Managing economy

Courtesy:- M A MALIK

Economic management of an economy is the most arduous assignment - owing to the socio-economic complexities and the linkages of the economy with the outside world - that the modern governments have to handle. Development of economic, commercial and trade policies by the government, monetary policy choreographed by the central banks, and budgets are the tools that are employed for economic management. 


Economist and Economic managers around the world are unanimous in their view that for the health of an economy and ensuring a sustainable growth, a broad-based and equitable taxation system having a greater reliance on direct taxes is absolutely essential. Unfortunately, however, the taxation system in Pakistan is bereft of all these ingredients. It is neither broad-based nor judicious. What a shame that in a population of more than 180 million only about 2.0 million pay taxes. 

The narrow base of revenue collection in the face of burgeoning expenditures for development, defence and other unavoidable expenditures in the social and administrative domains, met through borrowing from the international institutions, friendly countries and the banking system within the country has been instrumental to ever increasing budget deficits. The current budget deficit, therefore, is a cumulative effect of this undesirable practice over the last six years. It is however heartening to note a paradigm shift in the economic management of the country by the present government in recognition of the economic compulsions and ground realities tinged with an irresistible sense of fairness and connectivity with the masses. The emphasis has been laid on broadening the tax base, documentation of the economy and direct taxes despite stiff resistance by the opposition parties and the political consequences for the ruling party. Imaginative policies in agriculture and industrial sectors and a combination of fiscal and monetary measures in tune with the existing realities with due emphasis on future prospects have produced tangible results over the last four years despite a host of debilitating indigenous and extraneous factors beyond the control of the government. 

A glance at different verifiable indicators will perhaps be in order to corroborate this success story. When the PPP regime assumed power in 2008 the stock market index was below 5000 mark which now stands at 15250. PKR, which was around 63 to a dollar, has stabilised around Rs 94 despite turbulent world financial environment. Foreign exchange reserves went beyond US $18 billion as compared to US $12 billion in 2008. Exports have increased from US $18 billion to US $25 billion due to the textile policy put in place by the government and a positive response to this initiative by the business community particularly the textile industry. Budget deficit has been brought down to 6.5% from 7.6%. The government has successfully negotiated duty-free market access for 75 items, mainly textile products, to the EU that is likely to enhance our exports by US $10 billion. 

Free market mechanism enforced by the government in the agriculture sector has been instrumental to an increase of Rs 800 billion in the income of farmers during the last two years which is reckoned to be equal to over ten years net income of the growers; a step that has benefited mostly the farmers at the grass root level. Similarly, cotton production has touched 15 million bales - the highest in our history - and the incomes of the cotton growers have also registered an increase of Rs 500 billion during the last two years. Tax revenue has almost doubled and is estimated to be more than Rs 2.3 trillion in the current financial year. Inflation has been brought down to single digit. The discount rate has been reduced from 12% to 10.5%. The measure will promote investment leading to creation of more jobs for the workforce. 

Challenges in the energy sector are being tackled on a top priority basis. The government has already added 3500MW of electricity to the system and another 2000MW is likely to be made available in the next two years. Projects like Bhasha Dia Mir Dam and Neelum Jhelum have been nudged into action. Tarbela Fourth Extension hydropower Project with an outlay of US $840 million has been negotiated with the World Bank to facilitate a sustainable expansion of electricity generation. The venture, envisaged to be completed by 2018 will enhance power generating capacity of the country by 1410 MW. Similarly 500 mmcfd gas has been added to the system and another 400 mmcfd will be added during the current year. The government is also striving for the implementation of trans-regional project like TAPI and Iran-Pak gas line. 

While focusing on rectifying maladies afflicting the economy and evolving development strategies, the government did not lose sight of the distributive aspect and poverty alleviation. Schemes like BISP under which Rs 138 billion has been distributed and which is likely to be expanded through US $150 million assistance from the World Bank, Benazir Employees Stock Option designed to give 12% shares of the state-owned enterprises to the employees, Benazir Green Tractor Scheme and an unprecedented raise in salaries and pensions given to the government employees and pensioners are reflective of the unswerving commitment of the government to eliminate poverty. 

Finance minister Abdul Hafeez Sheikh and his team deserve unqualified accolades for surmounting the dilemmas of managing the economy, producing such encouraging results in the face of heavy odds and showing the courage and determination to change the old economic culture and putting the country on a road to sustained economic growth and social justice. 

Raise in the salaries and pensions of the government, increase in the allocation for the schemes in the Social Security Net, provision of sugar and atta (flour) on cheaper rates through Utility Stores and enhancing the slab for taxable income from three hundred thousand to three hundred fifty thousand, will provide adequate relief to the poorer sections of the society. 

In regard to nudging growth process, the government has allocated Rs 873 billion for the PSDP as compared to Rs 730 billion last year. The focus on tackling the energy crisis and improving the communication infrastructure are also steps in the right direction. The contemplated privatisation of Public Sector Enterprises (PSEs) is an imaginative and realistic decision that will save the government Rs 300 billion that it is spending annually, on running them. Another very prudent initiative in regards to encouraging investment and improving job scenario in the country is the decision to allow five years tax holiday to the investors who set up new industries without borrowing from the banking system. 

The budget may not have fulfilled the expectation of many as is usually the case with every budget, but realistically speaking, in the present economic environment, the government has indeed taken very courageous and people friendly decisions that will show their real impact in the times to come. 

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