PTI's economic agenda

The Pakistan Tehreek-e-Insaf (PTI) presented a list of actions during the first hundred days in power on 19 May with Asad Umer, Imran Khan's proposed Finance Minister, outlining the party's economic priorities. Would Umer's priorities be a source of comfort to independent economists who warn of an economic logjam due to the unsustainable 3 Ds as a consequence of the appallingly flawed policies of the Nawaz Sharif/Abbasi-led administrations: budget deficit, trade deficit and current account deficit met by unsustainable borrowing from external and domestic sources.
The first observation that can be made of the 100-day economic agenda is that the author(s) carefully perused the recent United Nations Development Program (UNDP) report on Pakistan titled "Unleashing the Potential of a Young Pakistan" which makes three major observations: (i) currently Pakistan 'has the largest generation of young people ever in its history with about two-thirds of the total population under 30 years of age". The window of opportunity to harness the potential of this 'youth bulge' is small therefore urgent measures are required; (ii) these measures include a focus on (a) education, including skill development; (b) employment with the youth (15 to 29 years) forming just under half of the workforce necessitating one million more jobs each year than at present; and (c) engagement with UNDP noting that "the biggest surprise emerging from the National Youth Consultations in Pakistan (81 consultations held) is the youth's intensity and preoccupation, particularly in urban areas, with making a difference. This generation is characterized by a determination to make its voice heard." Or the vote potential of this group is significant and common sense would dictate that this group be the focus in the forthcoming general elections. Inexplicably the PTI's focus on youth voters is lacking in the other two national parties - Pakistan Muslim League (N) and Pakistan Peoples Party who cite Imran Khan's biological age as not representative of the youth; And (iii) establish a youth impact assessment (YIA) with the Planning Commission at a federal provincial and local levels 'taking on a more central role in testing and gauging how proposed policy will impact on the youth'. .
Some of Asad Umer's remarks with respect to the first 100-day agenda of the PTI can, therefore, be viewed as based on the UNDP report: a policy would be formulated for the creation of 10 million jobs in five years, with a focus on provision of skills; promotion of tourism would be facilitated through turning government guest houses into hotels - a sector with a decided preference for hiring the youth. Four new tourist spots to be "discovered" within the first 100 days and while one may make a facetious comment on the word 'discovered' yet it is fairly evident that there are many attractions the country can offer to tourists.
The youth focus may have accounted for Umer's statement on a television programme that PTI would not be overly concerned with the growth rate though while laying out his 100-day plan Umer did state that to facilitate rapid growth the PTI would announce an immediate support package of reduced taxes, reduced energy prices in alignment with regional competitors, clearing backlog of refund/rebates, and what would not be welcome news to many private sector companies, launch a labour policy to safeguard workers interests. This list is reminiscent of the 2013 PML-N election manifesto - commitments that remained unfulfilled - and not as Ahsan Iqbal contended a bad copy of his vision 2025.
However Umer's list is worrisome for two reasons: (i) after accounting for massive budget deficit manipulation for the current year (due to understating expenditure and overstating revenue) the actual deficit is projected at 7.4 percent and not 5.8 percent claimed by the PML-N. Thus if Umer further reduces taxes for next year, over and above the 91 billion rupee decline calculated by the Federal Board of Revenue as a consequence of the tax incentives announced by the outgoing Abbasi-led administration in the budget 2018-19, (though the amended finance bill 2018 would reduce this decline by around 4 billion rupees) the budgeted deficit, by the end of the current year will be around 8.2 to 8.4 percent equal or higher than the deficit inherited by the PML-N in 2013; (ii) a reduction in energy rates given the current cost of generation would imply extending unsustainable subsidies; and (iii) clearing the refund/rebate backlog would further reduce the revenue base raising the budget deficit.
With revenue contracting, expenditure would have to be curtailed. One possible way to achieve a reduction in expenditure that Umer may have had in mind could well be through his proposal to create a Pakistan Wealth Fund (though he did not elaborate on the source of financing for this fund), and take all state owned entities (SOEs) out of the control of line ministries (which may improve their performance as political interference would decline) though the real clincher would be who would sit on the Board of this fund. Umer's options with respect to financing the fund would be limited given the country's present high indebtedness - external as well as domestic. If he decides to earmark money for the fund in the budget then he would be raising expenditure the first year which would lead to a higher deficit.
Umer, like the PML-N finance minister Dar and the night watchman Miftah Ismail, states that his party would introduce reforms in the SOEs, including PIA, PSM and railways, on an emergency basis though again he did not identify the nature of these reforms, unlike the PML-N 2013 manifesto. Reforms are unlikely to make a difference in one year however the combined accumulated loss of public sector entities exceeds 1.2 trillion rupees which, as per the International Monetary Fund's March 2018 report "lead to sizeable demand for budgetary resources." Perhaps the PTI can divert annual allocations to these entities to the Wealth Fund in the first year.
Federal Board of Revenue reforms were also promised by Umer however one hopes he understands that the tax system is inequitable, unfair and anomalous not because of FBR but because of parliament that passes the finance bill each year. The leakage from the FBR, estimated at around 500 billion rupees per annum by Shaukat Tarin, can be plugged but would require a sea change in attitudes, which is a long term objective, and one way to dampen the lure of bribes would be to pay higher salaries which the next government would not be able to afford in 2018-19.
Umer committed to encouraging small and medium sized industry - an approach supported by all development institutions. But how does he expect to achieve that goal given that a lot of small businesses operate outside the legal economy and/or have little if any collateral which explains banks reluctance to lend. Or does he intend to nationalize banks or compel them to lend to small and medium sized business - neither being an economically viable option. Umer suggested he would increase banks deposit base by 50 percent by encouraging higher savings. That is an extremely tall order and for a prospective finance minister to give objectives rather than the ways and means to achieve them places him in the same category of finance ministers as Ishaq Dar or indeed Miftah Ismail.
Umer also contended that he would set up a council of business leaders - a policy that was followed by all past administrations (though none gave it any formal shape) which left them open to accusations of favouring the rich at the cost of the poor. He promised an end to the power crisis, and to transform China-Pakistan Economic Corridor (CPEC) into a revolutionary project. Again these lack specifics.
If the party forms the next government then its first priority of business must be to deal with a debt to Gross Domestic Product of over 82 to 83 percent, a budget deficit of over 8 percent, foreign exchange reserves less than two months of imports, a trade deficit nearing 30 billion dollars and the need to service domestic and external debt. Would the next government take the country on yet another International Monetary Fund programme, which appears to be almost a forgone conclusion, or will he slash expenditure mercilessly and raise revenue to reduce the deficit in the first year? Will he do for the water sector what Nawaz Sharif unwisely did for road building: prioritize it above all others and leave his house building and other laudable objectives for the second if not third or fourth year.
To conclude, Umer's 100-day agenda does not reflect an economically sound analytical approach and one would urge Imran Khan to bring in an economist to head the Ministry at least till the economy has successfully dealt with the three Ds. Umer, however, is uniquely qualified to head the wealth fund he has proposed given his success in running Engro.