Bushonomics and PML-N

In the last month or so, two articles have appeared in this newspaper by Mr Sayem Ali on the same subject. These articles have been written in response to an interview by Mr Nawaz Sharif to a private TV channel in which the PML-N leader advocated the rationale of lowering taxes to revive the economy. This was not a policy statement or a specific tax proposal but just a general comment. Taking up this general comment, Mr Sayem Ali has gone on to present a distorted history of PML-N’s economic performance during its two tenures in the 1990s.

The writer seems to suggest that any discussion of tax reduction – anywhere in the world and at any time – is fraught with disaster. Just as a reminder, the PML-N reduced corporate and personal income tax rates during its two tenures in the 1990s. Contrary to Mr Sayem’s suggestion that such a course will inevitably result in overall tax reduction, the tax situation improved significantly. In addition to tax rate cuts, other reforms were also initiated. These reforms resulted in Pakistan achieving a GDP growth of 7.7 percent in 1992 – the highest for any civilian government in our history. Under Mr Nawaz Sharif’s government, Pakistan also achieved a tax-to-GDP ratio of 13.8 percent in 1999 – again the highest in our history. In comparison, Pakistan’s average GDP growth in the last four years under the PPP government has been a dismal 2.9 percent and at present its tax-to-GDP ratio is less than 10 percent. Both these indicators are the worst we have ever experienced in the country.

The example given by the writer regarding tax cuts by President George Bush has no relevance here. First, it is completely wrong to attribute the worst-ever financial crises in 80 years to the tax cuts of George Bush. Without going into details, the financial crisis in the United States in 2008 was mainly the result of loosely controlled banking and other financial sectors and had nothing to do with tax cuts.

Pakistan’s particular economic situation is very different in any case. What we need right now is to kick-start our economy. PML-N’s manifesto outlining an economic revival plan including tax reforms is being announced by the end of this month. As will be seen in the manifesto, major structural reforms are being proposed in taxation and other segments of the economy. PML-N is not suggesting immediate tax cuts but once the reforms have been put in place and the tax situation stabilises, the possibility of tax cuts cannot be ruled out. Eventually we propose to increase Pakistan’s tax-to-GDP ratio to a respectable 15 percent by the end of 2018.

The writer also talks about the freezing of foreign currency accounts in 1998. It is very easy to criticise, in hindsight, the decision to freeze the foreign currency accounts but we need to understand the prevalent political environment at the time. We all knew that in case Pakistan went ahead with the nuclear detonation, there would be extreme political and economic consequences. Most bankers at the time supported freezing the foreign currency accounts without which they feared banks would be exposed and there could be a possible run on the banks.

The writer would agree that this was not an easy decision. If anyone thought there would be no price for our decision to go nuclear, well what can one say? As expected, economic sanctions were imposed by the US and other countries, which badly affected our economy. There is nothing wrong with Mr Sayem Ali or any other economist criticising the decision to freeze foreign currency accounts but to attribute that to all the economic problems we face today is stretching the argument. Nothing can be more outrageous and blatant than this claim.

The writer seems to have forgotten some of the major events of the last 15 years, including the Kargil war, the imposition of martial law, 9/11 (which radically changed the world order), Pakistan’s decision to join the war on terror as a frontline state, the terrible economic performance by the current PPP government and so on. PML-N has the most experienced economics team on its side, which has delivered in the past and has the capacity to turn around our ailing economy. If the PML-N forms the next government, the process of economic revival will begin sooner than most critics anticipate.

The writer is member of PML-N’s manifesto and media committees and former CFO, IBM Middle Africa Region.Email: zubairmohammad@hotmail.com