ISLAMABAD: Pakistan is once again on an economic growth trajectory, which must not be interrupted, according to former State Bank governor Dr Ishrat Husain.

In an analysis published in Development Advocate Pakistan by the UN Development Programme (UNDP) on Tuesday, Dr Husain said that external and domestic shocks will have to be managed in a way that this upward movement is not disturbed.

“The impending elections in 2018 do pose such a risk, and there would be many attempts and pressures on the ruling political parties for appeasing powerful lobbies and groups who would assure their support at the time of elections in exchange for favours to them,” the former SBP governor said.

Whether the present incumbents come back to power or their opponents are installed, the repercussions of populist policies in 2017 would be highly pernicious and detrimental for the economy, he said.

He suggested that thoughtful and prudent handling of economic management in 2017 and early 2018 would make the task of the incoming governments much easier and avoid the recurring pattern of approaching the International Monetary Fund (IMF) in the post-election period.

Having achieved macroeconomic stability, there are two available paths: either consolidate and build upon these gains to undertake policy reforms that would help in speeding up economic growth to reach six to seven per cent a year or fritter away these gains and pursue populist measures, appeasing powerful interest groups, backtracking on reforms and yielding to pressures, he said.

About the financing for development, he said the current situation is critically dependent upon prudent management of the external account. As remittances and oil imports are negatively correlated, the former would no longer be dependable if oil prices remain low. Oil-producing countries would cut down investment projects and retrench foreign workers, he said.

He said that if Pakistan is able to regain its lost share in the world market or attain the export-to-GDP ratio of 10pc only, it would be able to cut down its external borrowing requirements by at least one half and manage its external accounts without any stress. Increasing exports by expanding the product mix, penetrating into new markets and integrating into global value chains should, therefore, take precedence over all other policy measures, he said.

Dr Husain said Pakistan’s tax capacity is 22.3pc of GDP while it is collecting 11pc only. Sales and corporate tax rates can be brought down to provide incentives to the private sector for expansion and new investment.

The existing database of 3.2 million potential taxpayers should be used to bring them into the net. This can be possible if the tax code is simplified, tax administration made hassle- and corruption-free, audit strengthened and improved, tax facilitation made taxpayer-centric and alternative dispute resolution put in place, he said.

The former SBP governor stated that the investment by the government in infrastructure such as energy, roads and highways, railways and ports and human resource development, including skills training, financed by higher tax and non-tax revenues rather than domestic or external borrowing would reduce the cost of production in industrial and services sectors.

This cost competitiveness along with a favourable enabling environment for business would attract foreign direct investment flows and also increase exports of goods and services, he said.

He said that everyone in Pakistan seems to be concerned about indebtedness and rising allocations for debt servicing in the budget. The apprehensions about the rising debt, so widely discussed and disseminated in the popular media, act as a deterrent and dampener on business confidence.

While the agenda items such as China-Pakistan Economic Corridor (CPEC) and energy crises occupy the attention of policymakers, the empowerment of local governments does not appear on their radar at present. Empirical evidence depicts that the access of common citizens to their local elected representatives is much easier than members of the provincial and national assemblies.

Published in Dawn, July 26th, 2017