Economic revival
31 March 2024
Published in: DAWN
In 1992, Bill Clinton ran his campaign for US presidency on three slogans, one of which was ‘It’s the economy, stupid’. In the backdrop of the economic downturn of the early 1990s, Clinton’s focus on economic revival resonated well with his voters, and within three years, economic growth picked up. Ever since, the phrase ‘It’s the economy, stupid’ has been used extensively to emphasise the pivotal role of economic management in a nation’s prosperity.
In Pakistan today, the imperative of economic revival can hardly be overemphasised. For decades, we have been living beyond our means, collecting a mountain of debt along the way. Interest payments consume the bulk of our revenues, and perpetual loans are sought to run the government. Effectively, that means much of what the government does is with borrowed money. This is unsustainable; either we increase our revenues, or reduce our expenses — preferably both.
Pursuant to the agreement with the IMF, the government plans to tax the retail sector as part of its efforts to document the informal economy. This would certainly help broaden the tax base. Opposite my house is a supermarket frequented by so many customers that I have rarely seen the cashier desk without a queue before it. Yet, when it comes to paying taxes, this shop, like many retailers, is reluctant to enter the tax net. Our people need to realise that the roads we travel on, the public services we avail of, and the higher quality of life we desire can only be available if we pay taxes. An argument often made in response to the topic of increasing the tax net is that the revenue collected from the common man’s taxes is used by high officials of the government to finance their over-extended lifestyles. It is, therefore, important that while broadening the tax base, the government make an equally robust and visible effort to cut wasteful public expense.
However, we have yet to see any concrete step being taken to give credence to the government’s claims of belt-tightening. For instance, when the government announced cost cuts on international travel, one saw a long list of the categories of public office holders who would be entitled to travel business class. When we are knee-deep in debt, should these not be minimised? Similarly, many high-ranking officials use protocol cavalcades to move about; can cuts not be made here? The larger point is that austerity flows top down. As such, the surrender of a second car by the chief justice is a welcome precedent worth emulating.
We have yet to see any concrete proof of belt-tightening.
Meanwhile, the 18th Amendment, which devolved several subjects to the provinces, was a step in the right direction, but its implementation has left much to be desired. First, the federal ministries dealing with the subjects already devolved to the provinces have not been dissolved. Second, resources were not devolved by the provinces to local governments. Since living conditions in tehsils and villages have not improved, the common man is dissatisfied with the way the economy works in our country.
In a related issue, the NFC award adopted in 2010 increased the share of provinces from the net proceeds of divisible pool taxes to 57 per cent (2011-12 onwards) up from 45pc (2009-10). As debt obligations have continued to rise, the central government now finds itself severely constrained, and is left with no choice but to borrow or print more money. The NFC award needs to be reviewed, for which the provinces must cooperate because they have an equal responsibility to pay for the country’s debts.
A list has been in circulation of entities including loss-making enterprises that are ripe for privatisation. During the caretaker government’s tenure, one saw momentum in that direction. However, it is not clear how determined the new government is in shedding this heavy financial burden that continues to drain the treasury year after year.
There is a long list of urgent and important actions that the government must take. On top of the list are measures to arrest the galloping inflation, especially of food items. Given that we are a young country, generating employment opportunities should be a high priority. To that end, the governments should focus on facilitating information technology and microfinance. Industrialisation can also create jobs. For this, the creation of Special Economic Zones should be expedited, and the SIFC opened to private-sector investments.
These are big goals, but every step, however small, matters. The finance minister’s recent pronouncements, echoed by the prime minister, reflect the government’s intent to prioritise the revival of the economy. This nascent public confidence must not be shattered because there is literally no time left for business as usual. It is indeed ‘it’s the economy, stupid’ moment for Pakistan.
