At the fag-end of last month and with the next general elections only 23 months away, Finance Minister Shaukat Tarin, in a manner of reinventing the wheel, unveiled a three-year economic plan for 14 key sectors. It was the first time for Shaukat Tarin, the fourth finance minister of the current government which though has already done it at least five times since it came to power in August 2018. But to be fair to the PTI-led coalition government of Prime Minister Imran Khan this wheel has already been reinvented for countless times since Independence.
But the repeated grandiose plans to reach for the stars, presented through numerous attempts at reinventions of the wheel, have consistently failed to achieve the desired result because in the first place the plans themselves were grossly unrealistic and secondly the implementers feeling that they would lose the most if they carried them out hardly moved.
In mid-April this year, Shaukat replaced Hammad Azhar who had replaced Dr Hafeez Shaikh earlier in March. Just before he was invited to join the government as Finance Minister, Shaukat Tarin had publicly expressed his no-confidence in the way the economy was being managed by his predecessor; he thought the economy was being ruined. But as he took over the portfolio, he started detecting positive signs in the economy and thought it was stabilizing and also showing signs of growth. Still, he thought a three-year plan was needed to take care of the residual disruption and sluggishness in the economy to enable it to get out of the boom-bust mode and fasten itself to an unbroken growth trajectory.
The broad objectives of this plan included accelerating the overall economic growth rate from 3pc to 6pc in the next three years without creating pressure on balance of payments and by keeping inflationary expectations subdued. It also includes increasing tax to GDP ratio by 1.5 to 2 percent annually, attaining target of $30 billion exports by FY 2023-24 and keeping up the momentum in foreign remittances.
The key focus is to generate massive employment opportunities over the period of time to engage the youth in productive sectors of the economy.
The sectors underlined for driving growth are agriculture, including small farms, micro enterprises, small and medium enterprises, construction, tourism and information technology.
This would be achieved through coherent, consistent and well-coordinated polices between the federal, provincial governments and the private sector, Tarin said. The then Adviser to the PM on Institutional Reforms, Dr Ishrat Hussain, who had accompanied Tarin to the press conference said the roadmap would ensure export-led growth and strengthen local government system as the devolution process under the 18th Amendment and seventh National Finance Commission award had not been completed.
The medium and long-term agenda includes a multi-pronged strategy for institutional reforms in the public sector and the provincial governments will prioritise achieving universal access to quality education, health, access to drinking water and sanitation.
Similarly, the federal and provincial governments would enhance focus on human development and develop physical infrastructure which is lagging behind in far-flung areas. The medium-to-long-term planning also includes completion of China-Pakistan Economic Corridor projects, particularly in agriculture, industrial cooperation, socio-economic development and financial inclusion.
It also includes utilisation of special technology zones, IT parks and incubation and entrepreneurships centres that complement CPEC investments.
In the sphere of power and energy, the long-term planning encompasses implementing Renewable Energy Policy and National Power Policy to attain the goal of 60 per cent energy generation from non-fossil fuels, including hydropower generation.
The finance minister said a positive sentiment had been generated about the economy and this would be built upon to create synergies across different sectors, facilitate active monitoring and pave way for sustained institutional reforms and modernisation of the public sector.
The plan for resolving the circular debt issue includes reducing the cost of electricity generation by flattening the capacity payment curve through restructuring power producers. This will be done through a combination of re-profiling of project debts and reduction in return on equity and operation and maintenance components of tariffs.
At the same time, steps will be taken to boost demand for grid electricity by incentivising captive-to-grid shift and integration of NTDC-KE networks. It will also include replacing cross-subsidies with direct subsidies, lowering tariffs for high consumption categories, targeting price deregulation and improving governance through engagement with the private sector.
A multi-faceted and multi-dimensional price stability strategy will be that farmers will be offered price guarantees and confirmed off-takes to protect them from exploitation at the hands of wholesalers and middleman.
Investment through public-private partnership will be invited to develop multi-purpose storage facilities for maintaining strategic reserves. Moreover, small markets will be built close to production clusters and air transport could be utilised to give farmers direct access to the far-flung domestic markets. This will ensure price stability in items of daily use. Meanwhile, 10 new sectors had been identified to help take exports to $40-50bn.
This is what is called the reinventing the wheel because umpteen numbers of such plans are gathering dust in the files of Planning Commission of Pakistan because the authors of these plans were selling dreams without the wherewithal of turning them into reality.
The current plan too appears to go the same way.
And if one were to take on its face value the latest opinion of Dr Waqar Masood Khan on Pakistan’s economy then the plan looks all the more unrealistic. Dr Masood, the longest serving finance secretary of government of Pakistan after HU Beg, was Special Assistant to the PM only about a few weeks back.
He says the economy will be under increasing pressure during the ongoing fiscal and likely to face a current account deficit of $12 to 17 billion for 2021-22.
Addressing a book launch ceremony at the Institute of Business Administration (IBA) in Karachi on September 15, Dr Waqar Masood Khan said Pakistan’s balance of payments crisis is likely to be severe.
Khan said the country should expect major changes in interest rate, exchange rate, taxation and energy policies as soon as the International Monetary Fund (IMF) programme is revived.
“Where will the exchange rate go if it’s left completely independent? What’s the point in building foreign exchange reserves if they are not stabilising the exchange rate?” he said, noting that the rate is at an all-time high of almost Rs 170 although the reserves have increased to $20 billion from $15 billion in May when the parity was around Rs 152.
“I don’t get it. What kind of economics is it?” He called the external sector Pakistan’s main problem and blamed the recurring economic crises on the 1991 decision by the former Prime Minister Nawaz Sharif to dismantle financial controls. “Its disastrous impact is still unfolding,” he said, adding that liberalising the economy turned it into a camel without harness.
He criticised the export-oriented sectors for continuously demanding incentives and privileges.
“All exporters are rent-seekers,” he said, adding that the country has no exportable surplus. If Khan’s dire predictions are proved right, it would be the undoing of Prime Minister Imran Khan’s economic policies, who started his tenure in 2018 with about $18 billion external account deficit and spent the last three trying to bring it down.
Indeed, the three-year plan lacks a viable implementing strategy. The plan, in effect, is a collection of targets but without any action plan to achieve these targets.
The method being employed to achieve economic growth rate of 6 percent in the medium term without putting pressure on the country’s balance of payments, and by keeping inflationary expectations subdued appears to be too good to be true. The current account deficit is already billed to breach the central bank’s estimates of 2pc-3pc of GDP this year as imports are set to surge further to support the nascent economic recovery of recent months.
And doubling the current investment-to-GDP ratio to 24 percent looks impossible given the slowing down of FDI flows in recent years due mainly to Covid-19. And although negative interest rates and the availability of cheap long-term financing had encouraged investors to invest in capacity expansion and new projects in the last one year, the trend is likely to reverse as soon as the State Bank ditches its accommodating monetary policy stance to focus on price stabilisation. It has already increased the interest rate by 25 basis points on Monday. And the plans to increase tax collection by 1.5pc-2pc of GDP a year and boost annual exports to $40bn-50bn — even though doable — appear too ambitious at this time.
Instead of reinventing the wheels every few years, the official economic managers should focus on a comprehensive economic framework with short- to long-term targets for addressing structural problems in the economy as well as formulate policies to expand the public sector reducing dependence on the rent seeking private sector.
Copyright Business Recorder, 2021