In its third finance bill announced on Wednesday, the Pakistan Tehreek-e-Insaf (PTI) government has proposed a series of measures aimed at promoting investment in export-oriented industries. These include tax exemptions on income earned by banks from loans extended to small and medium enterprises and the agriculture sector, and reduction and abolishment (in some cases) of duties on raw materials. The bill also includes measures that are expected to boost the stock market, and promote the renewable energy, in a bid to gradually bring down the fuel import bill. These are welcome moves, and the sentiment expressed by Finance Minister Asad Umar that the aim of fiscal and monetary policies ought to be to rid the country of reliance on international financial institutions is also laudatory. The aim of these, and other such, proposals in the bill is to spur economy activity in the country, thereby, bringing down the current account deficit and solving the balance of payments crisis for which Pakistan has to frequently return to the lender of the last resort. As great as this strategy seems to be, it is important that lessons are learnt from past experience. Similar measures have been proposed by governments in the past, too, to encourage economic growth. However, the men (unfortunately, we still don’t have many women with equitable access to equity and debt finance) with money would either use the enhanced earnings to invest in lucrative ventures abroad, or indulge in conspicuous consumption of luxury goods like fancy real estate, sports utility vehicles, fine dining, and clothes made by expensive foreign brands. The bottom line is: successive governments’ attempts to accelerate economic growth by supporting men with money has not led to the promised trickle-down effect. This will be a challenge that the PTI government will have to face as it embarks on its plan to reform the economy. Another issue that remains a bottleneck in fixing the balance of payments crisis concerns the mix of Pakistan’s debt burden. The bulk of these loans are owed to domestic banks as opposed to foreign lenders. The government may need to do more than simply decreasing the tax rates interest income to encourage banks to lend to SMEs and the agriculture sector. It will have to get its economic managers to watch the situation closely to ensure that the intended effect is attained. These concerns become all the more important because the ‘economic reforms package’ announced by Umar will not have any immediate effect on the revenue side of the equation. The package contains no plans to fix structural imbalances in the tax collection system. This means that the untaxed elites will continue to enjoy their privileges without paying any in return to the public exchequer, like owning property beyond reasonable need without paying adequate property tax, and keeping large landed estates that aren’t productive from an economic standpoint either without paying taxes on the income earned on the produce. Why haven’t these aspects taken into account by successive government including the current dispensation has to do with the fact that many from among these elites are almost always a part of the ruling party. At some point in time, our democratic system will have to get mature to the extent that it can undercut the privilege of elites who benefit more than they return to the polity. * Published in Daily Times, January 24th 2019.