Priority areas of reforms

Anyone mandated to reform Pakistan and put her on the path of growth and development faces a great social choice problem: there is simply too much to fix. Exports, savings, health and education, debt, taxation and other aspects of fiscal accounts, innovation, textile, ease of doing business – there is no shortage of problems in these and so many other aspects of economy, the list of which is quite long.

Yet given sooner or later, the incumbent government should realise that they can’t fix everything they promised; they have limited resources: time, energy, political capital, in recognition of which BR Research proposes the following three areas of economic reforms to focus on over the next four and half years.

The first is obviously taxation. Fixing taxation isn’t simply necessary to put the fiscal accounts in order. It is important to create a level playing field in the private sector; it is also invariably linked to the external account; it is important for formal sector job creation and providing certainty to businesses; it is important to encourage competition among private sector players; and it also has a role to play in encouraging innovation in private sector and forcing businesses to seek efficiency. That’s just the small list of benefits of having a simple, predicable tax system with a widely casting net.

The second pertains to documentation for which the federal government will have to coordinate with provinces, in addition to the strengthening of federal and provincial bureau of statistics that lie in their domain.

As Shabbar Zaidi said in his recent interview with BR Research, there is precious little that these tax reforms can achieve when they do not have access to banking records (currently protected by law) and asset records held by the provinces (land, shop, car, factory etc). (See Brief Recording Jan, 11, 2019, Pakistan is run by arthis). To this end, provinces will have to start recording property at market value and also share the information with the Federal Board of Revenue. Without strong coordination between provinces and the centre, they can achieve little.

In addition to this, the PTI has to strengthen Pakistan Bureau of Statistics and the provincial bureau of statistics in the provinces where it forms a government. Population census, census of manufacturing industries, re-basing of CPI, census of livestock, census of economic establishment, census of service sector establishments in provinces, provincial GDP – these and many other datasets critical for economic governance have long been on the backburner. And in the absence of these datasets, progress eventually either stalls or remains a half-baked process. (See BR Research’s ‘Behind the scenes of CPI blooper’, Nov 9, 2018)

The third relates to creating a market of utilities: gas, electricity, water and transportation. Creating a market of utilities can ensure that businesses and households alike don’t face shortage of these utilities as market forces drive down the prices. Invariably, if and when the government decides to create a market of utilities, it will also have to address the public sector enterprises that fall in these sectors.

These three areas are no panacea for all the ills that Pakistan faces, but they are critical to set the course for long term development. While fixing taxation can provide fiscal stability, linking asset records with tax records amidst other real estate reforms can unlock the dead capital currently hiding in the Panamas within Pakistan; whereas the creation of market of utilities can help business lower their cost of production. Failure to fix these areas and managing economy through packages and patchwork would mean going back to square one over and over again.