Dr Ashfaque H. Khan, Dean and Professor, NUST, University spoke at seminar on “Economic Policy: What needs to be done?” organized by SDPI on late Tuesday. Syed Nazre Hyder, Senior Advisor on Economic, SDPI conducted the proceedings.
Dr Ashfaque gave a detailed presentation on the economic policy since 2000 to the present and often compared the present situation with the lost decade of 1990s. He said that challenges which we are facing today are the same that Pakistan faced at the end of 1990s decade. He said that we need to improve macroeconomic environment, bring debt situation under control, restore investor confidence, revive economic growth, and restore financial sovereignty. He further highlighted the strategies that needs to be followed a) introduce wide-ranging structural reforms; b) develop policies to improve macroeconomic environment; c) reduce ‘twin deficits’; d) reduce inflation; e) build foreign exchange reserves; f) maintain stability in exchange rate and g) continuity and consistency in policies.
He was of the opinion that 2007 was the turning point in Pakistan ’s economy. Due to political crises and instability and change of three governments, economy started going downhill and it never recovered from it till now. Similarly, on external front, unprecedented surge in oil, food and other commodity prices turmoil in international financial market, great depression II, and lastly, policy inaction. He also gave a detailed presentation on the achievements of government under his tenure from 2000 to 2007. According to him, Pakistan had joined the ranks of fast four growing economies in the developing world by 2007 due to sound macroeconomic policies and now tables have turned on Pakistan . In his presentation he explained the challenges to economy: higher food price, as a result of high commodity prices world over increased the inflation. Similarly, the higher oil prices raised oil import bill consequently worsening the balance of payments.
Reviewing the performance of current economic policy, he highlighted the “blunders” committed by the government. He stated that government has misguided people of Pakistan about the health of the economy. There were a number of irresponsible statement issued by the then Finance Minister. There were no Finance, Commerce, Petroleum and Health Ministers for six months in 2008. Government made yet another mistake by seeking $11.3 billion resources from the IMF. There was criminal increase in support price of wheat. The new NFC award did not take into account the capacities of the provincial governments to utilize the additional resources. Similarly, government also failed to deliver on the commitments with the IMF. Moreover, there was little or no consultation with stakeholders on VAT. Lastly, there is absence of credible economic team. His overall emphasis was that economy is not government’s priority. The government heads and the Finance Minister do not interact with the public, print or electronic media as much as they should. Hence, we get highly one sided debate loaded against Reformed GST and there is no one to give government’s viewpoint. Sound macroeconomic policy and curtailment in current deficit does not seem to be government’s priority. Had it been, there was no need to have over hundred ministers, advisors, and ministers of state and parliamentary advisors with ministerial status.
After presenting the comparative analysis of the two phases of Pakistan economy, he suggested a way forward. He said that economy must be brought at the centre stage. There is a strong need to implementing financial discipline by; a) tax system and tax administration reform; b) rationalization of current expenditure; and c) prioritization of development expenditure. He also emphasized upon bringing budget deficit down to less than 3% of GDP in the next three years (5.0% in 2010-11; 4.0% in 2011-12; 3.0% in 2012-13; and less than 3.0% in 2013-14 onward). He also suggested postponing implementation of NFC Award for three years or introducing binding constraint for provinces to generate targeted surpluses. He also highlighted the strong need for outright privatization/restructuring of Public Sector Enterprises. Similarly, he suggested that the problem of circular debt needs to be resolved through; a) energy audit of WAPDA and IPPs; b) withdrawing free electricity from WAPDA employees; c) strengthening of WAPDA as an institution. In order to combat the problem of inflation, he suggested freezing support price of wheat for the next two years at the current level. In order to manage an early exit from IMF, the size of the new IMF program should not be more than 100 percent of quota. He also suggested that Finance Minister must stay in the country, and talk to print and electronic media and communicate with private sector. Lastly, for a healthy economy, political confrontation and polarization must end.
There was heated discussion after Dr Ashfaque’s comprehensive presentation. One of the questions was why did his government not focused on growth generating sectors of the industry and agriculture rather than focusing on banking, stock exchange and consumer financing. He was also asked why the government under his tenure not implemented VAT in its true spirit and zero-rated VAT on five exporting sectors. He was also asked why he is recommending tax on agricultural sector now while his own government failed to do so in eight years.
Thursday, February 10, 2011
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