Challenges and opportunities

Arrangements made for re-polling at 43 stations in NA-250 showed the ECP and the Army the difference such arrangements could have made to the May 11 election results whose authenticity is doubted by all parties. Ironically though, none except PTI questions the brand of democracy installed by those results.

That said, the message for Nawaz Sharif – the big ‘winner’ – is clear; to be forgiven for his past sins, like Asif Zardari, God has given him the last chance to sincerely serve the masses. The short-sighted Zardari wasted the same opportunity afforded by the 2008 elections.

Besides ensuring law and order country-wide, especially in industrial centres, the investment, taxation and regulatory policy-mix must encourage investment. While PML-N promises this, political expediency (see the upcoming coalition’s profile) may again force going back on those promises eg on building Kalabagh Dam. While Nawaz Sharif acted sensibly by not falling in the trap set by JUI’s Maulana Fazlur Rehman, and let PTI form the government in KPK, he may still make mistakes by elevating discredited party stalwarts to key offices in the federal government.

What Pakistan needs is a finance minister with an unblemished record, clear perception of Pakistan-specific macroeconomic issues, and confidence of the international financial circles. The same applies to the ministries of Interior, Water and Power, Petroleum and Gas, Trade and Commerce, and Foreign Affairs; all require being headed by clean and competent individuals so that the global perception about Pakistan changes favourably.

Pakistan’s huge public debt necessitates that federal and provincial cabinets aren’t huge, and the focus is on result-oriented (not blind) austerity to sensibly cut the current expenditure and save resources for debt servicing and essential development projects.

Courtesy skyrocketing oil prices and shipping costs, regional trade is now an imperative. PML-N’s move to expand trade with India therefore sounds logical. But for Pakistan to benefit from it fairly, it must optimise the productive capacity of its industrial sector.

This requires prioritising the revamp of the power sector’s generation and distribution systems because loadshedding is the biggest economic distortion that was escalated by a visionless (in fact, wholly self-serving) policy of privatising the power sector. Prioritising supply of fuel to the efficient Gencos is now imperative for optimising fuel output. Simultaneously, out-dated generation equipment in the inefficient state-owned Gencos must be replaced to significantly improve their productivity.

In this context, decision-making shouldn’t be left to just Wapda staffers; the government must also seek advice from experts with no stakes in this sector. But what needs immediate corrective action is power theft – an evil that benefits a huge lot.

The US and Britain (overjoyed at the results of Pakistan’s elections) should be asked to assist Pakistan’s power Gencos and Discos in replacing their power generation technology, more importantly, in cutting their present huge line/distribution losses. Checking power theft will require making the theft detection process credible and legally defendable, which wasn’t done by the previous regime because many of the power thieves were within its own ranks. Will the PML-N do away with this evil now?

Increased power bill recovery can reduce the ‘circular debt’ that inflated the fiscal debt under the previous regime; repaying interest charges on the public debt alone now prevents the much-needed rehabilitation of the public sector enterprises (PSEs).

The last government over-burdened the PSEs with manpower for political reasons, and debt via flawed managerial practices; their right-sizing and rehabilitation to prepare them for privatisation (and pulling the state out of what is not its forte) is a big challenge in an investment unfriendly environment.

Besides PSEs and the power sector, the pathetic tax-to-GDP ratio poses huge challenges. While taxing the agriculture sector is one of them, the key challenge is containing tax evasion; evidence thereof is provided by millions of tax evaders that roam around freely.

Pakistan will certainly need IMF’s assistance, but raising power tariffs or current tax rates would be self-destructive pre-conditions there for; the remedy lies in higher tax collection but FBR is again seeking a rise in tax rates – a policy that caused capital flight (of $200bn?) over the years.

One consistent FBR failure has been its inability to tax the retail and wholesale sectors; the last chapter therein was its failure to impose the condition of exhibiting NTN certificates at business premises. Tax evasion cannot be checked if such basic failures continue.

The 1997 PML-N regime was provided a paper containing strategies for initially taxing the agriculture, retail, and wholesale sectors on fixed bases and within three years helping them develop the capacity to maintain their business accounts and pay tax based thereon. The 18th Constitutional Amendment transferred federal departments to the provinces without mandating a progressive rise in provincial tax revenue. Therefore, besides increasing federal tax revenue, it is imperative that the provinces are forced to increase their tax revenues.

Achieving success in this endeavour would be the real test of the PML-N because provincial governments have traditionally been the least efficient in collecting taxes; political considerations (that prevented taxing agriculture all these years) impede tax collection.

The fiscal cliff that Pakistan sits on is not the result of flawed taxation by just one regime; all previous regimes contributed their bit in elevating it. PML-N must not forget its share in keeping in power a regime that doubled the height of the fiscal cliff in a 5-year term. What the PML-N has inherited is the legacy of a regime that it supported for five long years. Only by taking tough measures to reduce public debt can the PML-N prove that it backed that regime for the sake of democracy, but disagreed with its gross mis-governance.

Pakistan faces severe challenges that reflect the blindness of its past regimes, not paucity of resources. Given Pakistan’s global ranking as producer of milk and fruits, its animal husbandry supportive environment, and a long sea beach ideal for fishing, it has huge potential in these sectors.

Processing of these resources in their varied forms can generate huge surpluses, investment and jobs, activity in a variety of related sectors, and substantially increase exports. These are sectors wherein DFI inflow could be massive, provided investment is assured security. What the PML-N does in all the above contexts would prove decisive. Improving the investment environment (shattered, above all, by organised extortionists) holds the key, but first local businesses must be secured to create a credible perception for foreign investors to come in – that’s the challenge No 1.