Whether Imran Khan knows it or not, he is being taken for a ride as far as economic policies are concerned. It is something that happened to his predecessors as well, and the end result is likely to be the same as before: Pakistan will be worse off!
Even before the COVID-19 struck a crippling blow, Khan’s economic team had performed poorly. But there is still time. The PM must understand that the direction of economic discourse and decision making needs to change drastically for things to improve. In the following lines, I will outline a few major steps to start with (there being no specific merit of order while stating them). These tend to fly under the radar as big macro numbers cast a debilitating spell upon the economic scene.
First, we must do away with macro-fetishism and give due importance to micro-level issues. Two examples: ‘dead capital’ and enhancing mutually beneficial transactions. In the case of former, for e-g, billions of rupees of public land remains unutilised because of restrictions upon vertical expansion and bureaucratic, archaic laws that favour Mughal style horizontal expansion. In the case of the latter, there is an urgent need to review an over-regulated economy that creates hurdles in mutually beneficial transactions. Isn’t it baffling, for example, that import of 3D printers is not allowed in Pakistan?
The government should also concentrate on getting the justice system reformed in a manner that business matters are speedily decided and advantageous transactions are perpetuated. At the moment, any reform proposal or action that does not sit well with vested interests is challenged in the courts, where it takes forever to get a resolution. The recent action of the sugar association to challenge the sugar commission report and the decision of do away with excessive labour at Steel Mill serves as good examples.
The PM should also never fall for the bogeyman of Pakistan being a country deficient in safety nets. In fact, Pakistan has one of the biggest safety nets in the world! From the ‘support’ programs launched in 1950s to subsidised education and healthcare since its founding, to spending over a 1,000 billion of taxpayer money under BISP, Pakistan has one of the largest (and badly misdirected) safety nets in the world. And the prime minister shouldn’t forget that conservative estimates of private philanthropy suggest that citizens contribute Rs500 billion annually as philanthropy. What he should be querying, though, is that why trillions of rupees have failed to make much dent on poverty or income inequality? He should inquire as to how millions of families fell on government hand outs as a result of COVID-19, despite splurging trillions of rupees under anti-poverty measures over the years?
Aligned with this point is the pressing need to bring the population growth rate down. No governance system in the world, no matter how good it is, can cope with a population that is multiplying like rabbits. If it is difficult to handle a country of 220 million, how would a government manage the country when it reaches 300 million and above? There is a limit to how many schools, hospitals, police stations, housing schemes, the government can build. Has anybody informed PM that around 40 percent of the births in Pakistan which are ‘unwanted’? He should specifically look at the role of the federal population welfare program, now occupying a whole floor in the prime location of Marghazar building near the Secretariat, and what are its ‘achievements’?
Then there is the ‘problem’ of tax revenue. Please, dear PM, stop calling Pakistanis tax thieves, as your predecessors have been doing since long. Next time somebody asks you to repeat these lines, challenge him/her to name a thing in Pakistan that is tax-free? The real question is that why are people reticent in paying their obligations and what has been the government’s role in developing this behaviour? For an efficient taxation system, devolve tax collection at the lower tiers. Try something new, anything that is besides the typical FBR or provincial revenue authority proposals. One suggestion, for example, is to enter into an agreement with localities about the amount of tax that they will give to government, a level or amount that can be tinkered with according to circumstances.
Given that the government is always worried about low tax revenue to finance government operations, it needs to put an immediate stop to mismanagement and embezzlement of billions (possibly trillions) of rupees under the legal cover of Public Accounts Committee (PAC), something that I’ve explained previously in these pages. Additionally, do away with secretary being the Principal Accounting Officer, which is just an open invitation to waste resources. The PM should ask his economic team to focus not just on the supply side, but also the demand side. It is not just about tax revenue, but also about the manner in which money is spent and what’s the efficiency we are getting out of it (technically called Marginal Efficiency of Capital). Similarly, PM should also query the efficiency of electrical appliances rather than merely listening to presentations about the grandiose schemes of enhancing electricity production. Another example: instead of listening to the tardy plans about enrolling millions of more children and build more schools, he should ask for transition and retention ratios that will enlighten him of where money is being wasted (a similar project in KP cost billions, but the enrolled children couldn’t stay in school for an year or two).
An important point that the PM must take into consideration is to seriously consider research by Pakistan’s domestic think tanks rather than merely getting beholden to large donors’ advice. There are many think tanks in Pakistan which are doing an excellent job of producing worthy research on economy related issues. They include PIDE, SDPI, PRIME, etc. The government needs to tap their research and support them.
Last, but not the least, Khan seriously needs to infuse young blood and individuals other than the tried and tested ones in his economic team. With due respect, Hafeez Shaikh and other in the economic team, who have been with other governments over the years, have nothing new to offer. The economic pond has become stale because it is the same faces that we see again and again. He should instead bring new people, brimming with ideas and independent of macro fetishism.
The list on reform points can go on long, but the above stated are some major ones that Khan needs to consider. The sooner he takes these points seriously, the better for the country because Pakistan (especially its economy) does not have luxury of time.
The writer is a Research fellow at Pakistan Institute of Development Economics (PIDE)
Even before the COVID-19 struck a crippling blow, Khan’s economic team had performed poorly. But there is still time. The PM must understand that the direction of economic discourse and decision making needs to change drastically for things to improve. In the following lines, I will outline a few major steps to start with (there being no specific merit of order while stating them). These tend to fly under the radar as big macro numbers cast a debilitating spell upon the economic scene.
First, we must do away with macro-fetishism and give due importance to micro-level issues. Two examples: ‘dead capital’ and enhancing mutually beneficial transactions. In the case of former, for e-g, billions of rupees of public land remains unutilised because of restrictions upon vertical expansion and bureaucratic, archaic laws that favour Mughal style horizontal expansion. In the case of the latter, there is an urgent need to review an over-regulated economy that creates hurdles in mutually beneficial transactions. Isn’t it baffling, for example, that import of 3D printers is not allowed in Pakistan?
The government should also concentrate on getting the justice system reformed in a manner that business matters are speedily decided and advantageous transactions are perpetuated. At the moment, any reform proposal or action that does not sit well with vested interests is challenged in the courts, where it takes forever to get a resolution. The recent action of the sugar association to challenge the sugar commission report and the decision of do away with excessive labour at Steel Mill serves as good examples.
We must do away with macro-fetishism and give due importance to micro-level issues
The PM should also never fall for the bogeyman of Pakistan being a country deficient in safety nets. In fact, Pakistan has one of the biggest safety nets in the world! From the ‘support’ programs launched in 1950s to subsidised education and healthcare since its founding, to spending over a 1,000 billion of taxpayer money under BISP, Pakistan has one of the largest (and badly misdirected) safety nets in the world. And the prime minister shouldn’t forget that conservative estimates of private philanthropy suggest that citizens contribute Rs500 billion annually as philanthropy. What he should be querying, though, is that why trillions of rupees have failed to make much dent on poverty or income inequality? He should inquire as to how millions of families fell on government hand outs as a result of COVID-19, despite splurging trillions of rupees under anti-poverty measures over the years?
Aligned with this point is the pressing need to bring the population growth rate down. No governance system in the world, no matter how good it is, can cope with a population that is multiplying like rabbits. If it is difficult to handle a country of 220 million, how would a government manage the country when it reaches 300 million and above? There is a limit to how many schools, hospitals, police stations, housing schemes, the government can build. Has anybody informed PM that around 40 percent of the births in Pakistan which are ‘unwanted’? He should specifically look at the role of the federal population welfare program, now occupying a whole floor in the prime location of Marghazar building near the Secretariat, and what are its ‘achievements’?
Then there is the ‘problem’ of tax revenue. Please, dear PM, stop calling Pakistanis tax thieves, as your predecessors have been doing since long. Next time somebody asks you to repeat these lines, challenge him/her to name a thing in Pakistan that is tax-free? The real question is that why are people reticent in paying their obligations and what has been the government’s role in developing this behaviour? For an efficient taxation system, devolve tax collection at the lower tiers. Try something new, anything that is besides the typical FBR or provincial revenue authority proposals. One suggestion, for example, is to enter into an agreement with localities about the amount of tax that they will give to government, a level or amount that can be tinkered with according to circumstances.
Given that the government is always worried about low tax revenue to finance government operations, it needs to put an immediate stop to mismanagement and embezzlement of billions (possibly trillions) of rupees under the legal cover of Public Accounts Committee (PAC), something that I’ve explained previously in these pages. Additionally, do away with secretary being the Principal Accounting Officer, which is just an open invitation to waste resources. The PM should ask his economic team to focus not just on the supply side, but also the demand side. It is not just about tax revenue, but also about the manner in which money is spent and what’s the efficiency we are getting out of it (technically called Marginal Efficiency of Capital). Similarly, PM should also query the efficiency of electrical appliances rather than merely listening to presentations about the grandiose schemes of enhancing electricity production. Another example: instead of listening to the tardy plans about enrolling millions of more children and build more schools, he should ask for transition and retention ratios that will enlighten him of where money is being wasted (a similar project in KP cost billions, but the enrolled children couldn’t stay in school for an year or two).
An important point that the PM must take into consideration is to seriously consider research by Pakistan’s domestic think tanks rather than merely getting beholden to large donors’ advice. There are many think tanks in Pakistan which are doing an excellent job of producing worthy research on economy related issues. They include PIDE, SDPI, PRIME, etc. The government needs to tap their research and support them.
Last, but not the least, Khan seriously needs to infuse young blood and individuals other than the tried and tested ones in his economic team. With due respect, Hafeez Shaikh and other in the economic team, who have been with other governments over the years, have nothing new to offer. The economic pond has become stale because it is the same faces that we see again and again. He should instead bring new people, brimming with ideas and independent of macro fetishism.
The list on reform points can go on long, but the above stated are some major ones that Khan needs to consider. The sooner he takes these points seriously, the better for the country because Pakistan (especially its economy) does not have luxury of time.
The writer is a Research fellow at Pakistan Institute of Development Economics (PIDE)