The way forward to revive the economy

ISLAMABAD:

Among the many challenges facing the new government, the most pressing will be to turn the economy around.

This would only be possible if the ills of the economy were identified and dealt with appropriately. Some problems can be solved in the short term while others require a longer period of time.

First, Pakistan should try to get off the FATF gray list urgently. Estimates suggest that our listing costs the economy at least $10 billion a year.

Since being gray listed in 2018, Pakistan has met 32 ​​out of 34 action points. Progress is being made on the remaining two items: investigating terrorist financing and prosecuting UN-designated terrorist groups.

Getting off the FATF gray list would remove a significant barrier to attracting investment to the country.

With her experience in foreign and economic affairs, Hina Khar, the former minister of external affairs, can be a useful resource person to coordinate and get us out of this nightmare.

Second, the National Accountability Bureau (NAB) should be abolished or reformed. Since its inception, the NAB has proven to be a major impediment to the country’s economic development.

The fact that Pakistan’s ranking in Transparency International’s Corruption Perceptions Index has deteriorated shows that the office has been ineffective.

A recent example of NAB’s incompetence is the case where Pakistan unsuccessfully paid more than $20 million due to a flawed deal with a shady international investigative agency.

Third, since 2016, when then-Chief Justice Saqib Nisar ruled that all financial, tax, or legislative decisions had to be approved by cabinet, decision-making has been painfully slow.

There is a need to legislate and empower relevant Ministries and Departments/Councils to make all routine decisions, as is standard international practice. In the absence of the necessary legislation, the audit department as well as the courts can raise serious objections to any decision taken without the approval of the firm and its committees.

Also, the bureaucracy would be reluctant to implement decisions that have not been approved by the cabinet.

Then there are other issues that may take longer but work on which should begin immediately.

The most important challenge would be to increase overall exports and thus close the large trade deficit, which is expected to reach a record high of $50 billion this year.

To improve this, trade, tariff and tax policies should be reviewed. We would need to normalize trade with countries in the region, including India, and conclude long-standing bilateral free trade negotiations with other countries.

This standardization would also save valuable foreign currency and make exports more competitive.

Now is an opportune time as all major political parties of the new ruling alliance and security forces are favorably disposed towards this change.

Currently, the government’s strategy to increase exports is to subsidize energy prices for the textile sector. It is essentially an energy export subsidy for a country with an energy deficit.

Instead of subsidizing energy for some and raising prices for others, the overall cost of energy can be reduced by improving the energy mix and using efficient power plants, as was done in 2015 -2018.

Unfortunately, many of these policies have been reversed. We are going back to using expensive fuel oil and favoring inefficient power plants.

Another daunting task would be to tackle the rampant inflation that is prevalent, especially in food prices, which have more than doubled over the past three years.

Covid-19 and the surge in global commodity prices have contributed to this to some extent. But that’s not all since our neighboring countries, India and Bangladesh, have managed to maintain relative control of inflation.

In most cases, the resulting scarcity and high prices have been caused by the failure of authorities to accurately forecast and monitor agricultural production. It is necessary to have a better forecasting system.

Stagnating productivity is another factor and a critical supply-side constraint, mainly due to poor quality seeds, unavailability of fertilizers at the right time and poor irrigation management. .

The current average crop yield in Pakistan is not even half of the world average. There has been a significant decline in agricultural production in general, not just food crops.

For example, cotton production in 2022-23 is expected to be around 6.5 million bales, compared to over 10 million bales produced in 2014-15. This decrease would mean that we may have to import over 5 million bales now, which will cost over $2 billion.

Reducing the government’s footprint by eliminating its role in wheat procurement would significantly reduce waste and increase productivity.

The recent imposition of sales tax on all agricultural seeds and fertilizers should be reversed immediately. In addition, more attention needs to be given to certification processes as low yielding seeds currently receive undue protection.

The writer has served as Pakistan’s Ambassador to the WTO and FAO Representative to the United Nations in Geneva.

Published in The Express Tribune, April 18and2022.

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