The primary constituents of economic growth encompass physical capital, infrastructure, human capital, and technology. Pakistan stands among those nations where growth rates have not aligned with its developmental profile for several years.
Neglecting investments in the core elements of growth, we divert attention to less productive pursuits, exacerbating our debt burden.
This misallocation of resources results in a significant portion being earmarked for debt servicing, leaving limited fiscal room. It thus becomes imperative to raise taxes and duties to maintain fiscal discipline, compounding financial strain—a vicious cycle that not only reduces our capacity to invest in essential economic development but also hampers the potential for sustained, meaningful growth.
Focus on unproductive activities further impedes progress, necessitating a reassessment of priorities to align with sustainable growth strategies to alleviate the burden on fiscal resources.
Caretaker Finance Minister Dr Shamshad Akhtar, in her address at the 26th Sustainable Development Conference hosted by Sustainable Development Policy Institute, pointed out the disruptive impact of political instability on Pakistan’s economic growth.
Emphasizing the pivotal role of structural reforms in supporting economic development, she underscored a fundamental truth. Despite acknowledging essential nature of these reforms for ensuring stable growth, our leaders exhibit hesitancy in initiating the much-needed structural changes which further increase challenges in achieving sustained economic progress.
Unfortunately, Pakistan consistently finds itself committing to a series of structural reforms whenever it engages in agreements with the International Monetary Fund (IMF). These reforms span over critical areas, including fiscal consolidation to trim down public debt, reinforcing social safety net to safeguard vulnerable segments, implementing further changes in the energy sector to cut costs, reverting to a market-driven exchange rate, and replenishing foreign exchange reserves.
Additionally, the commitments extend to adopting a proactive monetary policy to control inflation, fortifying financial sector’s resilience, persisting with reforms in state-owned enterprises and governance, and increased collaboration with international partners.
This recurrent commitment emphasizes Pakistan’s dedication to addressing complex economic challenges through a holistic and coordinated reform agenda. Having said so, critical structural reforms remain elusive. A major concern is the State-Owned Enterprises (SOEs), draining resources without contributing positively, thus burdening taxpayers.
Commitment to initiate the privatization process for specific SOEs was made during the tenures of previous governments (PMLN 2013-18 and PTI 2018-2022) with identifying specific entities in the Extended Fund Facility Programme (EFF) signed by the PTI government but nothing was done in this regard.
The current caretaker privatization minister, initially perceived as proactive, has not lived up to expectations. Despite the passage of a reasonable time, he has failed to propose necessary changes to privatization laws, hindering initiation of a swift and efficient privatization process without undue strain on the national exchequer.
It is expected that Election Commission of Pakistan will soon release the upcoming election details for filing nomination papers, decision on candidature, appeals deadline, and allotment of election symbols scheduled for February 8, 2023.
However, the paradox is that the political parties gearing up for the electoral race and aspiring to assume governance appear to be devoid of a clear and comprehensive plan to address the pressing issues currently afflicting Pakistan. This lack of strategic direction raises concerns about the ability of prospective leaders to effectively navigate and resolve complex challenges facing the nation.
The leadership of three prominent political parties—Pakistan Muslim League Nawaz (PMLN), Pakistan People’s Party Parliamentarians (PPPP), and Pakistan Tehreek-e-Insaf (PTI)—is grappling with internal difficulties.
In a recent interview, PPPP Chairman Asif Ali Zardari expressed optimism about his party forming a coalition government with allies, indicating they might not secure a majority but are confident in forming a government through alliances.
Conversely, PTI is confronted with significant survival issues as key figures, including the chairman, vice chairman, and president, are in jail, and prominent leaders have already changed courses.
Despite claiming popularity and the ability to win in free and fair elections, media discussions suggest they could encounter difficulties in finding suitable candidates for each constituency in national and provincial assemblies.
This intricate landscape raises questions about the parties’ readiness to navigate the complexities in the upcoming elections.
On the other hand, PML-N expresses confidence in securing a two-thirds majority in the upcoming election and aspires to emerge as the single-largest party, poised to form government. They assert having solutions for the country’s current challenges, citing their previous governance period from 2013-2018 as an example.
Their leader, returning from self-imposed exile on October 21, 2023, in a reception, proclaimed a commitment to steer the country in the right direction. Despite over four weeks’ stay in the country, he has failed to connect with the public, relying instead on candidates known for frequently changing their allegiances.
While addressing the business community in Lahore and Sialkot, his speech focused on past events, lacking a clear future strategy. Notably, his proposal to grant amnesty to criminals investing Rs. 10 million in setting up industrial units reflects a lack of awareness of modern economic principles where such schemes find no place.
The Financial Action Task Force (FATF) is very strict about implementation of transparency forcing the countries to maintain registries for disclosure of beneficial ownership. Many countries of the world including those in G20 will implement these measures in 2024.
For example, the USA is set to implement the beneficial ownership rule from January 1, 2024, and in this regard Financial Crimes Enforcement Network (FinCen) has issued guidelines. It is expected that stricter global beneficial ownership regulations will prevent criminals from concealing illicit activities and dirty money through covert corporate structures.
The above measures aim to plug loopholes and eliminate regulatory deficiencies that have facilitated the use of shell companies to conceal criminal activities or tax evasions.
The beneficial ownership rule will enhance transparency, enabling investigators to promptly identify genuine beneficial owners of companies, thereby bolstering efforts against financial crime, corruption, and tax evasion, and fostering sustainable economic growth.
In this scenario, advocating for a policy that enables criminals to obscure origin of funds through investments in the industrial sector is counterproductive, posing potential issues to Pakistan.
Promotion of offshore financial centers is being discouraged, and the global community is actively striving to reduce the prevalence of financial crimes worldwide. Therefore, PML-N supreme leader must reconsider his priorities for attracting investments and addressing prevailing challenges.
Recognizing the evolved global landscape and new economic principles he should acknowledge that garnering support in the current scenario requires an understanding of modern economic trends.
Relying on individuals with conventional approaches to manage the country, particularly in financial matters, may prove ineffective as was evident during the incomplete 9th review of the IMF Extended Fund Facility programme.
(Huzaima Bukhari & Dr. Ikramul Haq, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE) and Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’)
Copyright Business Recorder, 2023