Old Recipes, New Packaging!

Today in Pakistan the course correction tasks are quite herculean in nature and the new finance minister will need all the help he can get.

As this government establishes its grip and slowly begins to unleash its economic vision, some glaring policy dichotomies emerge that are rath­er disturbing. Hearing the finance minister the other day during a television talk he talked about some low-hanging fruits, espe­cially how almost 1.70 trillion rupees are claimable under the FBR tribunal hearing cases and even if one-third are quickly re­covered by the government, the reve­nues could be topped by almost 600 bil­lion in one go. This is a dangerous trend, because what in essence he is saying is that the tribunals need to quickly de­cide in the government’s favours instead of being the neutral appellant body they ought to be and then of course given the draconian powers that FBR yields, this will then give the government the lever­age to suck equivalent capital out of busi­nesses through strong-arm tactics like freezing and attaching accounts, sealing operations, etc. Without going into the debate of moving capital away from effi­cient to inefficient hands, whatever hap­pened to the lofty talk on ringing FBR re­forms and expanding the tax base? This repeated practice of flogging the flogged donkey is already deindustrialising Pak­istan at a very fast and more of the same is tantamount to committing an eco­nomic Hara-Kiri. Also, what he forgets is that in most of these cases, the govern­ment is the appellant and not the other way around. Undermining or influencing the process will not only further damage the reputation of an already very poorly perceived institution but also erode any scant remaining confidence in the reve­nue collector. We all know, the real need of the hour is to ring FBR reforms and unleash innovative (behavioural driven) collecting mechanisms that instead aim at organically incentivising our tax cul­ture; involving provinces as lead contrib­utors, and of course, broadening the tax base itself. Whereas, on the contrary, the focus seems to be back on the old ways of raising capital any which one can in order to keep the party going. Honestly, one was expecting better from the new talented economic czar than this coun­terproductive approach that kills the proverbial hen laying the golden eggs!

Pakistan’s competitive edge is fast wan­ing and by this time everyone knows that the primary culprit is the energy sector that first gobbles up what we term as a rather constrained import space and then its operational inefficiencies take a seri­ous toll on domestic competitiveness, in turn putting the economy in a vicious cy­cle of debt and external account trap. An­other increase in the power tariff of al­most rupee 3 per unit might please the IMF, but will in reality increase the cost gap between the Pakistani producers and its regional competitors with the result quite obvious, in that the business will flow out from the Pakistani arena to the nearest more competitive producers. A capped Rupee: Dollar parity can only be maintained for so long because with in­creased costs, a capital drain courtesy FBR, high-interest rates and an inelas­tic import bill the high prevalent infla­tion has to find its way somewhere and its natural movement in such an equa­tion is invariably in the exchange parity; something that has plagued the country too often in recent years. And it is in this context that his disclosure that the power ministry first wants to fix the operational management of the discos before looking to privatise them, comes as a big shock. So, what are we saying that the very people responsible for this mess will be tasked with correcting it? Whatever hap­pened to the mantra and the fancy talk on the government should not be in the busi­ness of running businesses? Aurangzeb comes from the private sector and though it is very well to do such slick talking or use popular buzzwords, walking the talk by actually empowering the private sec­tor remains an ever-elusive challenge in Pakistan. He would be well advised to as­semble a professional team around him that can collectively convince the govern­ment to reduce its size and cede space for the private sector to create the much-re­quired innovative efficiencies by deploy­ing intrapreneurs in the key economic sectors. In Mushfiq’s words, Bangladesh is a present-day example where the state consciously ceded space to the private sector to unleash efficiencies in sectors where it consistently failed to deliver.

Today in Pakistan the course correc­tion tasks are quite herculean in nature and the new finance minister will need all the help he can from the likes of his own and not from the politicians or the bureaucracy.

Lastly, the key in all this would be the role that a regulator practically plays in shoring competitiveness, and produc­tivity, and in deterring anticompetitive business practices. What we need to un­derstand is that sustainable investment cannot take place without fair markets. Antitrust regulations are not equivalent to anti-business, but naturally if state and business gets inter-twined, it then becomes one, and this is what needs to be addressed very carefully by the new economic managers. In essence, the reg­ulator is responsible for ensuring that businesses compete fairly and on an even keel, so that SOEs or government-backed seemingly private sector com­panies do not indulge in rent-seeking or unlawful practices that prevent a new entrant from competing on the merits of their products/services. In effect, a properly steered market-based system is always pro-competition, stimulates in­novation, and acts as a representative for the interests of consumers and employ­ees, who are less concentrated and hold less bargaining power than businesses with a foot in the corridors of power. In modern-day successful economies, the governmental oversight (In the USA the FTC is responsible for this) does this by not only challenging the potentially an­ticompetitive modus operandi of spe­cific businesses but more importantly, developing an environment where oth­er businesses are deterred from engag­ing in similar practices. Again, the chal­lenge will be that who bells the cat in the cases where the interests of the power­ful are brazen and conflict-of-interest rules the roost. Meaning, if we have to seriously strive for sustainable growth that is also equitable and inclusive, some very difficult underlying reforms have to be quickly rung instead of putting more burden on the honest taxpayers and peo­ple and that too in an environment - fa­cilitated by this new team - in which gov­ernment and the powerful institutions voluntarily take a step back to allow the necessary space to the private sector to unleash its innovative juices and to sus­tainably deliver efficiently. For now, all one can say is, Good luck!

Dr Kamal Monnoo
The writer is an entrepreneur and economic analyst. Email: kamal.monnoo@gmail.com

The writer is an entrepreneur and economic analyst. He can be contacted at kamal.monnoo@gmail.com

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