PTI at two: Where does the economy stand?
If I had to come up with key achievements of the ruling Pakistan Tehreek-e-Insaf party’s ongoing tenure, I would perhaps put transparency in economic management on top. The prime minister has led most of the meetings on economic reform from the front. The inquiry reports on power sector, sugar and wheat were made public. There has been a change of guard at the Competition Commission of Pakistan and one hopes that markets will transition toward a fairer and competitive regime.
The government also moved swiftly toward meeting the expectations of the International Monetary Fund (IMF). Despite criticism on piling debt levels, the macroeconomic fundamentals stabilized by February 2020. The current account deficit narrowed, primary budget balance was in limits, and inflation started to come down.
All this, however, was overshadowed by the COVID-19 pandemic. What started as a health crisis quickly changed into an emergency for the country’s economic managers who were overwhelmed by the need to expand budget deficit to finance social safety nets and support the collapsing private enterprises. Several economic sectors have now been opened, subject to the observance of officially endorsed safety procedures. However, the government has confessed that it is not getting full public cooperation in terms of compliance with these precautionary measures. Only time will tell if the ruling party’s economic team has anticipated and prepared itself to face the future rounds of COVID-19.
Much like its predecessors, the PTI government was burdened by the Financial Action Task Force (FATF). It was not only required to understand the demands of the global financial watchdog but also bring about relevant legislation, amend existing laws, build the capacity of relevant institutions to deal with money laundering and terror financing while combating pressure from the country’s adversaries, most notably India.
The inability to deliver the power sector reforms tops the list of PTI failures. Despite low global energy prices in recent times, the unscheduled electricity and gas shortages seen in major cities across the country, including Karachi, have resulted in public unrest and loss of competitiveness
Dr. Vaqar Ahmed
The PTI team was able to win a grace period from the FATF until the next review in September.
While this should all be comforting to PTI voters, there were significant gaps in the government’s economic management which might cost Prime Minister Imran Khan dearly in the next general elections. The inability to deliver the power sector reforms tops the list of failures. Despite low global energy prices in recent times, the unscheduled electricity and gas shortages seen in major cities across the country, including Karachi, have resulted in public unrest and loss of competitiveness. Members of the PTI energy team continue to face criticism on account of conflict of interest and their association with enterprises currently being probed by various regulatory bodies. There is also no update if proposals of the energy reforms task force will be implemented anytime soon.
The other worrying aspect for the PTI is slow progress in plugging the losses of state-owned enterprises. There is a clear lack of consensus, even within the party, regarding how to manage or dispose of organizations such as the Pakistan Steel Mill, Pakistan International Airlines, Pakistan Railways and several others. It took the government about 20 months to appoint the board of directors of Sarmaya-e-Pakistan Limited that was meant to be a holding company of state-owned enterprises.
The next missed opportunity relates to the party’s promise of making small and medium enterprises (SMEs) a cornerstone of its strategy to kick-start economic growth and create jobs. To begin with, complexities in tax regime could not be addressed due to frequent change of leadership at the Federal Board of Revenue (FBR). The PTI government sent three FBR heads packing within 23 months. At one point, the prime minister even spoke about abolishing the FBR without fully appreciating what it would entail.
The PTI manifesto also promised to reduce regulatory burden to improve ease of doing business. Perhaps COVID-19 provides the most pressing justification to expedite efforts in this direction and rationalize and automate the regulatory compliance expected from businesses. We have not seen any timelines related to the Pakistan Regulatory Modernization Initiative (PRMI) which is being driven by the Board of Investment. We are also informed that the Pakistan Single Window Company at the FBR will now make the lives of exporters easy, though there is no indication when the company will begin to deliver the promised services. Additionally, the FBR’s past record of managing such companies is not very encouraging.
Finally, economic diplomacy by the PTI team will need further strengthening. We hear about a tussle between the ministries of commerce and foreign affairs regarding the management of the “look Africa policy.” Pakistani migrants, who have lost their jobs abroad as a result of COVID-19, await a big diplomatic push to save their future prospects. A rising number of returning migrants can also put future inflows of remittances in danger. Other than that, a deeper diplomatic engagement is required with the “friends of Pakistan” to help the country survive the FATF’s September review.
*Dr. Vaqar Ahmed is joint executive director at the Sustainable Development Policy Institute (SDPI). He has served as an adviser to the UN Development Programme (UNDP) and has undertaken assignments with the Asian Development Bank, the World Bank, and the Finance, Planning, and Commerce Ministries in Pakistan.