It is not that the government is not collecting enough revenues, it is that there are too many government expenses and leakages.
There is about Rs.1900Billion budget deficit.
The government expends about Rs.700Billion running the government itself, which is at about 10% of Gross domestic Product (GDP)!
Circular debt is about Rs.10000Billion (+). There is so much stealing of electricity and gas. There is no planning to make cheaper power to reduce circular debt.
Public sector losses loom around Rs. 1100Billion due to PIA, Steel mills, etc.
The current government borrowed USD16Billion within the last 16months that brought the debt to USD35Billion. This broke the previous records of borrowing. Of this borrowing hardly anything is being invested that would reshape the economy of the country. Almost entirely being used for debt servicing. It is expected that about USD11Billion more would be borrowed soon.
These are the areas where the issues reside.
High debt, high inflation, low GDP and high taxes will further exacerbate the poverty situation in Pakistan.
Unfortunately, the academician or economists from IMF manage the economy by the book meaning theoretical economics rather than intuitive economics.
They look at the data and see inflation but they don’t see that the actual inflation in the street cannot be controlled by State Bank controlled interest rates. Ours is supply-driven inflation rather than demand.
They tighten the economy by raising the interest rates which further slows down the economy causing higher unemployment.
There is a big uncertainty in Pakistani economy. We need long term policies with the change in the economic systems in real terms for the long haul.
Each government that comes, gives a gift of inflation. Poor suffer through unavailability of basic necessities and unaffordable prices.
None of the political parties that have attained governments, seem to have a real solution to the issue of uncontrolled inflation.
Importing tomatoes, onions, wheat, etc. may perhaps resolve the issue for a short period of time, but that is not a permanent solution.
The writer’s proposed Quasi-Socialist economic system is to enhance agriculture production, to ensure every Pakistani citizen has access to affordable food and has a job.
A quasi-socialist economic system with the government ensuring very basic needs of the poor and middle class of the society are being met without let.
This proposed economic system will render agriculture under full control of the central government; run with proper planning and strategy.
The central government will ensure all agro products are produced of enough quantities within Pakistan to meet at least the domestic demand. The government will purchase directly from the farmers and deliver straight to the consumers by cutting out the middleman who cause artificial inflation by hoarding or smuggling out and raising prices within Pakistan.
Under this system, capacity building methods will be adopted for different kinds of farming as well as goats, sheep, and fish, etc.
This proposed economic system will help reduce inflation, improve agriculture production, reduce input costs for industrial production, increase non-agro items’ production and enhance exports. This all resulting in further job creation.
Electricity, gas and petrol/diesel prices should be controlled and taxes eliminated. These are major factors for inflation in Pakistan.
This proposed economic system will help bring in industries for products being imported at high volume. Thus adopting inward-looking policies.
China Pakistan Economic Corridor (CPEC) and Gwadar Port should help develop markets in Central Asia, the Middle East, Europe and the Americas for production beyond domestic needs. Regional Cooperation for Development (RCD) road system should be re-activated as well for this purpose
China Pakistan Economic Corridor (CPEC) and Gwadar Port should help develop markets in Central Asia, the Middle East, Europe and the Americas for production beyond domestic needs. Regional Cooperation for Development (RCD) road system should be re-activated as well for this purpose.
State Bank interest rates should be kept at a 5 to 8% level to encourage investment thus help create jobs.
Under this proposed system every citizen must pay a very small amount of tax based on their income. This proposal will reduce the tax rate on businesses and individuals drastically however it will broaden the tax base which must be the main focus. The proposed tax system should be simple and straight forward. Tax laws need to be made better.
These steps will help reduce the undocumented economy which amounts to about 70% of the real economy. Technology must be introduced at the utmost level to help people be able to file taxes as well as the Federal Bureau of Revenue (FBR) to investigate the taxes filed.
FBR needs to work to change the mindset of the public. The public must gain confidence that their money is not being wasted and they will be more than willing to pay their fair share of taxes. The capacity of FBR to collect taxes must be enhanced.
The austerity measures by the government alone will not do any good. The adaptation of proposed political structure to make the government smaller is required to drastically reduce government expenses.
This proposed political structure will also reduce politicizing of everything and put the focus on the development of the country.
The heavy investment must be encouraged in small and cottage industries. New entrepreneurs should have the guidance of experienced business people. Every step must be taken to stop smuggling to encourage investment to bring industry in the country.
Commercial centers away from major cities need to be established to cap real estate related inflation and slow down migration towards cities which exacerbates issues in major cities.
Poor must be kept on top as a priority when making economic policies. Inflation must be kept at the lowest level by all means. High inflation cuts down on further establishment of industry and also production. This reduces employment and thus tax base. This is a vicious cycle that must be brought under control.
The proposed political structure and economic system will put Pakistan on track of long term political stability and economic prosperity.
The writer is a Political Economist