EDITORIAL: Institute of International Finance (IIF), a global association of financial industry from more than 60 countries, sports a membership of 400, which includes commercial banks, investment companies, professional services firms, exchanges, sovereign wealth funds, hedge funds, central banks and development banks.
There is no representation from Pakistan while India is represented with one state entity, export-import bank of India, and a mutual fund, ICICI Bank.
Last week, IIF uploaded a report on its website that maintains that Pakistan’s economic recovery has been stronger than expected yet the country has failed to seize an opportunity to put its recovery on a sustainable path due to the absence of bold and long-lasting reforms.
This assessment is fully supported by this newspaper, which has been in the forefront in pointing out to the economic team leaders that while the ongoing International Monetary Fund (IMF) programme has fuelled economic recovery — secured only after the Shehbaz Sharif-led government began to implement the agreed conditions in letter and spirit in June 2023 that led to the unshackling of foreign inflows, including the extension of around USD 16 billion rollovers from the three friendly countries — yet major structural changes are critical to sustaining it. That these changes are sadly not yet evident is a fact that has found its reflection in the two poorly performing sectors; notably, the power and the tax subsectors that have dragged the economy down for decades due to poor performance and flawed decisions.
The government team is citing lower tariffs on electricity as a success attributed to (i) successfully renegotiating the flawed contracts with Independent Power Producers (IPPs), a legacy from the administrations of Pakistan People’s Party, the Pakistan Muslim league-Nawaz and the Musharraf regime, (though the Chinese IPPs have yet to agree which accounts for less than 50 paisa per unit decline); (ii) lower international price of fuel dependent on geo-politics; and (iii) 1.275 trillion rupee borrowing from commercial banks at lower rates (0.9 percent less than KIBOR) to write off the bulk of the 2.4 trillion rupee circular energy debt (borrowing agreed but not yet secured because of the Chinese IPPs) whose interest would, as in the past, be payable by the consumers.
The decision to provide subsidies for inter-Disco tariff equalisation is not under review, which is budgeted at nearly 450 billion rupees in the current fiscal year, including 125 billion rupees to the privatised K-Electric, which, in turn, would compromise the effectivity of privatising Discos to improve performance.
In addition, the sector requires not generalists but sector experts with the capacity to suggest appropriate proposals coupled with governance experts who are able to formulate recommendations based on empirical studies rather than on a long-standing perception that discipline alone is enough to turn a sector around.
The tax sector also requires major reforms; and sadly the focus of the incumbent team remains on raising revenue rather than on reforms that envisage higher reliance on direct taxes based on the ability to pay principle rather than on indirect taxes (at present they constitute around 75 to 80 percent of all revenue collections) whose incidence on the poor is greater than on the rich.
The Federal Board of Revenue (FBR), under the administrative control of the Finance Ministry, would do well to consider the high poverty levels in Pakistan (44.7 percent as per the World Bank) and focus on achieving an equitable, fair and non-anomalous tax structure. Granted that this would be a slow and politically challenging process; however, the Ministry should slash current expenditure by a couple of trillion rupees in the current year to ease the pressure on raising revenue to contain the budget deficit at a sustainable level.
It is important to note that while it is understandable for the economic team leaders to constantly claim an improvement as it reflects on their own performance and insist that reforms are underway yet history may not judge them kindly as independent foreign and local economists remain largely unconvinced.
The current system of government allows them to take bold policy decisions envisaging lower outlay than was budgeted on the elite and they should seize this opportunity forthwith.
Copyright Business Recorder, 2025