WHILE virtually no progress has been made towards meaningful reforms, one can witness a lively, escalating national debate on a wide range of agitating issues with the broad active participation of scholars, economists, think tanks, fiscal experts, media analysts and government officials on how to achieve fiscally balanced, inclusive and sustainable development.

With no durable solution for critical issues in sight, a consensus was reported at a forum last week that reforms should start with restructuring and resizing of the government to reduce its presence in the economy.

The size of the government has increased by more than three times in the last couple of decades, Federal Minister Fawad Hasan Fawad informed the ‘Third Prosperity Forum’ held on November 27, adding that this is unsustainable. In fact, there are examples of countries that have overcome economic crises at a quicker pace by first rightsizing the government.

All speakers at the forum said reforms should be complemented by restricting public spending and focusing on revamping the taxation system by reducing the number of taxes to broaden the tax base.

Reforms should start with restructuring the government to reduce its presence in the economy

To quote Mr Fawad, the taxation system not only incentivises people to stay out of the tax system but also contributes to de-corporatisation. The World Bank estimates the regressive tax exemptions cost Pakistan up to one-third of the total revenue every year.

Former State Bank governor Dr Shahid Hafeez Kardar says wasteful expenditures on low-priority and poorly designed projects have made debts unsustainable. Borrowing is not harmful if utilised in productive activities and generating assets.

He says Pakistan’s gross public debt is 667 per cent of the revenues, and external debt is 232pc of exports. To overhaul the economy requires rationalisation of government expenditure.

The International Monetary Fund deems Pakistan’s Public Sector Development Programme ‘unaffordable’ as its total cost of Rs12 trillion will require over 14 years to complete approved projects. Uplift expenses slumped to Rs76 billion, 8pc of the annual budget in four months of the current year, contrasting with the Rs301bn authorisation under the Public Sector Development Programme 2023-24.

According to the National Accounts Committee (NAC), the revised GDP growth rate for FY23 was negative 0.17pc against provisional growth of 0.29pc. NAC has, however, approved a provisional 2.1pc GDP growth for this fiscal year.

The World Bank Vice-President for South Asia, Martin Raiser, recently warned that “a failure to achieve growth would aggravate the distribution conflicts and lead the brightest to leave the country”. Muddling through this crisis and maintaining the economic status quo is a risky proposition, he added.

To catalyse authentic progress, particularly in the industrial sector, as certain countries have done, experts suggest that policymaking should embrace a broad spectrum of voices, incorporating perspectives from practitioners, academics, economic think tanks, sustainability experts, labour unions, and technology and innovation hubs.

In a nutshell, policymakers should take note of all voices, particularly those of the voiceless. And that research on critical issues done by domestic organisations deserves more serious consideration.

It is also pointed out that there has been a deviation from the central function of governments with regard to the provision of public goods and services.

As per noted scholar and analyst Faisal Bari, there is not even any conversation about the much-needed, far greater political, economic, social, and institutional reforms.

The lively national debate has to be seen in the backdrop of important observations by two international analysts.

To quote scholar Harold James, instability destroys authoritarian and incompetent governments. In analysing mass protests, David Wallace-Wells, columnist at the New York Times magazine, observes that while none of the mass movements can be described as an unequivocal triumph, they also do not really fail. Mass protests shape the world seismically — including by making way for agitations to come.

In this context, one can see the unprecedented upsurge in worldwide mass protests, with a substantial number of Jews also participating, against Israel’s massacre of Palestinians that, coupled with brief armed intrusion by Hamas in Israeli territory, has revived the two-state solution, thought by many to have become dormant.

In the case of Pakistan, the fallout of PTI mass agitation and current high inflation cannot be ruled out in the approaching elections. A deeply divided administrative setup will make manipulation on the polling day difficult if the voters’ turnout is massive.

No doubt, the electable(s) are a major problem in politics, similar to the oligopolies in economics. Oligopolies rig the market and stifle the growth of a competitive market economy. Electables indulge in pre-poll manipulations and rig the elections.

The recent Planning Ministry’s report showed that 36pc of total development spending in four months, or Rs27.2 billion, was allocated to parliamentarians’ schemes.

Critics say major parties have mastered the art of political patronage to create small to large pockets of support among the voters through local networks kept together by the state funding of development in the constituencies.

However, a genuine electorate mandate is necessary for political parties to avoid political instability. Given the changing ground realities, analysts emphasise that mainstream political parties should craft realistic manifestos to resolve multiple crises and ensure that the pledges made to the voters are not broken.

Published in Dawn, The Business and Finance Weekly, December 4th, 2023

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Rightsizing the government and revamping taxes

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04.12.2023

WHILE virtually no progress has been made towards meaningful reforms, one can witness a lively, escalating national debate on a wide range of agitating issues with the broad active participation of scholars, economists, think tanks, fiscal experts, media analysts and government officials on how to achieve fiscally balanced, inclusive and sustainable development.

With no durable solution for critical issues in sight, a consensus was reported at a forum last week that reforms should start with restructuring and resizing of the government to reduce its presence in the economy.

The size of the government has increased by more than three times in the last couple of decades, Federal Minister Fawad Hasan Fawad informed the ‘Third Prosperity Forum’ held on November 27, adding that this is unsustainable. In fact, there are examples of countries that have overcome economic crises at a quicker pace by first rightsizing the government.

All speakers at the forum said reforms should be complemented by restricting public spending and focusing on revamping the taxation system by reducing the number of taxes to broaden the tax base.

Reforms should start with restructuring the government to reduce its presence in the economy

To quote Mr Fawad, the taxation system not only incentivises people to stay out of the tax system but also contributes to de-corporatisation. The World Bank estimates the regressive tax exemptions cost Pakistan up to one-third of the total........

© Dawn Business


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