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Tough economic decisions & fragile political mandate

Very few people may have actually experienced the moment of helplessness when there is a clash between the need for tough economic decisions and fragile and split political mandate of the government. The author has experienced it during his tenure as Chairman Federal Board of Revenue (FBR) and earlier during the Musharraf era. There was a will of the government to improve the situation however a fragile and split mandate prevented the government from taking tough decision as they were politically unviable. A glaring example of this helplessness was the government’s climb-down on the measure to register CNIC on purchases because of resistance by traders. This was an extremely effective measure to curtail the use of illegitimate money in business transactions but the government capitulated before the traders’ lobby to avoid the political chaos that was expected if there would have been strict implementation of this measure. This is only one example of the government’s response being directly proportional to the potential nuisance value of the other side. In other words, the higher the nuisance value the prompter is the government’s acceptance of their demands. Similar was the fate of the effort to obtain details of bank accounts for reconciliation of bank account information with tax information, etc.

Pakistan’s economy is heading towards an ‘anti-people’ mode that can lead to self-destruction because governments, whether civil or military, are not ready to take tough economic decisions, which can be beneficial for the people in the long run due to fear of unpopularity that could result in their ouster. In other words, successive governments are adopting a short-term approach to postpone the hour of reckoning by deferring the direly needed surgery as that will be painful and severe. One vivid example of such myopic compromise was the action during the dictatorial military government of General Musharraf when results of a business survey done by the government were never used for any practical purposes and sacks full of survey forms are still lying somewhere in FBR offices. Civilian governments are no exception and the best example is the ‘ping pong’ that is being played with privatisation of Pakistan Steel Mills and PIA. It is the author’s view that whenever someone is holding the reins of government in Islamabad his first priority is to keep everybody happy. The problem with the civilians is multiplied for the reason that they often enjoy a split mandate and at the same time they have to keep the establishment in good humour. The result is continued chaos and helplessness of the patient, which is the Pakistan economy that desperately needs a surgery and not palliative medicine.

Some primary tough decisions that Pakistan is necessarily required to take are listed below. This list is not a complete list but a starting point. These are actions that are imperative and must be taken. The question that is to be answered is whether any government, in the present structure has the strength to take these decisions:

1. Resumption of trade with India before any settlement of the Kashmir dispute;

2. Reduction in the size of the Federal Government and devolution of powers to Local Bodies. Completion of the process envisioned by the 18th Amendment;

3. Re-examining the size of conventional defence expenditure;

4. Abolition of support price for agriculture items;

5. Abolition or a substantial reduction in subsidy on petroleum, gas and energy for domestic and commercial consumers, i.e., correction of Energy Economics;

6. Privatisation of Discos and State-Owned Enterprises;

7. Enforcement of agricultural income tax;

8. Documentation of economy specially the retail and wholesale sector and unregistered manufacturing;

9. Regulations of banking system to the effect that all major accounts are necessarily required to be disclosed for all purposes;

10. Valuation of immovable properties and introducing laws for state acquisition at 10% plus declared price;

Every sensible person in Pakistan is of the view that aforesaid decisions have to be taken. However, we all know that these decisions will not be taken under regular circumstances. Experience in this regard shows that all governments in Pakistan are too weak to take these decisions. Unlike the general perception, the military government is the weakest of the lot because it lacks constitutional legitimacy, therefore it is hesitant to take tough decisions. The decision of the Musharraf government to not act upon the findings of the Business Survey is a strong case in point.

Leaving aside the present political turmoil, it is generally believed that no single party will be able to get more than 172 seats in the National Assembly in the 2023 elections and there will be a coalition government in the Federation after the 2023 election also. This is due to the reason that two major parties being PPP and PML-N are increasingly becoming regional parties and even PTI that has its support base in more than one province will not be able to muster that many number of seats. This will provide ample space to the people who do not want a real change in the economy and correction of primary errors or fault lines to enable them to continue their exploitation of the state and people of Pakistan. The military, unlike the general perception, is also not the answer even if they wholeheartedly support the political government. The author has seen this personally when dealing with traders’ strike against presentation of CNIC in July 2019.

In the light of the aforesaid stalemate which is resulting in gradual deterioration of all economic indicators there is a need for a broader economic consensus. There is a consensus on the validity of the actions required, however, the unanswered question is the manner through which such broader consensus can be introduced. The author coined the word ‘Charter of Economy’ in one of his lectures at the Institute of Cost and Management Accountants (ICMA) in the late 1990s which is now being adopted by every politician without any serious desire for action.

The only solution on this matter may perhaps be to insert a schedule in the constitution under the title of ‘Economic Plan 2023-2033’, making it mandatory for every incumbent government to undertake the requisite tough economic decisions. The right of the government to skirt around and avoid taking of such actions has to be constitutionally stopped. Many people may oppose this proposal on the basis of that this out of the box solution has not been implemented in other states. Politicians, judiciary, military and civil society may be on the same page as far as the need for such coercion is concerned but they may be reluctant to implement them. Politicians would have to show sagacity for agreeing on a ‘Minimum Common Program’ and amend the constitution for this purpose before it is too late. It is only a measure to strengthen the hands of a fragile coalition government in power.

Syed Shabbar Zaidi, "Tough economic decisions & fragile political mandate," Business recorder. 2022-03-31.
Keywords: Economics , Income Tax , Political government , Federal Board , Tax information , National Assembly , Steel Mills , Pakistan , ICMA , CNIC , PPP , PML-N , PIA , FBR

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