‘Charter of economy’: need of the hour?

There is a growing urge from the ruling party to bring a ‘charter of economy’ – Dar in particular is pushing for it. This might not be a good idea. Economics is all about making choices based on scarce resources. Political parties make claims based on choices to earn votes – for example, ‘Party A’ could be the proponent of privatisation while ‘Party B’ may believe in reform of public sector entities.

Here, PML-N doesn’t want to tax traders while PTI (Pakistan Tehreek-e-Insaf) wants to support real estate boys. With a charter of economy, there would be no debate on the economic policies and the voter decision will be confined to ethnicity and other provincial factors.

How do we expect a charter on economy between different parties when there is no consensus between the financial gurus of PML-N (Pakistan Muslim League-Nawaz) – Dar and Miftah. Dar doesn’t believe in market economy while Miftah is a strong supporter of it.

Having said that, a broad consensus is required on certain economic (mainly fiscal) policies, especially where constitutional amendments are required, as these are imperative for economic solvency. These are matters where the nod of provinces is needed. Pakistan is a federation and having all federating units on one page on certain policies is the need of the hour.

On top of the list is the NFC (National Finance Commission) award which in current shape and structure is unsustainable. Similarly, there should be a higher number of smaller fiscally independent administrative units. The country cannot run with some provinces which are bigger in size than many countries in the world. Third is to have WACOG (weighted average cost of gas).

Apart from economic policies, there needs to be consensus on foreign policy and certain social policies such as providing safe drinking water to all, uniform and quality primary education for all, and the list could include health, environment, and population control. Most of these are provincial subjects, and broad consensus is required on policies and allocation of resources for these.

Fiscal deficit has consistently remained Pakistan’s major economic problem, which also fuels the external deficit. Currency depreciation and inflation are outcomes of fiscal disease. And interest rates are usually increased to counter inflation. Thus, high interest rates and currency depreciation are the outcomes of these policies. There cannot be a consensus on controlling these outcomes.

Even current account deficit is the casualty of high fiscal deficit. There must be consensus on controlling the drivers of the mother of all macroeconomic problems – unsustainably high fiscal deficit.

Both PML-N and PTI finance leaders agreed that fiscal federalism (after 7th NFC award) is simply not sustainable. And in ten years, economic solvency has become a real threat. Provinces get most resources. They don’t share the cost of the federal income support programme. They don’t share any burden of energy subsidies. And the list goes on. Then these have no incentive to impose taxation on land and agriculture which are in their domain.

The skewed economic power of provinces is resulting in their political dominance. The strongest party is the one that usually has Punjab province under its belt. Punjab’s population is higher than a very large number of countries in the world. Right now, Pervaiz Elahi is on a spending spree while the federal government is on the brink of bankruptcy.

Then the power of PPP (Pakistan People’s Party) is due to its strong presence in interior Sindh. The party has very little support in the rest of the country; yet it has great influence on the policy making. All these political maneuvering by provincial governments can be dealt with by increasing the number of fiscally independent administrative units. Here, a charter is required.

Then, WACOG implementation is imperative. There are extremely high discrepancies between the price of gas in Sindh and Punjab. Here, KP and Sindh must have an agreement on mixing imported RLNG with local gas and have blended prices for the whole country. The good news is that the law has been passed. It’s just that the coalition government doesn’t have the spine to implement it.

Having said that, the power sector and other problems are not small. The power sector circular debt is a cancer, and it can single-handedly bring Pakistan’s economy to a grinding halt without resolution. But here, no political consensus is required. Nepra (National Electric Power Regulatory Authority) is independent on paper.

It must be made autonomous in spirit as well. Then the regulator must be strengthened by doing away with representation of members from each province. The deregulation of the distribution system is a must. And corporatisation (or privatisation) of Discos is imperative. Any government can do it, without buy-in from opposition. Similar is the case of petroleum prices. The decision is of the executive on the recommendation of the regulator. These can be automated. What kind of charter is required for this?

On taxation, PML-N doesn’t want to tax traders as it might rock its core vote bank. PTI is relying on real estate boys and supports them through construction package and amnesties. All the parties are favouring big agriculturists as landlords are usually election candidates for all parties. These choices remain within the parties. They gain votes by announcing unique economic manifestos. How can we a have charter on these?

Some say that there should be a charter on privatization, as whenever any party goes for privatization, all other protests to not let this happen. For it to work, independent boards and corporatisation of PSEs are required. The ‘Charter’ should focus on this rather than privatisation. Public sector entities can work both in private hands as well as if continued to be owned by the public. Both policies have merits, and any party can have any policy.

The reason a ‘charter of economy’ is being propagated by the ruling party and mainstream media is to basically have a buy in of PTI to not criticise PDM (mainly PML-N) on taking tough decisions such as increasing energy prices, imposing new taxes, allowing the currency to depreciate and increase in interest rates. Well, these were the actions, on which PTI was bashed by all in its term and was finally axed.

Now, PDM wants PTI to not reciprocate in kind. That is like asking for the moon. This will not happen. And any charter or agreement would be possible after the elections. As of now, no party is willing to lose an opportunity to bash the other.

Copyright Business Recorder, 2022