverts may convince some but not all. Social sectors programmes may not have visibility. The PM favours going for big projects with visibility. Short-term gains cannot and will not give the results. All the macroeconomic numbers improved between October 1999 and February 2006. However, in the election year 2007-08, PML (Q) could not benefit from them. PML (N) needs to learn from the mistakes made by both PML (Q) and PPP governments if they want to overcome the PTI challenge in the next elections. However, much more needs to be done by this government. Prime Ministership of a developing country is not a bed of roses but a bed of thorns which our politicians have willingly sought. They now need to press ahead and meet the challenge. According to Greek philosopher Epictetus: "We have two ears and one mouth so that we can listen twice as much as we speak."