EDITORIAL: A parliamentary fact-finding committee has concluded that the open skies policy of PIA led to a decrease in its market share from 50 to 20 percent — a loss that was gained by foreign airlines.
All contracts signed with foreign Independent Power Producers (IPPs) since 1992, all the way to 2014-17 under China Pakistan Economic Corridor initiative, were identical in that it was agreed to make capacity payments and allow repatriation of 100 percent profits which, as is by now patently evident, are to the detriment of the Pakistani consumers as well as the manufacturing sector unable to compete internationally and domestically (reflected by negative 1.32 percent growth in large-scale manufacturing sector July-November 2024).
And the passage of the Protection of Economic Reforms Act 1992 that allowed limitless outflow of foreign currency, a facility not available to nationals of developed economies in their home country to this day, led to massive capital flight though there are no estimates as to the amount involved.
Mistakes, however big or small, are made by administrations around the world but what has marked our governments’ is the repetitive nature of the mistakes and the failure to acknowledge the mistakes through empirical studies.
The overarching policy thrust of the Pakistan Muslim League-Nawaz has been to open the economy and restructure and eventually sell state-owned entities (SOEs) while the Pakistan People’s Party has shown a marked reticence towards privatisation (due to the organised opposition by the staff which has led to a failure to privatise units during the administration of the two parties) and instead supports private-public partnerships.
Notwithstanding this differential nearly all administrations, including the incumbent, have supported encouraging the private sector to play the lead role in transforming the economy as it is efficient and profit-oriented (two missing elements that are the root cause of a consistent rise in electricity tariffs as well as other services/products provided by state-owned entities) and are not corrupt (though this assumption is at odds with the authorities’ persistent claim that the private sector is evading and/or avoiding due taxes).
In this context, it is relevant to note that the International Monetary Fund (IMF) staff’s appraisal dated 10 October 2024 notes that “the state’s support of businesses through subsidies, favourable taxation arrangements, protection and government price setting has undermined the development of a dynamic and outward-oriented economy.
Subsidies have taken the form of low-cost financing and other concessions, which although varied across industries, left financing and taxes net of subsidies more favourable than in peer economies and less-favoured sectors.
The taxation system has been extensively used to provide non-transparent support through exemptions for privileged sectors like real estate, agriculture, manufacturing, and energy, as well as, through the proliferation of Special Economic Zones.
The government’s intervention in price setting, including for agricultural commodities, fuel products, power, and gas (biannual), combined with high tariff and non-tariff protection tilted the playing field in favour of selected groups or sectors.
Despite all this support, the business sector has failed to become an engine of growth, and the incentives eventually weakened competition and trapped resources in chronically inefficient (including perpetually “infant”) industries.“
This damning indictment of the failure of incentives to privately operated industrial and agricultural units requires an urgent revisit by cabinet members in general and the economic team leaders in particular.
In addition, there is a current focus on attracting foreign investment from friendly countries with more than 20 billion dollar memoranda of understanding (MoUs) signed. This must be fully supported; however, the reasons for the delay in actual disbursement of the amounts pledged under the MoUs need to be assessed. Is it the inability of the government to extend monetary and fiscal incentives that it may have pledged to foreign investors because of the IMF conditions? Needless to add, that given the current state of the fragile economy the country cannot afford to have the Fund programme suspended as the ominous clouds of default continue to loom above. Or is it the linkage of the inflow to a climate in Pakistan conducive to the disbursement of foreign investment? These questions need to be answered before foreign investment in real sense of the word will actually enter the country.
Copyright Business Recorder, 2025
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