Economic debates

"Finally, we submit that as an independent think tank our job is to undertake an objective review of the economic performance of the Government. We have strongly praised the Government's efforts at finalising the CPEC and have argued that the federal PSDP should be larger in order to accommodate CPEC infrastructure projects. We have also appreciated the PM's Kissan Package and the recently announced Voluntary Tax Compliance Scheme. But, in a democracy, civil society must be allowed to highlight risks, challenges and shortcomings"-Dr Hafiz A. Pasha, Business Recorder, February 8, 2016.
The remarks of Dr Pasha, former federal minister and Managing Director of Institute of Economic Reforms, suggest that Ministry of Finance (MoF) is permanently irked by his critical writings. For stalwarts and cronies sitting in MoF, it is a matter of ego that somebody criticises their "ultimate economic wizard" (worthy Finance Minister). Resorting through rejoinders (it has become a regular feature in Business Recorder), the MoF is ordained by the Finance Minister personally or being done by stalwarts who are more loyal than the King can be a wild guess. But it is immaterial. The crux is that if ministers start thinking that they are above criticism, then system of governance is authoritarian and not democratic as pointed out by Dr Pasha.
In her op-ed, 'No-balls by Nawaz', Business Recorder. February 8, 2016, Anjum Ibrahim aptly commented that "appallingly poor governance during the five-year PPP-led coalition government led to PML-N victory in the 2013 general elections, or such is the general perception. But half way into the Sharif administration's tenure, governance has not visibly improved with massive power shortages continuing, state-owned entities (SOEs) persistently performing poorly notably Pakistan International Airlines and Pakistan Steel Mills, and all important commercial decisions entered into by the federal government shrouded in secrecy generating controversy."
State Bank of Pakistan (SBP) in Chapter 4 (Fiscal Policy & Public Debt) of Quarterly Report 2015-16 on State of Economy has made many adverse remarks that are stronger than Dr Pasha's and other critics of the economic policies of Nawaz government like: "The revenue collection improved by 11.6 percent against a dismal growth of 1.2 percent a year ago. While the non-tax revenues showed virtually no growth, the tax collection picked up by 15.4 percent. The pace of tax collection, though encouraging, is still lower than what it should be: tax collection in Q1-FY16 is 19.3 percent of the full year target; however, according to past seasonal pattern, it should be about 21 percent of the annual revenues".
On the issue of public debt, SBP has noted that "Pakistan's public debt stock increased by Rs 768.8 billion during Q1-FY16, reaching Rs 18.5 trillion as of end September 2015. This was driven by rise in both the domestic and external debt." Will MoF team issue rejoinders against SBP as well?
It is high time that the worthy Finance Minister and his team should pay heed to voices of sanity. For the last many years, the critics of the government have been emphasising that instead of imposing regressive taxes, economic managers should concentrate on structural reforms to achieve a sustainable 7% to 8% economic growth for at least a decade, increase exports and investments, create more jobs, improve infrastructure, overcome power shortage and restructure loss-making public enterprises. Unfortunately, however, the strategy of the present government, like the earlier ones, remains focussed on austerity and more oppressive taxes. These measures have not only failed to bridge the fiscal deficit but have also retarded economic growth.
Time and again, it is highlighted by many that economic stability is not possible with increased borrowing, slashing development spending and poor tax-to-GDP ratio. The need is to address structural issues faced by the ailing economy. In his article, 'Rejoinder to the IMF' (Business Recorder, July 31, 2015), Dr Pasha warned that "since the growth strategy without the fiscal stimulus is not working, there is need to also look at other stimuli. Fortunately, interest rates have come down sharply, following a precipitous decline in the rate of inflation, and there is scope now for also pursuing a more expansionary monetary policy. Further, an adjustment in the exchange rate has become essential if the process of export-led growth is to be initiated once again." The government, as usual, instead of paying heed to these suggestions, decided to challenge these, and an MoF official issued yet another rejoinder.
The main malady behind existing fiscal mess remains unattended: non-payment of due taxes by ruling classes and collossal wastage of resources. Unfortunately, our successive governments, both military and civilian, used taxes as a tool to extort from the masses as much as possible for their own comforts and luxuries. By resorting to repressive taxes, they make the rich, richer and the poor, poorer and retard economy. Our financial managers are caught up in a dilemma. On the one hand there is a mounting pressure to reduce fiscal deficit through more collections and on the other, they are not ready to abolish innumerable tax exemptions and concessions and benefits available to the rich and mighty. They have no will to plug revenue leakages. On the contrary, yet another tax amnesty has been extended to tax evaders. The ruling party on January 21, 2016 passed Income Tax (Amendment) Act, 2016, despite protest and boycott from Opposition.
The rulers are not concerned to foster rapid industrial growth, tackle unemployment and rising cost of doing business, check trade, fiscal and current account deficits. They are constantly enhancing taxes, especially on petroleum products. Economic stagnation and industrial slowdown are realities, but they are either engaged in self-praise or indulging in war of words with Opposition or other critics. People's purchasing power is rapidly diminishing, banks have lesser liquidity and the government has become a predator as it takes away major deposits. The banks are not much interested in lending money to the private sector for growth-oriented and job-creating investments. Foreign investors are shy and afraid, mainly due to law and order situation, unprecedented corruption at all levels of governments, perpetuation of political instability and economic uncertainty.
Miseries of the common man are increasing with every passing day, leading to social restlessness. The official experts keep on reminding us that Pakistan is basically an agrarian economy, but they never explain why a vast majority of the people do not have enough to eat. Why we have shortage of edible items? Why their prices are skyrocketing day by day. Why Chairperson of the Competition Commission of Pakistan is not conducting investigation and taking action against cartels supplying expensive inputs to poor farmers? It is tragic that being an agricultural economy, we import agricultural products (our import bill of edible oil alone runs into two billion dollars). We have utterly failed to develop any worthwhile agro-based industry since independence. What a decline from the times when this region (United Punjab before partition) had the undisputed position of being the granary of the entire Subcontinent!
The government is not ready to accept that the problem of power shortage persists, avoidable imports continue, wasteful expenditures are rising, trade deficit is still high, exports are on decline and domestic industry remains both costly and uncompetitive. All the governments, including the present one, never seem concerned with the welfare of masses but appear keener to leave concrete monuments, defacing historical cities only to gain cheap popularity and then adding insult to injury waste huge amount on advertisements for justifying illogical and unlawful actions as well as waste energies on meaningless rejoinders to counter genuine criticism by the men of letters.(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences)