The regime is changing. The question is what kind of changes in economic management are required and which steps of the outgoing government must continue. Several articles can be (will be) written on it, here is a first impression.
The overall economic policies tilt was right under the PTI government. The problem was in execution – miscoordination and poor governance. Here the experienced PML-N team (such as Shahbaz, Abbasi and Miftah) can play the missing role.
There were two bigger failures under the PTI government. And both are somehow linked. One is that the government failed to bring much needed meaningful reforms in the energy sector and the other was zero progress on the privatization of the state-owned entities. Then the government talked about deregulation in energy and agriculture markets – but failed to do so. The PMLN team should continue with the spirit, but with better execution.
The government should continue to focus on bringing competitiveness in the manufacturing sector and should work on promoting the exporting sector. Both federal government and SBP policies should sync on these matters. PTI government was doing fine in that area. They should continue to work on reducing the tariffs on the raw materials and look at commerce from the trade perspective and not from the revenue lens.
One big competitiveness element missing is the provision of energy at affordable prices and ensuring smooth supply (especially through the grid). PTI talked about it for a long time - but due to numerous changes in the energy ministry, the walk could never talk. Finally, WACOG billed is passed and it should continue.Then the 3rd/4th LNG terminal(s) which are on the verge of finally approval processes should get done.
Privatization of discos and reduction of the footprint in the energy buying and selling by the government is imperative. Numerous power projects coming online now were envisaged in the last PMLN government. PTI was criticized for increasing the tariffs for growing capacity payment – due to new plants coming online and currency depreciation – as all the plants are priced in the USD. And the currency depreciation was inevitable in the first year or so. Now the PMLN is in power and Miftah/Abbasi duo should walk the talk and execute their plans of expanding the pie and lowering the impact on capacity payment on per unit.
The immediate actions are needed of passing on the increase in petroleum and electricity fuel prices to the consumers. It would be an unpopular decision; but a right one. That would help in reducing the fiscal deficit and is imperative to curb imported fuel demand and a must condition for the IMF’s nod.
Then the government should not bring many changes in the SBP policies. The exchange rate should be kept market based – the government should not waste the efforts of the past two and half years as the consumers and businesses are slowly coming out of the fixation of fixed exchange rate. However, the government should work on building foreign exchange reserves as falling reserves and political uncertainty were the prime reasons for recent steep fall in the PKR. The current account deficit is already becoming manageable and SBP must be allowed to handle it. The government need to focus on the fiscal side.
One big problem is of inflation which is very high in the past three years or so. And it is likely to increase further with increase in petroleum and energy prices. Here the food inflation – from domestically produced goods can come in control by reducing the inefficacies in the farm to fork markets. Deregulation is the key. And better governance is the need in the immediate term.
Not to forget that the government should end the incentives of parking the money in the real estate. The taxations should be flipped to encourage construction while keeping vacant plots in developed societies should be taxed heavily.
There are number of other challenges and each challenge described above have its own contours; more on this later. Good luck to the new government.