Reading PTI’s economic roadmap

A roadmap that does not mention the distance between two points, or, as is in today’s digital world, does not tell you the estimated time of arrival and the possible routes, is not really a sought-after document. If it were a mobile app, it surely would have bad rating. The story of PTI’s Medium-Term Economic Framework (MTEF) is little different; it does not offer targets, nor key timelines by which the milestones are targeted to be achieved.

Titled ‘Road map to Stability, Growth and Productive Employment’, it seems the MTEF was released in haste. Perhaps to apprise and appease the IMF about the direction the government is going to take, considering that it contains certain policy action proposals that the IMF would be very glad to see. Or perhaps because the critique over PTI’s economic inaction was gaining grounds. But let’s leave such conjectures aside, with the conclusion that it would have been better if the roadmap was launched with some targets and timelines.

There are some who are arguing that there is nothing new in the MTEF. Well, isn’t it so that Pakistan’s problems are rather too old and sticky? If a patient needed an anti-biotic seven days ago; she will still need an anti-biotic seven days later. Or should the doctor give an anti-viral for the sake of offering something new. Such critique seems very pseudo and best be ignored.

Be that as it may, some aspects of the roadmap reflect some critical changes in direction, which for good reasons and bad, cannot be ignored. Some of these aspects are either flawed or unfinished. For instance, in the case of power sector, the plans look half-baked, without even a mention of any plans to de-regulate the sector. (See Power planning – half-baked, April 15, 2019)

Or take the case of state-owned enterprises (SOEs). At the one end, the government wants to make SOEs “efficient enough to be self-reliant and capable of performing at par with private sector” courtesy ‘Sarmaya-e-Pakistan Limited’. Yet privatisation “remains a key component” of its overall economic and financial policy framework. In public policy it is not enough to be right; one has to be right for the right reasons. In that light, the government would do well explain the reasons behind its contradictory stance on SOEs and privatisation.

In contrast to these, there are also a host of aspects that can have seriously positive implications. For instance, the government is the government plans to amend the State Bank of Pakistan Act to give greater operation and institutional independence.

The amendment is also planned to bring clarity to existing exchange rate arrangements. Here by “existing exchange rate arrangements” the MTEF perhaps means market-float arrangements, with some stick-approach applied in the open market. It also plans to apply “possible limits of government borrowing from SBP” in line with prioritising price stability as an objective of monetary policy, whereas inflation targeting is also one of the items on the agenda. These are some of the key areas that the IMF would be very happy to have seen announced.

The IMF would also be quite likely very happy to note that the government plans to use the Fiscal Coordination Board (FCB) – which comprises the federal and all four provincial Finance Ministers – “to ensure greater fiscal discipline and that all governments to move toward attainment of common macroeconomic goals.”

Recall that the IMF had been very critical of fiscal miscoordination, which is why various sub-groups of the ongoing NFC award are tasked to determine the benchmarks for receipts and expenditures of federal and provincial governments, and establishment of a fund for natural disasters (in addition to security etc). The question, however, is which law would empower effective working of the FCB, and how soon would it put into place. That question is not answered in the MTEF.

In terms of taxation, the government plans to formulate Medium-Term Tax Policy Framework (MTTPF), which is something no government has committed before. The government also intends to establish a Tax Commission comprising both of tax experts and federal and provincial representatives. Although it is not clear where would the commission fit in the overall tax organogram, but provinces have long been demanding their representation at tax policy level and this move appears to be in the right direction. More on this later!

The MTEF also promises higher level of transparency and accountability in terms of exemptions and SROs. While these have been promised earlier by the last regime, the current government has promised more specific, details of which will be discussed later this week. So will be the Public Financial Management Act, which, according to the MTEF has been drafted, and will be presented for approval to the parliament within this fiscal year. If this goes through, it will be an unprecedented move.

In another promising development, the government has decided to convert all prize bonds (except those of smallest denominations) from bearer to registered instruments in a phased manner. Registration can potentially reduce benami transaction, and also shut down this window using which many whiten their income right under the nose of government.

Likewise, the government recognises that savings are parked in real estate, which worsens the saving-investment gap. Which is why the government intends to pursue a coordinated approach to taxation and valuation of the real estate sector. If and when it is properly rolled out, it could potentially unlock a lot of dead capital.

The rest of many aspects of the MTEF do no exactly constitute a roadmap but more of a wish list without details of the specific laws or rules that the government wants to change, such as the case of tourism, or trade with India and Iran and so forth. This kind of wish list isn’t entirely new either and has been reflected in vision documents by various parties in yesteryears. The taste of the pudding, as we know, is in the eating!