Pakistan Economy: A look back on 2017

Pakistan Economy:

A LOOKBACKon

2017As we now move in to an election

year, it is important that all politicalparties reach consensus on Pakistan's

economic reform priorities

By Dr Vaqar Ahmed

At the very start of 2017. the government seemedupbeat about the newfound stability in theeconomy. The managers at Ministry of Finance felt

confident that Pakistan will achieve a 6 percent growthrate by the end of the ongoing fiscal year. The narrative isslightly changing now and we understand that growthprojections are being revised downwards.

While the government missed its own target of fiscaland current account deficits for 2016-17. the first fivemonths of the current fiscal year 20 I 7-18 do give somereasons to celebrate. We observe that the government'stax revenues show a 19.5 percent growth which may help

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in bringing down the budget deficit to some extent.Similarly after a four year decline. merchandise exports inthe first five months of this fiscal year have grown by I 1.8percent. During the same period remittances have alsoshown 1.3 percent growth. The recent weakening ofrupee against major world currencies may furtherencourage remittances from abroad.

However this celebration is short lived as one looks atthe factors which continue to weaken fiscal discipline. Forexample. the government's expenditure has fast grownand in November this year the government crossed itsown limit set for the circular debt. which now stands atover PKR 421 billion. Such discretionary expenditureswhich are increasing at the cost of energy sector systeminefficiencies are bound to increase as we approach theelection year where more and more voters would need tobe appeased.

The government has also remained successful inavoiding yet another IMF bailout (at least for the timebeing) as a result of USD 2.5 billion raised through Sukukand Eurobonds. However. we understand that given thegrowing financing gap. this may not be enough and thereare voices from within the Ministry of Finance informingthat in order to arrange for debt servicing and importpayments. the government will consider another bondissue in the upcoming months. Perhaps procuring furtherdebt will become imminent given the pace at whichimports are projected to grow- as per PlanningCommission's Annual Plan. The July - October data showsa 26 percent growth over the previous correspondingperiod.

The year 20 I 7 was also a year of missed reformopportunities. It became more difficult for businessesparticularly small and medium enterprises (SMEs) to dobusiness in Pakistan. The doing business index rank fell to147 out of 190 countries. The critical factors responsiblefor fall in Pakistan's rank were difficulties in getting credit(particularly by SMEs) and growing complexity of

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Pakistan'stax regime. The uncertaintyof tariff policy and related taxes ontrade have also hurt business plans oflong term investors. The most recentexample is the arbitrary imposition ofregulatory duties, several of which arenow being rolled back on pressurefrom the private sector and consumergroups. The need to consolidatePakistan'stax regime across federaland provincial domains and toharmonize the tax system across thecountry also remained a pipelinedream.

The JointCoordinationCommitteeaCC) meetingof ChinaPakistanEconomicCorridor(CPEC) alsoended in areality check forthe governmentas several keyinfrastructuredevelopmentprojects weredropped byChina on accountof weakpreparedness ofPakistan side. The most notable loss isthe reduction in the number of specialeconomic zones (SEZs) on thepriority list. The province whichneeded the SEZ the most i.e.Balochistan remained unable toprepare the feasibility for presentationto the Chinese.

This year also saw the governmentweakening the capacity of regulatorybodies and in case of few of theseentities even curtailing their autonomythrough amendments in the law.Organizations such as Securities andExchange Commission andCompetition Commission of Pakistan(CCP) greatly suffered. In the case ofthe former,organization's reputationgot tainted when the top brass wasdubbed by several quarters (includingthe courts) as the handymen for theformer Finance Minister. In the caseof latter, the government for a verylong time kept CCP weak by notfilling up the vacant positions ofmembers. The commission remainedunderstaffed for most of 2017.

The Council of Common Interests(CCI) has also tried this year to clipthe powers of National ElectricPower Regulatory Authority (NEPRA)

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so that the regulatory body loses itsright to independently set end tarifffaced by consumers. The governmentwould also not be under anycompulsion to seek review of tariffslevied. Similar moves to clip powersof other regulators including Oil andGas Regulatory Authority, PublicProcurement Regulatory Authority,Pakistan TelecommunicationAuthority, Frequency Allocation Boardwere also seen.

In July of 2017, the State Bank ofPakistan allowed the currencymovements to be determined by themarket. Such independence was notliked by the Ministry of Finance and inhaste the government appointed anew Governor at the Central Bank.

economic reform priorities ofPakistan. One hopes that mainstreamparties will release their economicmanifestos well before elections sothat these can be debated by theconstituents and stakeholders. As theearly harvest projects under CPECcome to a completion, politicalparties need to think how bestPakistan can offer the benefits ofCPEC to its neighbors and in turnnegotiate deeper regional trade and

investment integration.This is particularlyimportant for improvingPakistan's economic tieswith Afghanistan, Iran,India and central Asia.Second, to increase thecompetitiveness of localenterprise, the cost ofenergy will need to bedrastically lowered.This is important ascurrently our export-oriented industriesface a much higherenergy cost incomparison to thecompetitoreconomies. Finally, inorder to encourage

formalization ofbusinesses, the current and futuregovernments must committhemselves to a fast-track reform oftaxation regime. In doing so,Pakistan's tax authorities will need toensure that distortions in taxesshould not stifle production activity

The year 2017 was also a year of missedreform opportunities. It became more difficult for

businesses, particularly small and mediumenterprises (SMEs) to do business in Pakistan. Ourease of doing business index ranking fell to 147

out of 190 countries. The critical factorsresponsible for this were difficulties in getting credit

(particularly by SMEs) and the growingcomplexity of Pakistanis tax regime

The candidature of the new Governor(who is still incumbent) waschallenged in the Islamabad HighCourt by 23 senators who informedthe court that the due process ofrecruitment of Governor was notcompleted.

As we now move in to theelection year, it is important that allpolitical parties have a consensus on

and all taxes should be designed oramended in a manner that thefairness principle i.e. rich paying alarger share relative to the poor isfully observed.

The author is associated withSustainable Development Policy Institute(www.sdpi.org) and tweets@vaqarahmed.

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