Daily Times

For any political party to come into power, economy is the key area where majority of the focus lies. Political party comes up with its own economic team to manages the system and bring most of the welfare concepts in line with the policy framework.

Pakistan Tehreek-e-Insaf (PTI) led government while coming into the power brought in its own team of economic managers to plan growth and development in the country. It has been observed that investment to GDP and saving to GDP has been the positives of economic planning. Contrary to this from 2018 till to-date when one looks into the economic targets being set initially using certain definition and criteria with follow-up revisions are not achieved.

First and foremost, thing to look into is the growth target which for 2019-20 was set 4%, government ends up with -0.38%. Even though there was stability in the system through resource mobilization and IMF led program. Let’s analyse factors which has led to negative growth. First thing is to look into the planning paradigm which has remained unclear since this government has taken over. Government has been seen to have many people messing up with agenda which thus led to changing priorities.

The up-coming budget government should focus on value chain and information technology in agriculture, services and manufacturing sector with key focus on use of new ways and approaches to scale up the industries

For betterment of the economy, focus of the economy mostly relied on slow down of the system through reduced imports thus leading to shrinking of current account deficit, remittances and borrowings. Thus, it can be said that government’s development priorities changed and current development agenda was lacking vision. This can be further viewed from the lens of changings within governance system as well (with the change of ministry, there is a change in priorities thus performance goes down).

Secondly, as Pakistan’s economy has been seen dependent on agriculture, services and manufacturing sector thus making them growth indicators as well also contributed to the negative growth. Agriculture stood at 2.67 percent against targeted 3.5 percent, industries remained negative -2.6 percent against 2.3 percent and services sector remained -0.6 percent against 4.8 percent.

While analysing factors that have resulted into the missing targets it is important to look into the fact that period from March 2020 till to-date has seen global economic slow down because of global pandemic. Thus, economy slowed down and shrunk over this period. Besides Covid-19, other factors were primarily linked to planning for resources, utilization of resources, disconnect between the policies at federal and provincial level as well as disconnect between governments at federal and provincial level.

Similarly, as can be seen that Pakistan’s economy is import led and debt driven, reduction in the imports has also been one of the factors in reduced growth in industrial sector. Because of this reduction in imports, there has been low output thus also leading to low exports.

Another challenge in achieving growth targets was the conditions and policies taken-up by the government in the outgoing fiscal year. To meet the revenue targets, government tried to document the economy through various means such as ID card condition on higher transaction, adjusting taxes and making compliance more rigid with tightening the regulatory system.

Such measures including low imports as were tightening up the system with low or no space given to businessman, thus business halted.

Further, looking into the Covid-19 situation it can be seen that priorities of the government changed and to facilitate the sick industries it had to come up with incentivized packages and also divert money towards more social safety net programs. Government announced extended and high-volume program for social safety net while depending upon money in circulation and money coming in from abroad through various means, facilities for small, medium and large-scale industries in the form of tax reductions and monetary packages while involving central bank.

Government though announced packages but was not able to connect the dots for example incentives offered by government through central bank, other banks were hesitant to extend those facilities because of no incentive present for them. This thus made it difficult for government to record the positive growth as offers made are not translated into the system.

As budget is around the corner, government need to redo the strategy for development and look for economy within and post covid-19. To see the positive trajectory in growth in industrial sector, first and foremost thing to do is to incentivize the manufacturing sector as this pandemic has opened new doors for industries for example preparation of Personal Protection Equipments (PPEs), pharmaceutical products, surgical tools and ventilators.

Beside incentivization, government also need to focus on the working structure and system within the industries and for this purpose structure of the industries also need monetary and technology-based incentives which should be included in the budget process.

Further there is need to bring in harmonized tax structure and more reliance should be on direct tax system including number of tax administrative units. Also, there is need to look into the structure of indirect taxes specially withholding taxes which are high in terms of number.

Another thing which government need to look upon is the continuation of policies and not bringing in changes on short intervals in its line departments. This will thus help in smooth policy planning thus this will lead to the effective budget making process.

Also, in the up-coming budget government should focus on value chain and information technology in agriculture, services and manufacturing sector with key focus on use of new ways and approaches to scale up the industries. Beside scaling up the sectors, there is need for allocation to capacitate the system i.e. capacity development of human capital involved.

The writer is associated with Sustainable Development Policy Institute and Beijing University of Technology