ISLAMABAD: The second day of the three-day International Sustainable Development Conference, organised by the Sustainable Development Policy Institute, saw some statistical, practical, and policy-oriented suggestions being presented for the improvement of Pakistan’s economy.
In the keynote address for the session titled “Pakistan Economy: Stabilisation with a Human Face”, former finance minister Dr Hafeez A Pasha presented a five-pronged strategy to bring Pakistan out of its vicious cycle of economic deterioration.
He started his address by pointing out the findings of the International Monetary Fund (IMF) regarding Pakistan’s economy, the policy framework being seen in today’s time from the authorities, as well as underreporting of the actual intensity of the poverty and economic issues by organizations like Pakistan Bureau of Statistics (PBS). He said in order to bring improvement to the current deplorable state of the economy, the tax to GDP needs to go up from 11 to 17pc.
“Our public debt is exceeding at an alarmingly fast pace even though the law dictates that it should not be more than 60pc. However, the real determinant of the economy will be external debt.”
He said from $106 billion in June 2019, the external debt of Pakistan is expected to reach $135 billion by the end of June 2020, which means the ratio of external debt to GDP will go from around 30-35pc to 40-45pc.
“I don’t know how these figures come up and with all respect to the finance ministry, one might have had difficulty in signing up for a programme that after such stringent corrective measures still increases your debt by such high percentage,” he said. “Even after paying so much for these measures, we will still end up with 40-45pc poverty.” He said, “The key taxable products are undertaxed and under collected and at the same time we tax smaller things, utility items like shampoos etc. while the likes of property taxes remain undertaxed and under collected.
He accentuated that Pakistan has to go for a fast-tracked privatization programme. “The government keeps talking about it but doesn’t come around to actually doing something about it. And for God’s sake focus on food prices. PBS reported 7pc increase in tomato prices when it had actually increased by 230pc. We have to have a policy of stabilizing food prices,” he said.
Showing frustration at the state of affairs, Dr Pasha passionately remarked, “Economize on the size of the federal government. 42 departments. More than 200 added bodies. After 18th amendment we do not need that.”
He said that the current determinants of Pakistan’s market hints that we will go up to 42pc poverty by the end of this year, but if the suggested measures are implemented, it can be reversed down to 39pc.
Summing up his suggestions, he said, “Reduce indirect taxing. Discount rate should be reduced by at least 3pc. External debt has to be prioritized. And Food prices need to be managed.”
In his address, World Bank Trade Economist Dr Gonzalo Varela focused on global integration and how it can be instrumental in bringing about economic improvement for Pakistan. “Sustainable growth is perhaps the most pro-poor policy we can have”. He said that global integration in Pakistan is going to reduce poverty, and there are multiple estimates to prove that.
“If the combined efforts of global integration are accounted for, approximately 5.6 million people can be brought out of poverty. If Pakistan wants to exit the bust and boom cycle that it is in, you ultimately need pro-trade growth. Pakistan’s growth in exports and attracting FDI has been much lower than the region that has led it to lose out on the process of global integration,” the WB economist noted.
He said that the trading ecosystem and policy ecosystem in Pakistan is extremely anti-export oriented. “The import tariffs are much higher than those of the region. This is a hurdle to export because it is implicitly a tax on exports. You might say that there are exemptions available and exporters can use them, but we can see that such exemptions and the system of these exemptions are extremely complicated and only the big exporters can benefit from it. The smaller exporters suffer.”
He also said that the bigger the difference between the tariff on imports and tariffs for protection of local industry, the more intense the negative impact on exports.
“To explain why global integration is not taking place in Pakistan, it can be said that for many years rupee is appreciating. The current depreciation is expected to resolve the issue to some extent, but it will take some time,” he said. “A way forward for long term growth is embracing global integration. Reduce trade costs, help firms access new markets, promote new exporters, improve investment climate, and work on attracting FDI in a sustainable manner. You will also need investment policy frameworks for that.”
The conference is organised by Sustainable Development Policy Institute and will continue till Thursday.
