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Ending hopium—II

SIFC (Special Investment Facilitation Council) and the last Caretaker Government had taken the elephant steps on fertilizer, HEC and tube-well electricity subsidy, phased closure of BISP (Benazir Income Support Programme) and PSDP (Public Sector Development Plan) under provincial ownership from next budget.

Should FBR be retained despite major collection is from indirect taxes (80%) by “agents” or implement game changer steps proposed by the Caretaker government? Are we to benefit from Pay and Pension Commission reports and manage our unsustainable pension programme through a funded defined contribution scheme introduced in 2006 for the corporate sector or how to provide for a funded pension scheme?

This certainly requires NFC (National Finance Commission) aggressively taking lead duly supported by studies by a 3-member team of experts led by LUMS and backed by Huzaima & Ikram and PIDE (Pakistan Institute of Development Economics).

The target of ease of doing business cross-country and overseas necessitates reduced paperwork, diversified and across-the-board revenue sourcing over an extended time period, a transparent customs duty structure, a mechanism for performance-based incentives, and strong monitoring and severe penalty for abuse is critical to how we make ourselves an FDI destination, doing away with IMF programmes and achieving 7-9% GDP growth so that reckless borrowing and ruthless spending pushing the country deeper and deeper into the deadly debt trap is stopped.

Limitation on repatriation of capital in the past now requires confidence-building measures, including retention of export proceeds locally like has been allowed to the IT sector. The action is a glaring barrier in the way of FDI and project finance.

This lack of forex availability, on the other hand, has also motivated industry to locally source and replace its raw material with refineries’ export over 500Kt of fuel oil.

The two glaring haemorrhages are by State-Owned Enterprises (SOEs) and Circular Debt (Rs 6 billion). The State-owned Enterprises (Ownership and Management) Policy 2023 aims to enhance governance and operations of SOEs but Board Nomination Committee (BNC) in the relevant Ministry/Division is yet to be activated, and when will BNC ensure compliance to the guidelines in the policy and enforcement of provisions of the SOE Act?

Experts have even suggested managing circular debt by nationalizing IPPs (Independent Power Producers), putting them on the block (even nationalizing them) or restructuring their debt. Is that rational?

And we continue to dream of stemming rot in our DISCOs by privatizing them, provincializing them, handing over management control, propagating changing of BODs and narrative of empowering CEO/management further. A lost cause without MoE role being eliminated.

Focus on solar and wind has implications that need understanding, will not reduce tariff and competitive bidding is required with take-or-pay provisions, GOP guarantees and ROE linkages to USD. We have no option!

Pakistan Development Fund of USD 1.5 billion set up in 2014 with establishment of sovereign wealth fund last year, capitalising it with $8 billion in shares in state-owned enterprises needs a road map. Why not merge them and revive PIDC (Pakistan Industrial Development Corporation) in a disruptive approach, given our history of privatization being a long drawn process; disinvestment of HEC was in fifth attempt after 14 years! There is thus no instant gratification except in case of PIA (Pakistan International Airline) and PSM (Pakistan Steel Mills).

Retaining SOEs and by implementing strategic reforms, enhancing transparency, merger and fostering innovation, we can harness the potential of the state-owned enterprises by turning them around to ensuring they contribute significantly to national development. Accountability and performance measurement focus be by a “Pakistan NDRC”.

This homegrown solution requires continued long-term efforts and commitment with clear understanding that there is no shortcut to deliverance of results and that they will not occur immediately despite all the hopium.

Deregulation has to become the norm with aggressive encouragement of Industry, SMEs and cottage industry with their extensive focus on exports being incentivized. Development of tourism alongside the Baluchistan coastline (laws of country not applicable) and relocation of industry to PSMSEZ need urgent facilitation. Land allocation is to be only upon financial close of all SEZs and not allocated to speculators.

BOI (Board of Investment), TDCP (Tourism Development Corporation of Pakistan), TDAP (Trade Development Authority of Pakistan), PBIT (Punjab Board of Investment and Trade), etc., should be merged under one entity with provincial ownership of SEZs within their jurisdiction. SEZs need to have right to source energy directly from producer locally or internationally.

The energy sector deregulation needs to have happened yesterday with renewed efforts on conservation that is starting to happen by charging cost of energy. The market is responding and gearing to implement solutions.

Focus on corporate farming, agri research, farm-to-market infrastructure should be the domain of all banks, including privatised Zarai Taraqi Bank with strong collaboration under CPEC (China Pakistan Economic Corridor) of the universities.

Our workforce needs a living wage of Rs 51,700 per month and why are APTMA (All Pakistan Textile Mills Association), Provincial Governments, PSMA (Pakistan Sugar Mills Association), FPCCI (Federation of Pakistan Chambers of Commerce and Industry), PBC (Pakistan Business Council) and other trade and industry associations not clamouring to facilitate such living wage for their employees on priority while they themselves seek subsidy, protection and exemptions?

Economic diplomacy is required to bring relevance back to the country in the region and encourage FDI. We need to rethink our relationship with our neighbours and there are significant benefits in becoming part of the integrated regional energy and commercial grid.

The North South Gas Pipeline, ML-1 transporting Thar coal, IP (Iran Pakistan gas pipeline project), and refined products’ transportation by trucks, TAPI (Turkmenistan-Afghanistan-Pakistan-India) are just starters waiting to be explored thru small confidence building measures.

The ‘island” Pakistan provides connectivity for goods from same areas being passed onto China and Central Asia. Energy security requires aggressive development of Thar.

Thus, it is not that we do not know of solutions, have not undertaken policy measures but missing is focus on actions and why we let hopium continue to manage us by presenting old wine in new bottles, is mind boggling. It is probably because as a nation we are not demanding resolution or improvement to bring about efficiency in our governance system.

Yet the UN expects “modest economic growth” of 2% in Pakistan in 2024, which is expected to improve to 2.4% in 2025 whereas growth in South Asia is projected to remain robust at 5.2% in 2024. WOW!

But the projections in World Economic Situation and Prospects 2024 does not cause any debate or ripples in the county nor are we concerned at “weaker global demand will lead to slower export growth,” which should have been a wake-up call and cause for proactive policy actions.

Implementing successful structural reforms is no easy feat. Political resistance, corruption, and entrenched bureaucratic structures will all act as roadblocks. The new Finance Minister will need to build a strong political consensus, and ensure reforms are implemented efficiently to be truly successful.

And Finance, Law, Foreign and MoE Ministers need to prioritise and execute those actions that deliver minimum GDP growth of 7% with empowered local bodies.

In conclusion, it is time for unity, working together under the banner of ‘Pakistan First’ and not continuing endlessly as a “debating club”.

Otherwise, viva hopium.

(To be continued)

Sheikh Imran Ul Haque, "Ending hopium—II," Business recorder. 2024-04-18.
Keywords: Economics , Economic challenges , Economic diplomacy , Circular debt , GDP growth , IMF programmes , TDCP , DISCOS , HEC , SEZs , PIDE

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