Addressing Pakistan's Economic Challenges: Customized Reforms for Stability and Growth
By Riaz Laghari, Islamabad, July 15, 2023
بلوں میں بل ہے، اپنے بل
!باقی بل بلیاں
(Nothing and no one but yourself can you rely on.)
Pakistan, like many other nations, faces distinct economic difficulties that call for focused and all-encompassing reforms. Pakistan may learn a lot from the experiences of nations like Turkey, Indonesia, Ghana, and Sri Lanka in order to chart its own course for economic stability and expansion. In this article, I will discuss recommendations for Pakistan, concentrating on important areas like energy resources, taxation, public procurement, agriculture, banking regulations, trade reforms, debt restructuring, decentralization, fiscal reforms, military reforms, financial stabilization, revenue metrics, wage bill, state-owned enterprise supervision, fiscal responsibility, tax reforms, liability management, energy pricing, state-owned enterprises, and so on.
Pakistan can start by giving the nationalization of its energy resources top priority by privatizing State-Owned Enterprises (SOEs) that are losing money. This will draw in international capital and create money that can be used to upgrade the nation's infrastructure, lowering its reliance on imports of energy. In order to improve energy security, Pakistan should develop its own energy resources, like shale gas and brown coal. Additionally, opening up the gas and electricity markets will encourage competition and increase energy sector efficiency.
By cutting corporate tax rates, Pakistan can emulate Turkey's success in luring investment in the area of taxation. This tactic can boost economic growth and improve the atmosphere for doing business. To accomplish fiscal restraint and maximize resource allocation, the government should concentrate on cutting spending on things like salaries and subsidies.
In Pakistan, a strong public procurement system, similar to those put in place in Turkey, can boost competitiveness and reduce corruption. The nation can promote transparency and accountability, resulting in more equitable and effective public procurement methods, by establishing a Public Procurement Authority to monitor procurement operations.
Pakistan's economy would benefit from incorporating some of Ghana's 2006 Agricultural Law's provisions into its agriculture sector. Pakistan can refocus resources on direct income assistance and specialized subsidies for farmers by eliminating minimum support prices and traditional agricultural subsidies. Putting an emphasis on agricultural research and development would boost the industry's productivity and sustainability even more.
To regain investor confidence in Pakistan's financial system, banking laws must be strengthened. The nation should improve the regulatory environment for banks, support nonpartisan lending policies, and make sure that bank boards are independent and qualified by studying best practices. These actions will support stability and encourage ethical lending practices.
Pakistan should model its trade reforms after those of Turkey and Indonesia. Pakistan can expand its export industry by focusing on particular regions and expanding the export markets for agricultural and medium-tech goods. Additionally, easing SMEs' (Small and Medium Enterprises) access to funding will aid in their growth and result in higher exports. The creation of a national brand will improve the nation's standing and competitiveness in world markets.
In light of Indonesia's experience, Pakistan may choose to consider debt restructuring options. Long-term domestic funding can help increase stability and minimize financial risk by replacing short-term foreign borrowing. Additionally, adopting a decentralized governance model can strengthen local governments and enable effective resource distribution based on regional needs, as Indonesia achieved with its Big-Bang Decentralization Program.
Pakistan can learn from Indonesia's approach to fiscal reforms, which are necessary for long-term economic success. Pakistan can lower its debt-to-GDP ratio by increasing non-oil and gas revenues. Revenue will increase when tax administration is improved, particularly with regard to personal income tax. Pakistan should maintain good financial management techniques and take caution when spending money on growth at the same time.
Similar to Indonesia's military reforms, Pakistan can also benefit from them. The roles of the military and the governance should be clearly separated, and there should be bo military intervention in the affairs of the state and parliament , which will maintain electoral neutrality.Police department must be modernised. A reliable and accountable governance framework will be promoted by these efforts.
Pakistan can address financial stabilization in the Ghanaian context through responsible budgetary measures. Spending less on things like salaries, transfers, and subsidies can help Pakistan reduce its public deficit and establish a more stable fiscal system. Revenue metrics will be improved by broadening the tax base by removing exclusions, increasing taxes on earnings and capital gains, and instituting VAT audits. A fairer and more equitable tax system will result from eliminating tax exemptions for State-Owned Enterprises (SOEs) and businesses located in free zones.
Pakistan should also concentrate on controlling its wage bill by enacting limitations on recruiting and pay increases for federal personnel. Ineligible employees can be found and removed through the use of biometric verification techniques and a thorough payroll audit, ensuring effective resource allocation.
It is essential for Pakistan to effectively oversee State-Owned Enterprises, as suggested in Ghana. Pakistan can enhance the performance of these companies by regulating loss-making SOEs and strengthening governance through oversight bodies. The additional strengthening of their financial viability would come from taking into account restructuring possibilities like bond issuances.
Pakistan can enforce fiscal restrictions and reduce yearly budget deficits by adhering to the principles of fiscal responsibility as described in Ghana's 2018 Fiscal Responsibility Act. Maintaining a surplus in the government's primary balance will support fiscal restraint and long-term economic stability.
Tax reforms in Sri Lanka have been successful in broadening the nation's tax base. To improve revenue collection, Pakistan could think about raising tax rates and eliminating exemptions. Similar to this, increasing VAT rates and instituting VAT audits can strengthen the nation's tax system even more. Eliminating tax advantages for telecommunications and private healthcare will make the tax system fairer and more egalitarian.
A useful resource for controlling public debt is Sri Lanka's Active Liability Management Act (ALMA). Pakistan can improve public debt management, lower financial risks, and boost overall fiscal stability by putting limits on government borrowing.
Reforms to energy pricing, like those seen in Sri Lanka, can help the economy of Pakistan. Pakistan may allocate resources more effectively in the energy industry by switching from subsidies to automated gasoline pricing systems. Long-term energy sustainability will be aided by preserving fuel tax revenue and implementing required price modifications.
Pakistan should also concentrate on enhancing the administration of State-Owned Enterprises through more compliance and openness, as seen in Sri Lanka. Pakistan can improve the performance and economic contribution of its struggling SOEs by instituting reporting procedures and creating restructuring plans for them.
Pakistan can take a lesson from Sri Lanka's experience in terms of monetary policy. Maintaining a restrictive monetary policy stance and making price stability the central bank's top priority will aid in managing inflation and fostering macroeconomic stability.
Finally, in order to combat excessive volatility, Pakistan should think about creating a flexible exchange rate mechanism. Pakistan can improve its competitiveness and assure more efficient management of its currency by moving toward a market-based exchange rate.
The Nine Recommendations for Stability and Self-Reliance in Pakistan's Economy:
1.Privatize State-Owned Enterprises (SOEs) to draw in international capital, use profits to upgrade infrastructure, and lessen dependency on imported energy sources.
2.Reduced business tax rates will encourage investment and save money on government salaries and subsidies.
3.Implement a strong public procurement system to boost competition, accountability, and transparency.
4.Prioritize direct financial assistance and specialized subsidies for farmers while putting an emphasis on agricultural research and development.
5.To regain investor trust and encourage ethical lending practices, tighten banking rules.
6.To increase trade competitiveness, target specific regions and diversify export markets for agricultural and medium-tech products.
7.In order to minimize financial risks and maximize resource allocation, take into account long-term domestic funding and decentralized governance.
8.To boost revenue collection, improve tax administration, enlarge the tax base, and remove exemptions.
9.To encourage stability and sustained growth, improve the administration of state-owned enterprises, energy pricing, and monetary policy.
Pakistan can seek to achieve economic stability, independence, and long-term prosperity by putting these recommendations into practice.
In conclusion, Pakistan can gain from examining and adapting the experiences of other nations dealing with comparable economic difficulties. Pakistan can move forward with economic development by implementing targeted and long-lasting reforms in the following areas: taxation, public procurement, agriculture, banking rules, trade, debt restructuring, decentralization, fiscal management, military reforms, financial stabilization, revenue metrics, wage bill, state-owned enterprise management, fiscal responsibility, tax reforms, liability management, energy pricing, monetary policy, and exchange rate adjustments. These suggestions are meant to help Pakistan become self-sufficient and prosperous by eliminating dependency on outside programs like those provided by the International Monetary Fund (IMF).
PS: Adopt self-reliance as a powerful force to realize your full potential.
“Ne te quaesiveris extra." (Do not seek for things outside of yourself)”-Ralph Waldo Emerson, Self-Reliance
