Dr Shahzad Latif
IT IS a common practice of political parties to boast about their achievements in an effort to prove that they have done something positive for the public. However, it is necessary to see if these so called achievements are good for the general public at the grass root level and if they can benefit from it directly and immediately. One of the economic indices current government is taking a credit for is current account balance. For country like Pakistan that could be a negative thing. Here it is why; during a strong economic expansion, import volumes typically surge; if exports are unable to grow at the same rate, the current account deficit will widen. Conversely, during a recession, the current account deficit will shrink if imports decline and exports increase to stronger economies, or even if these exports remain stagnant.
So essentially, this balance is because of a reduced economic activity i.e; a recession in Pakistan. We need to have a closer look at the fact that if it is good that current account has become balanced, by divulging into the reasons for it became so. One main reason is reduced imports and somewhat increased exports. Due to corona the demand for imported items have gone down considerably that is due to disposable income has shrunk that because of lower employment. Per capita income has decreased to USD1,358! Another factor is increased customs duties and taxes that has kept people from buying because these items have become more expensive.
PKR/USD high exchange rate has also rendered imported things out of the hands of people who were able to afford before. Exports did increase but that is because of the favorable exchange rate for exports. Exporters have become more competitive in the global market. Also, thankfully, Corona has been less harmful in Pakistan than our competitors like India, Bangladesh, etc. Therefore our exporters were able to get more textile orders. There have not been any steps taken by the government those could be credited for enhanced exports. Therefore, it would be safe to argue it is not good that we have balanced the current account given the reasons above.
Tax base has not widened by much, hardly only by 4.2%. It must be at least 25% increase right away. Perhaps government has not been able to inculcate the trust into the general public that they would start paying taxes. Also, tax rules and laws have been not made tough enough to compel public to pay their due taxes. Conducive economic environment has not been created that investors will feel safe to invest more and create employment. This practice enhances business as well as individual income tax base. The income tax rate must not be more than 2% across the board. However, making it mandatory that everyone pays taxes, with no option for being non-filler. Steps must be taken to bring public in the habit of paying taxes by carrot and stick policy, meaning rewarding and compelling by strict laws.
Electric power, gas, petrol and diesel have become very expensive which have been very detrimental to the economic activity. Indirect taxation must be reduced if not totally eliminated. Inflation figure claimed by the government of 8.9% is not even close to the reality. The street inflation is still rampant. Not only poor but also the middle class still are crying because they cannot afford the basic daily necessities. Eggs, chicken, sugar, even wheat has gone out of reach of these folks. For economic prosperity for the long haul, there must be taken steps to enhance agriculture production. No proper concrete agriculture policy has been devised. Adhocism still prevails.
Revolutionary agricultural policies must be implemented. Strategic agricultural planning, better seeds, proper use of water, these are some of the steps needed to enhance agricultural production. Additionally, value-adding agro-based industry must be encouraged to create jobs. National debt has grown twice as big in the past two years or so, reaching USD44.8 billion which is about 98% of the GDP! Most of the borrowed money has been used in debt servicing and some in providing public services. Unfortunately hardly much has been invested in long term economic developmental projects, the project those guarantee the future prosperity of the country. This practice has been going on for the past 30 years, so blaming each other; past or present governments will not help. However, what will help is creating investment friendly environment where businesses will enhance production and services, create new jobs, increase exports thus help GDP to go up. In turn this will help expand tax base. Thus less reliance on debt.
The government claim that foreign exchange reserves have increased to USD20 billion. This is however, solely because of reduced imports, because we did not have to spend as many USD to buy imports. The government is claiming that housing industry has gone up considerably because they say for example; the cement sales have gone up so much! Well, if the price of one unit of cement bag goes up by 200% that only means the cement mills and middle men are making twice as much money, however the units of cement bags are roughly the same being sold and used. The bottom line is Pakistan needs to have good governance in both political and economics arenas. That is only way we can have better political economy being managed.
The Writer of this article has proposed political and economic systems those what Pakistan needs in order to have a better future for its people.
—The writer is a political economist based in Islamabad.