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Photo Source: Dawn

Pakistan Reader# 501, 6 January 2023

Economic growth is unmet: Why?



A critique of the Charter of Economy

Bhoomika Sesharaj

On 5 January, Planning Minister Ahsan Iqbal, Power Minister Khurram Dastgir, Economic Affairs Division (EAD) Minister Ayaz Sadiq, Information Minister Marriyum Aurangzeb and Finance Minister Ishaq Dar said that PTI’s “White Paper” claims were “misleading” and that that they were based on “perception” and were not supported with evidence. This comes as Dar reiterated that the tax numbers and foreign exchange reserves were nearly finalised and that the shortfall in tax collection would total about PKR 270-290 billion in the next few months. He said that the country would be in “much better shape” by 30 June 2023 and that there is “no issue” in the ninth review of finishing the IMF programme. 

On December 19, owing to the government’s quagmire with adequately addressing political and economic challenges in the country, Dar reiterated the call for a charter of economy for the better management of policies and said that the “isolation” of the economic “realm” from politics is pertinent to preventing a crisis in the country. Preceding Dar’s prerogatives to commit to a stronger economic plan for the country, the Pakistan Institute of Development Economics (PIDE) called for the Charter of Economy grouped by different segments of the society and the political leadership of the country. It said that the “real issues” matter and said that political uncertainty was the “root cause” of Pakistan’s economic issues.  

What does the Charter of Economy say?
First, refocusing the parameters for economic growth. PIDE divided its charter into six broad themes: Governance for the 21st Century, Sludge and Deregulation, Economic Policy Focus, Developing Markets, 3Ts (Trade, Tariff, and Taxation) and Modernization. Under these themes, PIDE emphasised that the economic growth of the country is “not limited” to traditional economic indicators and that the involvement of a modern civil service and independent network organisations across the economy was important to lay out a bureaucracy with “digitization at the centre.” 


Second, economic policy reworking. The Charter stressed that there is an urgent need for an independent Planning Commission to be the “convergence” point for all the planning and development activities in the country. He said that the independency of the commission would lead to “better outcomes” which would fructify into efficient, collective and accountable economic planning in the country. The Charter also recommended that a Parliamentary Budget Office should enhance the budget-making process and that PIDE would support the initiation of five-year plans for “policy consistency and stable economic signalling.” 


Third, taxation, tariffs and trade. PIDE focussed on making a simple, progressive and “universal” income tax treatment to make taxation efficient and said that the tariff rates and lines should be rationalised and lessened in order to make the system more logically sound. The Charter also said that a “clear perspective” is imperative to operate broader guidelines and policy directives and that an “Export Cell” should be introduced to promote competitiveness “rather than spoon-feeding” for the next 15 years. 


Lastly, cities engineering growth. PIDE’s Charter of Economy also spoke about the “vertical, dense and inclusive” cities in the country and said that the “dead capital” in Pakistani cities needs to be “unlocked.” The Charter readily stressed that the cities need to be engaged with basic facilities like internet access to work out their full potential to “plunge into a modern progressive society.” 


Dar’s reassurances regarding the country’s stability by June 2023 sheds light on the economic turmoil that Pakistan has been facing that deters its sustained growth. The crux of the Charter of Economy reiterates the fluctuations in the economic indicators of the country and emphasises that the focus has to be long-term and that it must begin from somewhere.


How has the Charter of Economy evolved over time?

Dar’s vision of the charter is resounded by his lack of implementation. In a news conference post the budget in 2017, Dar urged the political parties in the country to “draw up” a common economic vision for 2018-2023, and said that the charter would “essentially mean political parties contesting elections would use a common manifesto.”  He said that the development of a common goal would disallow the capacity of voters to make discretionary decisions to elect a certain government and that an “alternative paradigm” should allow transparency and allow the rule of law to prevail in the country. Dar questioned the viability of the government’s active role in the economy and remarked that while development policies have varied approaches and outcomes, the attempt remains to reduce inequality and frame a policy that caters to all segments of society. 

Preceding his statements, in May 2017, Business Recorder Research proposed the “Fourteen Points of Charter of Economy” and included indexes like inclusiveness, transparency, economic diplomacy and governance and expressed that these points would not succumb to a similar fate to that of the Charter of Democracy. Similarly, in March 2019, the World Bank in collaboration with LUMS presented the “Pakistan@100 report” and spoke about initiatives that could bolster growth and productivity to achieve sustainable economic development in the country, followed by PIDE’s “Reform Agenda for Accelerated and Sustained Growth” in April 2021 and the World Bank’s “Pakistan’s Country Economic Memorandum, a roadmap to sustainable growth” in October 2022. 

The history of the charters that have been proposed in the last five years has outlined one incessant feature that Dar hasn’t been able to address since his advocacy for a charter in 2017: the dearth of an outline by the PML-N and the lack of a consensus of a common economic agenda between the parties in the country.  While the charter of the economy pleads to elevate Pakistan’s position to a formidable one, the deficiency in the decisions taken by the PML-N lay bare their idea of what a committed economic development plan looks like, or the lack of it. 

Why has the Charter of Economy failed to be a matter of priority for Dar and his government?

First, Pakistan’s growth decelerated by inadequate allocation. In October 2022, the World Bank published a report, “Pakistan’s Country Economic Memorandum, a roadmap to sustainable growth” and outlined the “distortions” that affected the way land and capital are allocated in the country. In December, PM Shehbaz announced a PKR 1,800 billion agriculture package to facilitate loans and inputs and said that provision of free inputs would “bring down” prices and electricity for tube wells. The package resounded what the World Bank discussed in its report. It said that the variance in direct tax rates and the narrowing growth potential the variance brings should enable subsidies and support prices for specific crops that would induce farmers to allocate land, rather than diversifying the subsidies into other crops which would embed less water and productional costs. The report extensively spoke about the “cascading” import duties which resulted in export substitution and said that the mismatch in duties incentives exposes the producers to larger economic challenges than it solves.

Second, the lack of an economic consensus. The charter of economy attempts to address the major challenges that Pakistan faces at the outset of the burden of economic and social challenges it is facing today. The charter, therefore, places a common goal for all the political and economic groups in the country to initiate a dialogue that would induce commercial interests to work for the furtherance of a common economic goal. PML-N spokespersons in the past have implied that the charter is “not in place yet” because the PTI leadership was “opposed to the idea.” The government, along with the PTI, represent nearly half of the legislature and by extension, half the voting population of the country. The absence of a common goal would risk the government and the PTI's potential supporters from businesses and groups alike and would dampen their prowess if the country faces a potential default in the future. 

Lastly, unchecked policies and the absence of accountability. Since Dar’s appointment as the Finance Minister on 27 September 2022, the country has experienced a fundamental change in its economic positioning. With staggering inflationary rates and inadequate fiscal space, Dar’s policies have left the country very little to deal with. The current ministry has delayed meeting the IMF for the ninth review of its programme, keeping in mind the aftermath of the floods that rocked the country early last year. Dar’s policies have left a widening interbank and open market rate that is understating the debt servicing system in the country and has created a foreign exchange shortfall in the country. Dar said that the finance ministry is not “responsible” for the outflow of dollars to Afghanistan and that “no single institution” can overcome the passage of currency without “cooperation.” 

Dar’s idea of economic stability is far from the reality that exists in the economy today. The backward nature of his policies, in context with the power and tax sectors in the country, has encouraged policies that have no fiscal viability, or discipline, and largely, risk sustained development and a full recovery of mishandled economic challenges.

References:

Saddam Hussein, “The charter we need,” The Business Recorder, 4 January 2023

Zaheer Abbasi, “Forex reserves to be propelled by ‘friends’: Dar,” The Business Recorder, 5 January 2023

BR Research, “Where is Dar’s charter of economy?,” The Business Recorder, 28 December 2022

‘Accelerated growth can pull country out of economic turmoil’,” Dawn, 26 December 2022

Anjum Ibrahim, “All is far from well,”  The Business Recorder, 2 January 2022

Idress Khawaja, “Charter of economy,” PIDE, 2017

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