Daily Times

In a short period of six months, the PTI government has presented another supplementary budget to promote export and investments in the country as stated by the Finance Minister (FM) in his speech on January 23, 2019. Both financial bills disappointed those who were waiting for significant structural reforms that are essential to bring the change promised by PTI in their election campaign. If we look at the changes tabled in this second amendment, we can see that the focus is supposedly on industry revival. Import duty on raw material and machinery has been reduced, the tax rate on interest income on bank loans taken by Small and Medium Enterprises (SMEs) is reduced from existing 39 percent to 20 percent. The ban on the purchase of cars by non-filers is removed, they can buy up to 1300 cc cars but with a higher tax on purchase. Super tax on non-banking companies is to be abolished from July 1, 2019. These are few amendments among many others that were presented by the FM Asad Umar. These tax reliefs will result in a loss of Rs. 6.8 billion net revenue, however, the targeted revenue by FBR remains unchanged at Rs4.398 trillion. This step is taken with a hope that boost in economic activities will compensate for the lost revenue. It is hard to say what was the agenda behind this second amendment, as the targeted revenue remains the same, perhaps the government aimed to be on friendly terms with business community. This could be the reason that the abolition of super tax on non-banking companies from July 2019 was also announced when it is going to be applicable after 5 months.

Given the current situation, it is fair to argue that PTI cannot bring all these changes overnight by waving a magic wand, but they need to start somewhere with a broader plan instead of twisting and twitching the existing system. It is not too soon to expect a feasible and reliable structural reform plan from this government. The job seems over-ambitious for a layman but that is the job of policy makers

When the economy needed changes in the fundamental structure, the government presented financial tweaks instead of structural reforms. Proponents of this government argue that our economy is in the ICU, and for now we just need to keep it alive and then later we can think about making major amendments. But they must not forget that if they maintain their focus only on short-term management of the economy, economic development will not be realized as it is a long term phenomenon, not to mention the uncertainty that these financial amendments brings in the market. Government should have mapped out their credible plan targeting structural reforms in terms of human capital development, social infrastructure and agriculture. Human capital development should be considered an integral part of export promotion policy; being endowed with the biggest youth population in the world gives us an advantage over other economies but till now this has proved to be a curse as we do not have skilled labor and suitable employment opportunities. Not everyone has to go to universities, vocational training institutes can help before it’s too late and this youth turn into an old dependent population. Now the question is what kind of vocational training should be given, for this government needs to identify potential future industries such as IT. For instance, textile industry evolved since the 1960s till first half of the 1990s and Pakistan became one of the biggest cotton exporters. Unfortunately, our economists still have to introduce our economy as a cotton exporter. It implies that in more than 30 years, we not only failed to develop other industries but we also lost our share in the global textile market due to energy shortage, modernization and increasing competition due to rapid globalization.

Many people have talked and written about the importance of social infrastructure that includes the education and health sector. Increase in health and education expenditure doesn’t indicate structural reforms that should ensure accessible and equitable services, however, an increased budget is critical to make these reforms. We will see the take of current government on this issue in 5 months when they will present the budget for FY 2019-2020.

Agriculture used to be the biggest contributor in our GDP and employment generation. Now it is one of the under-utilized sectors because we associated technological advancement with being an industrial economy. We failed to incorporate advanced technology and modern production techniques into existing production methods, which could be done partly by training small and medium sized farmers (the first structural reform discussed above).

Given the current situation, it is fair to argue that PTI cannot bring all these changes overnight by waving a magic wand, but they need to start somewhere with a broader plan instead of twisting and twitching the existing system. It is not too soon to expect a feasible and reliable structural reform plan from this government. The job seems over-ambitious for a layman but that is the job of policy makers. Now that they have observed the economy closely for a few months, we are anxiously waiting for them to map out their long term plan, as the renowned Urdu poet Mirza Ghalib says Kaun jeeta hai teri zulf ke sar hone tak or “who will live till you are finished fixing your hair”.

The writer is a Doctoral candidate at the University of Bremen, Germany

Published in Daily Times, January 29^th 2019.