EDITORIAL: Ideas about rescuing the economy, especially about ending its dependence on donor bailouts, come a dime a dozen these days. Many of them are pretty similar and make a lot of sense because it doesn’t take much to understand why we have landed in this mess.
For decades, the state simply chose to live beyond its means, caring to neither improve tax collection nor expand the export basket as foreign aid conveniently lubricated its unjustified expenses; and made a lot of politicians and influentials very rich in the process.
Now, typically, that addiction to aid money has reached the point that the economy needs more and more of it just to stay alive.
Hence all the noise, from everybody offering free advice and also from the IMF (International Monetary Fund) as part of its ‘upfront conditions’, about ramping up tax revenue and making new export products and finding new export markets.
Former finance minister Miftah Ismail made an interesting point about it by quantifying the kind of improvement we need very urgently.
Speaking at one of the ‘Reimagining Pakistan’ seminars where he and other disgruntled politicians have been making rather bold statements lately, he said Pakistan must ensure ‘maximum 15 percent tax-to-GDP and 15 percent exports-to-GDP’ in order to avoid further dependence on IMF bailouts. That’s fair enough, because failure to generate adequate revenue is the main reason that we must go begging every few years.
Reforming FBR (Federal Board of Revenue) and enacting legislation that will squeeze taxes out of protected sectors and reconfiguring production to increase exports is going to take a fair bit of time, no doubt.
Meantime, however, it is essential to get the twin deficits, fiscal and current account, out of the red with the means that are more readily available. Of the latter, especially, the breakdown is important. For the last few years, during the course of the war on terror especially, we’ve been ignoring a very important component of the current account.
Remittances help when exports struggle, which is very welcome, but a lot more needs to be done about FDI (Foreign Direct Investment), which secures other benefits, like transfer of skills and technology, along with foreign exchange.
This is not about hot money, which can be attracted even by toggling the interest rate, but tends to leave as fast as it comes when the cycle turns. This is about solid investment, on the pattern of countries like Vietnam, Bangladesh and India, which expanded their reserves just as ours shrank. We know, of course, that we get extremely little FDI because of political instability and an unstable security situation, so we also know what to do to increase it.
Right now likely investors have to hold meetings and sign contracts with Pakistani counterparts in third countries, which is unacceptable.
It would also do the current account a world of good if we keep geographic compulsions in mind as we reset our priorities. Since nobody can wish away their neighbours, we must all learn to live and trade together.
Therefore, Pakistan and India have no choice but to improve the entire region’s political as well as commercial environment. It is their never-ending grudge that paralyses all efforts at regional uplift, like the SAARC initiative.
Now they must learn from the recent Saudi-Iran thaw and lower the temperature in South Asia as well. The whole continent has been struggling to get back on track ever since the Covid lockdowns, so all countries would welcome such progress and back the country that takes the first step.
Without such measures, and working all the time to substantially increase tax and trade revenue, there’s little hope for the economy’s, and therefore the country’s, long-term economic health.
For even now, when the government has bent over backwards and burdened the people with all sorts of taxes and tariffs, nobody can say for sure when the IMF programme will resume.
There is no doubt that we are at the very edge and we will truly need to ‘reimagine Pakistan’ to survive in the 21st century. And if the political elite does not use this time to ready a desperate, urgent action plan, then it has no business running this country.
Copyright Business Recorder, 2023