Economy’s turnaround options
The PTI led next government will face tough challenges on the economic front because of mismanagement of the economy by two previous governments. Asad Umar, the law maker expected to get the most important job of bringing the faltering economy on its feet. Unlike the finance managers of PPP and PML-N governments, he is more inclined to give preference to other options instead of taking recourse to the International Monetary Fund (IMF) bail out with more tough conditions. The conditionality of abnormally jacking up gas and power tariff has hit hard the manufacturing sector of the economy, increased the cost of doing business and pushed the country to 147th position on the World Bank Ease of Doing Business Index.
The finance Minister in waiting has told that new government’s preferred options include boosting exports, offering overseas Pakistanis profitable bonds and seeking bilateral funds before looking for multilateral cash.
Former Finance Secretary Dr. Waqar Masood , who was partner in crime of economic mess of the past 10 years, has pleaded for giving preference to IMF bail out at the toughest conditions over other options to which the conditions of further rise in tariff of energy inputs and privitisation of public sector enterprises will be attached. It was he who negotiated the IMF bail out packages of 2008 and 2013, the outcome of which is the prevailing precarious state of economy.
Independent economists support the preferences of upcoming government for the inflow of foreign capital. Dr. Shahid Zia argues that incoming government will have to explore all options available to it for securing funds and stall the balance-of-payment crisis. He said IMF funds are needed for forced structural reforms and fiscal discipline. A great chunk of fund money will go back to it as Pakistan already owes $ 6.4 billion to IMF. Economists like Dr. Hafeez Pasha that IMF dollars will have many economic and non-economic strings attached to it. The fund is not going to hand cash to the next government without demanding something in return.
The incoming government’s finance team will acquire funds from every available source—multilateral, bilateral and overseas Pakistanis to invest in their homeland—until exports are boosted by exploiting their full potential. The inflow of dollars from these sources can help avert the looming crisis. The PTI government will have to take some unpopular decisions and people will be required to tighten their belts. Spending cuts, bringing the potential tax payers into the tax net can help the new government to rectify the balance sheet. The previous government had increased annual discretionary spending to Rs. 130 billion which was one of the major causes of mounting budget deficit. The next Prime Minister Imran Khan has already set an example of absolute austerity by refusing big protocol and deciding not to live in the highly luxurious Prime Minster House.
Exploiting the untapped potential of exports will substantially reduce the current account deficit. Release of duty drawbacks to exporters will help increase the quantum and value of exports. There is a significant increase in the export of un-milled wheat and sugar. Export of net wear and ready made garments has gone up by 9 percent and 12 percent respectively, while shipment of raw cotton has surged to39 percent. Exports of chemicals and pharmaceuticals have increased by 36 percent. However, growth was mostly driven by exports subsidies and currency depreciation. The export market needs diversification by exploring markets in Africa and Latin America. At present, there are only five top destinations for Pakistani product which include the US, the UK, Germany, China and Afghanistan. There is a big deficit in trade with China, Indonesia and Turkey. The terms of Free Trade Agreement with China need a thorough review. Exports from Pakistan to China face high taxes and non-tariff barriers whereas the same products from India have been given the concession of zero tax. On the other hand Pakistan has given the concession of zero duty to China on 35 import tariff lines.
Composition of exports also needs a significant change with more emphasis on value addition, quality improvement and refinement of products. The prices of primary commodities like rice and cotton fluctuate in the international market. The top 10 industrial products exported from Pakistan belong to textile industry, but 200 textile mills are closed due to high gas and power tariffs. A vibrant domestic manufacturing sector is necessary to promote economic growth. The International Trade Centre’s Exports Potential Map suggests that Pakistan has $ 12. 5 billion untapped export potential. Hence long term policies must be introduced to promote exports rather than focusing on short term gains that are unlikely to be sustainable in the long term.