PTI’s first year: Perspectives from the business community
PTI’s first year clearly exhibited a lack of preparedness. Most members of the economic team had never worked in the federal government. Some had not been part of the cabinet or even the parliament. The Prime Minister did try to overcome this deficit through the help of a decent Economic Advisory Council, however, this could never be a replacement for a decent in-house structure of economic management. It comes as no surprise that even today, five key economic divisions and Federal Board of Revenue (FBR) suffer from frequent civil service turnover and haven’t been home to credible macroeconomists who could have helped drive the economy out of the current crisis.
Some of the issues which perpetuated economic uncertainty included two mini budgets in the first year; unending confusion about whether to resort to the IMF or not; failure to stabilize the currency despite help from friendly countries; and lack of consensus on how to curtail the energy sector circular debt and losses of state-owned enterprises.
Amid this uncertainty, the Prime Minister changed his economic team much too frequently. At first, the Finance Minister, Central Bank Governor, Chairman FBR, and Secretary, Finance Division were shown the door. A few days later, Chairman Board of Investment, who was tasked to lead forward-looking investment diplomacy was let go. And then just after budget 2019-20, we saw the revenue minister’s portfolio changed.
What does the business community make of all this? A careful analysis of demands put forward by leading business associations including Pakistan Business Council, Federation of Pakistan Chamber of Commerce & Industry, and Overseas Investors Chamber of Commerce and Industry, point toward four common issues.
First, the business community feels that they vigorously engaged with the government during the first year. However, the faces in the government just kept changing. Unfortunately, they also feel that currently, PTI has an economic team which is not elected and not accountable to any local constituency. Many also feel that this team is far less accessible than the ones who held office immediately after the party won office.
Some of the issues which perpetuated economic uncertainty included two mini budgets in the first year; unending confusion about whether to resort to the IMF or not; failure to stabilize the currency despite help from friendly countries; and lack of consensus on how to curtail the energy sector circular debt.
Dr. Vaqar Ahmed
Second, the business community feels that the government has been slow in delivering on its ‘ease of doing business’ promise. Investors wishing to invest in special economic zones are frustrated with the lack of one-window operations. There are federal, provincial and municipal level approvals required and navigating through all these steps often leads to rent-seeking. Difficulties in registering and transferring land; environmental, labor and municipal permits for production units; acquiring utilities connections; and a weak logistics supply chain are all factors that prevent those in the manufacturing sector from taking longer-term investment decisions.
Third, there is a feeling that top business leaders in the country had provided some good ideas to the government and schemes were designed. However, due to a weak capacity at the economic and line ministries, execution remains weak. Information regarding the current status of under formulation industrial policies, and small and medium enterprise policies among others is not known and many believe that there hasn’t been a follow up from the Prime Minister to ensure timeliness of initiatives once started with good intent.
Finally, PTI’s approach to tax reform has sent shivers down the spine of potential investors. In fact, in the past few months, the country hasn’t seen any sizeable new local or foreign investment in the productive or export-oriented sectors. The Prime Minister had initially got the sequence correct and wanted to first reform the administration of Pakistan’s tax-collecting agency, the Federal Board of Revenue (FBR) and other revenue bodies. At one point, he even said he was thinking of abolishing FBR and raising a new and independent revenue collection agency.
This hasn’t happened. PTI agreed to a record high tax collection target with the International Monetary Fund (IMF). The current administration which could not achieve the previous year’s target is now expected to collect over 40 percent more revenue vis-à-vis the previous fiscal year. This is simply not possible without burdening existing taxpayers further. Of course, this is bad news for the salaried class and industrial sector.
For the ongoing fiscal year, the government needs to position itself in a manner that it is able to significantly curtail the fiscal deficit while keeping budgetary allocations for pro-poor Ehsaas programs intact. At the same time, the new economic team needs to instil confidence in the markets by remaining more accessible and delivering on ease of doing business agendas, ensuring strong follow-ups and execution of its promises made to revitalize the economy during the first 100 days of PTI, and selling a more pro-facilitation tax policy and administration reform program.
– Dr. Vaqar Ahmed is an Economist and author of ‘Pakistan’s Agenda for Economic Reforms’ published by the Oxford University Press.