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One year is gone. There is not much to take home about the PTI economic team's performance. The team came totally unprepared, and on job training wasted some time, and additional cost incurred to an economy which was in an urgent need of stabilization measures. There is no doubt that the mess they inherited was big, but yet, the timely resolve was missing. There were more talks and less substance.
The team lacked professionalism, and adhocism is one word to best describe earlier decision making. There were too many management changes. There was no clear direction from the start. A few policies were contradicting, as the demand slowdown, revival of manufacturing sector, restoring domestic investors confidence and accountability efforts all were attempted to be implemented simultaneously. The focus on any one agenda was missing, and in the process, economic management lost credibility and domestic investor confidence came to a new low.
Too many committees, advisory councils and task forces are there where services of experts are provided voluntarily. The volunteers either lack incentive and authority to bring any change or they have vested interests. The task forces are fatigued.
Housing was on the top agenda of the government, but the task force has yet to come to with concrete plan to crack housing financing and low commercial viability puzzle. The agenda of civil service reforms and fiscal austerity is not even now talked about. Energy task force could not present a viable plan to reduce circular debt or to solve the riddle of growing capacity payment. The economic advisory was formed and all it discussed -IMF or no IMF; but no alternate plan was presented. Now it's nowhere in sight. Later another business advisory council was formed, but was short-lived.
Now the IMF is at the helm. The existing team has nothing much to do with the core of PTI and its ideology. The technocrats are running the show, and the focus is to bring macroeconomic stability- by having undervalued currency and high interest rates to curb demand and attract non-banking government financing. The economic demand is curbed, and fiscal debt servicing is growing - side effects of stabilization.
Fiscal performance in the first year was poor. Two mini budgets were presented, but nothing substantial was done to jack up FBR revenues or to cut down administrative expense. The only cut was in development spending - that further hampered growth. Only talks were on reducing PSE losses - privatization was not the agenda, and by the time Sarmaya board was formed, team was changed. Back to square one, as current finance advisor is pro-privatization.
Government does not have money and the concept proposed by PTI is of public private partnership. But there is no capacity in ministry of finance to make and implement PPP models. Even, if someone has an idea, he or she would not implement due to accountability fear of NAB. The decision making is at standstill.
The FBR performance was below average in the first year. Despite presenting two mini budgets, revenues fell short from the previous year. The chairman was sacked and now a doer from the private sector is in charge. This year target is impossible, but a decent growth in FBR revenues is likely.
FATF compliance and documentation are not mutually exclusive. The money laundering and terrorism financing cannot be traced without documenting the whole economy. The government has a clear direction on documenting the economy and to expand the tax base. FBR collection to improve in the process.
Traders, retailers and other services groups will resist change. There will be strikes and shortages. The investor confidence will likely erode further before improving. The other problem is that NAB is not in control, and its investigating a few big business groups as well. None of the big business is fully clean in Pakistan, the business accountability is not helping restore confidence.
Anyhow, any shift in economic direction will restore the investors' confidence. The immediate problem is balance of payment - foreign obligations financing. The SBP is eyeing on attracting foreign portfolio investment, and other form of foreign flows - be it by exports, tourism or FDI. The relationship with the US is of utmost importance as CPEC is on the back burne.
The PTI has secured a good grade in foreign policy. Celebrity status of PM Khan amidst civil-military leadership on the same page are improving Pakistan image internationally. The dividends from it may start coming in 6-24 months and that may jumpstart the economy. But the core of the fiscal problem is related to energy, and that requires serious reforms; otherwise the efforts will be of little use.

Copyright Business Recorder, 2019

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