EDITORIAL: Chairman Pakistan Business Council Saqib Shirazi while addressing the ceremony held on achieving the financial close of four solar projects of 150MW underscored the need for all political parties to sign a charter of economy (CoE) which would provide a comfort level to investors namely that existing policies would continue during the life of their project/investment. This call has been made repeatedly by members of the two status quo political parties, notably the Pakistan People’s Party and the Pakistan Muslim League-Nawaz; and former President Asif Ali Zardari went one step further and appointed PML-N’s Ishaq Dar as the Finance Minister though the appointment was short lived as the PML-N withdrew from the coalition government due to the PPP-led coalition government’s refusal to reinstate the ousted Chief Justice Iftekhar Chaudhary.
Political parties in a democratic setup support common objectives (growth, ending poverty, etc.) though their modus operandi are starkly different: for example, conservatives support private sector as the engine of growth with higher profits eventually filtering down to the poor while the liberals challenge the filter-down theory and insist on targeted labour-friendly policies. In instances where the administration remains in the hands of one party, differences erupt with respect to fine-tuning required for enabling the economy to achieve salutary objectives. Thus a charter of the economy cannot go into specific monetary and fiscal policies that need to be implemented, as determined by the economic team leaders, as constant adjustment is a necessity. However, this does not imply that the decisions taken by the economic team cannot be criticised especially if they are not backed by realistic projections - examples being decisions taken by Pakistan’s economic team leaders since 2019, including a 13.25 percent discount rate, massive depreciation of the rupee that reduced imports dramatically but failed to raise exports, and a tax target which was unrealistic as per the Federal Board of Revenue.
In this context, it is also relevant to note that Pakistan’s three major parties support the conservative approach, including the Khan administration that supported a relatively more socialist approach before forming the government, with PPP differing from the other two parties in using state-owned entities as recruitment centres though in terms of selection of their heads, the three parties have sadly not relied solely on merit.
In the case of Pakistan there is another complication to the signing of a charter of economy by political parties; notably, the country is termed a perennial International Monetary Fund (IMF) borrower and is currently on its 23rd programme (though not all programmes were completed). On average each IMF programme is for three years which implies 69 years out of our 74-year history, the country has had to follow a set of conditions which have not varied significantly reflective of the persistent failure to implement the politically challenging reforms in the power and tax sectors – a situation that continues to this day.
It is therefore important to note that the ongoing Fund programme agreed by the current economic team leaders is upfront highly contractionary that stifled growth pre-Covid-19 in 2019-20 (1.5 percent) and is projected at the same growth rate in the current year due to Covid-19. Or, in other words, it is likely to be even more politically challenging not only relative to previous programmes but also relative to the first year of the programme.
One would however assume that the signing of a charter of economy suggested by a noted economist pertains to specific taxes (on imports, personal income tax, sales tax) as well as special incentives including tariff relief given to productive sectors and/or specific to exporters to be sustained for a period of time that would provide a comfort level to investors. However, this may not be possible given the IMF’s specific policy recommendations in this regard as well as relevant international laws to which Pakistan is a signatory especially with respect to money laundering. A charter of economy, however, continues to be an attractive proposition for many politicians as well as members of the private sector yet even if actually agreed and signed there is little to stop the government of the day taking politically viable decisions; for example, increasing subsidies and/or giving a carte blanche to parliamentarians to identify projects in their constituencies and violating good laws as and when deemed appropriate, for example, those supported by the regulatory authorities, including Public Procurement Regulatory Authority (PPRA).
Copyright Business Recorder, 2021
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