The political debate over what exactly it was that the finance minister presented in the National Assembly two days ago misses the point. Call it by any name – mini budget, supplementary finance bill, or economic reforms package – but it doesn’t mask the fact that it was more of the same old’ fiscal ritual of incremental tweaks in taxes, duties and exemptions, yet little in the name of “structural reforms”.
Except for significant tax breaks for “wealth creation”, there is not much that stands out in the speech. It would have been more impact to go to the public after the under-process agenda items – such as customs tariff policy, structural reforms, legislation for special economic zones, and roadmap for issuance of dollar bonds & certificates – had reached a semblance of conclusion.
It looks like the PTI regime is backing the same economic horses of yore that have failed to meet their potential in last many decades. There is an ample cue for another trial of the decades-old economic policy of Import Substitution (IS) when the current economic team talks about increasing domestic production and shifting the economic model from one based on consumption (demand) to production (supply) – all in the name of boosting exports.
The inherent protectionism in IS-lite policy and the inefficiencies it breeds hasn’t previously worked to make Pakistan an export powerhouse. The idea of creating champions in domestic market in the hopes of one day becoming super-competitive abroad will again prove costly. Pakistan may have skipped a step by going from an agrarian economy to prematurely become a service-oriented economy. But shifting an increasingly demand-oriented economy to a supply-based economy will be painful and may not work out.
Instead, policymakers must address where the country’s real competitive advantage lies. In the Information Age, it’s hard to make the case for a return to the farmland – but that’s where the resource advantage lies for Pakistan. The country has better chance of becoming the region’s food-basket than the world’s factory. Investment needs to go into value-addition around agriculture and livestock produce so that Pakistan can make its cut in the food-importing countries among Central Asia and the Middle East.
While agro-based products can be championed for exports, local demand can keep on humming if the government is able to capitalize on the housing problem through scalable solutions. The key is to make ‘affordable housing’ – whose demand is in the millions – commercially lucrative enough to drive private-sector investment and financing in this space. Dozens of allied industries and service concerns will benefit as a result.
Another much-talked-about but neglected growth sector is tourism. There is a need to encourage tourism communities that are focused on foreign travelers, through public support in building both soft and hard infrastructure. It is true that the volume of domestic tourism is already a strain on existing hospitality infrastructure in leading tourist hotspots. Perhaps venturing into undeveloped mountain resorts and coastal belts, besides encouraging religious tourism, can work, if there is a keen interest in meeting the preferences of foreign travelers who frequent this region but somehow skip Pakistan.
The sad part is that the above-mentioned sectors are often mentioned in political manifestos – yet when in government, there is little to no development. The system shackles political will and incentive to change things up. Be that as it may, the PTI government, in its infancy, has the choice to prioritize these sectors, whether or not it opts for more IS-inspired policy measures. So far, there is more smoke and little light to shine on what the real growth strategy is.
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