Prime Minister’s economic strategy
While addressing Pakistani Community in his recent visit of Malaysia, Prime Minister Imran Khan unveiled his four-pronged strategy to pull the nation out of quagmire of loans, bulging current account and fiscal deficits. But after initial euphoria for curbing the extravagance in government spending and slashing down the unnecessary current expenditure and plugging revenue loopholes, nonproductive expenditure is on the rise. Both defense and current expenditures have shown rising trends.
The Prime Minister in his address to Pakistani community had said that his government was committed to uplift the living standard of poor and downtrodden segments of the society by improving governance and ending corruption. Because of the recent fiscal measures including gas and power tariffs hike these segments of the society are hard hit because spurt in inflationary pressure. The Prime Minster mentioned four key areas that can be instrumental in the turned around of economy and eventually bringing prosperity for the people.
The first priority towards ridding the country of its chronic dependence on loans is to increase exports. Currently the composition of exports comprise majority of primary commodities and a few value added items. The deliberate and devastating policy nationalisation by Z.A Bhutto killed the urge of entrepreneurial class for introduction of emerging technologies and their efforts for Schumpeterian innovations of export products. The industrial base remained stagnant on second generation technology of 1960s whereas other developing countries moved forward to fourth and fifth generation technologies. Hence Pakistan lost comparative advantage in export products of manufactured goods. The energy policies of the PPP government of 1993-96 and the last PML-N government gave a death blow to the completive edge of the exports of the country which were in high demand in the international market. . Educational institutions and research organisations are also in shamble. This grim situation of manufacturing sector cannot be changed within the next few years.
The second step is to create legal channels for overseas Pakistanis to send their remittances. The finance minister is working on a plan in this regard but a large number of Pakistan workers have been turned out of jobs in Saudi Arabia, UAE and other Gulf states. The impact of increase in home remittances is largely neutralized by massive money laundering by political and business elite. Quite recently, Prime Minister’s advisor on Accountability disclosed that FIA has traced over 7000 thousand bank accounts used for money laundering. Former President Asif Zardari proudly boasted that businessmen open fake accounts for transaction purposes. Why the State Bank of Pakistan did not monitor opening of fake bank accounts? Why responsibility was not fixed on those SBP executives who were responsible for allowing this illicit activity?
The Prime Minister also emphasised the importance of attracting investment particularly from foreign businesses. “We will continue to face shortfall of dollars if we do not attract investment.” Foreign direct investment has dropped by 35 percent in August as investors are waiting for the economic policy of the present government. Foreign Direct Investment (FDI) dropped to $ 160.1 million in August as compared to $ 246.8 in the same period last year. The Prime Minister expressed optimism that overseas Pakistanis are willing to make investment in Pakistan and vowed to facilitate the governance system of Pakistan. He also promised to create an ease of doing business—both for foreign and domestic investors. There will be designated office within the Prime Minister’s office and its sole purpose will be to solve any problems being faced by investors, he said. The World Bank of Ease of Doing Business Index for 2017 has ranked Pakistan at 147th position although its ranking has slightly improved during the current year.
The major factors of high cost of doing business are the highest electricity and gas tariffs, regressive taxation regime, overburdening the existing taxpayers with high rate of direct taxes, non availability of locally produced industrial raw material and expensive imported intermediate goods. The Inland Revenue serves department of the FBR very treacherously torpedoed the PTI government plan to bring the tax dodgers into the tax net.
The last of his quartet of measures was to end the scourge of money laundering. The government may not get the support of opposition parties to make comprehensive legislation to curb the menace of money laundering.
For the improvement in the standard of living of poor and downtrodden, development expenditure particularly in health and education need increase whereas the development expenditure for the current fiscal has been slashed down. On the other hand current expenditure has gone up by Rs. 541. 7 billion further widening the fiscal deficit. The IMF is insisting for reasonable reduction in the budget deficit. For the success of Prime Minister’s strategy for taking the country out economic mess and loans quagmire the extravagance in current expenditures must be controlled and revenue loopholes plugged.