Survival is increasingly challenging and overhaul of the economy is only possible with a credible roadmap undertaken with bipartisan approval and necessitates reengineering; Pakistan needs deep, extensive restructuring and a deregulated competitive environment to deliver services at a reasonable cost for achieving a sustained 7-9% GDP growth over the next two decades
Our approach of not challenging the status quo is not sustainable and the structure needs to be in place for an elite bargain amongst those with power to alter the state of patronage to deliver growth and the focus on development to tilt towards people.
This has necessitated change that is starting to take place slowly and subtly. The deliberations of the Cabinet Committee on Economic Revival (CCER) on Sept 25, 2023 highlight increasing interdependency, thereby necessitating a Planning Commission on lines of “NRDC” (National Development and Reform Commission of China)” advocated by this writer in his previous articles for this newspaper.
This role is now being undertaken by apex, executive and implementation committees of Special Investment Facilitation Council (SIFC) chaired by Prime Minister, Planning Minister and Special Assistant to PM (SAPM), respectively (Additional Secretary, Board of Investment as secretary of the Executive and Implementation Committees and SAPM to the Apex Committee to improve coordination). Sectoral divisions (relevant fields) include Defence, Information Technology & Telecommunication, Mineral, Energy, and Agriculture.
A disruptive measure to expedite Implementation, in an opinion shared earlier, requires consideration for revival of “PIDC” to manage commercial assets and hold government equity in SOEs, rebuild them by aggressive transformation, roles consolidation and undertaking strategic investments (e.g. to lower losses, pursue regional and local infrastructure investments, partnering with defence industry energy conservation- focus on efficient electrical equipment with Engineering Development Board, Pakistan Engineering Council, Institute of Engineers, National Energy Efficiency & Conservation Authority).
The role of Cabinet Committee on SOEs, Central/Project Monitoring Unit to ensure that business plans of SOEs are in line with priorities of relevant field of energy can also be handled by ”PIDC”, including Regional Cooperation, long-term roadmap definition, improving ease of doing business by “one window” operation resulting in timely decision-making to fast-track investments and implementation.
Final draft of the State-Owned Enterprises Policy 2023 will be presented to Cabinet for endorsement to deal with the challenge of SOEs inflicting a Rs 458 billion on the exchequer annually. And first tests are PIA sell-off, Disco transaction, G2G sale of PSM and Reko Diq shares by GOP entities.
Instead of a big bang approach, sustained efforts by an empowered leadership team are required to manage the SOEs, reduce departments, autonomous bodies and companies while undertaking the task of privatisation.
There should be a clear message to SOEs: become financially self-reliant, work to deliver profit and will not be bailed out beyond 3 years. In parallel, merge and sell them under 3P/G2G, leasing them out for 30 years by creating vertically integrated Discos requires an inside the box consideration, but priority has to be given for deregulating energy sector.
Rs 150 billion is the Power Division’s recovery target in next 5 months but focus needs to be also on GOP entities that have defaulted. Transparency of data by Secretary Power and access to such data (for a fee) needs to be provided.
The energy sector circular debt requires pricing measures; timely collections and spot buying of LNG does not help the cause. E&P sector is gearing up slowly and cash constraints of Pakistan Petroleum Exploration and Production Companies are impacting seismic, exploration and development activities.
Net metering needs continued encouragement and could overcome delays of the 600MW solar project with a holistic roadmap that takes into account evolving power system needs and prioritizes affordability, reliability sustainability and customer focus.
The long-awaited crackdown on illegal immigrants (3 million) is planned to start in November. We also need to close the chapter on 1.2m refugees as Afghanistan is no longer at war and they need to return to their independent country; alternate approaches of an “iqama” or citizenship process needs evaluation.
It is hoped that this assists in improving the investment climate and $49.2m repatriation of profit in July-August this year as compared to $ 28.2m last year during same period is a positive sign but $1-2bn still is pending as per Bloomberg.
Suggestion of Pakistan Business Council in 2020 on placing qualitative and quantitative limits on Afghan Trade (increased to $ 6.71bn from $2.5bn in one year) requires diligent evaluation and first steps have been taken to ban 212 luxury goods, with imposition of 10% processing fee on transit trade and bank guarantee instead of insurance guarantee plugs the leakage that includes action against solar equipment importers for Rs 38 billion over invoicing. But the bigger measure necessary is of under-invoicing detected due to the disparity in 2022 alone of $ 7.5 billion in export value reported by China, Singapore, Germany and the UK and the import value as reported by Pakistan Customs to International Trade Centre.
Due to increase in tax collection of Rs 64 billion against the quarterly target (FBR 24% with inflation at 28% and SRB recording +40% increase) and administrative measures to end speculation in FX (interbank down Rs 24 to $), expectations are high that economic revival plan and prudent actions will now provide some growth in FY 2024 and further in the medium term. The role of exchange companies should be limited to tourists only with banks dealing with the rest.
End August central debt of Rs 63,996 billion is ominous, and there is Rs 1 trillion fall in cash in circulation to Rs 8.3 trillion during last 3 months. “Over the last five years, approximately Rs 15 trillion of new money was created. Of this, roughly 80% of the money created is attributable to the GOP needs and around Rs 4 trillion out of the Rs 12 trillion is attributable to interest”, or government borrowing (additional money creation), has ended up being 25% higher owing to the interest paid. This adds to inflationary pressures.
There is talk again of a National Action Plan (devised by political parties jointly) to fetch $50-75 billion per annum, undertaking resolution of structural shortcoming (e.g. retailers, agri, real estate and wealth tax, capital gains tax, export vs import substitution, abandoning of old model of export refinance), increasing tax to GDP ratio to 15% (Rs 13 trillion by 2025), implementing tough IMF conditions by reducing compliance gap (Rs 3 trillion in GST, Rs 1.8 trillion in income tax and Rs 0.8 trillion in customs duty and FED) to avoid the boom and bust cycles experienced in the past due to which growth trajectory has remained volatile irrespective of the political divide.
(To be continued)
Copyright Business Recorder, 2023