Diffusion of authority
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By design or default, the persisting fiscal and external sector stress over decades has led to the empowerment and dominance of finance ministry in policymaking. This has made matters no better, if not worse.
According to the Special Advisor on Reforms and Austerity Dr Ishrat Husain, the finance ministry is ‘almost exercising veto’. This “has given rise to short-termism and excessive preoccupation with the sole objective of balancing the books without realising the impact on long-term development goals”.
The PTI-led government is now moving to clip the finance ministry’s wings under its project titled ‘Pakistan goes global: an initiative for a global technology-driven Pakistan’.
Four subjects — investment, industry, production and commerce will be dealt with an integrated approach to ‘enhance the effectiveness of policy reforms.’ For this to happen, the relevant ministries and the Board of Investment will be amalgamated into the most important outfit responsible for economic growth.
The National Competitiveness Council will provide thought leadership and steer implementation of specific activities
The new integrated ministry will work under the umbrella of proposed National Competitiveness Council (NCC), which will be ‘empowered with an overarching and cross-cutting mandate for designing and implementing competitiveness interventions both at the federal and provincial level’. The Council’s dedicated secretariat will be located in the PM’s office.
The NCC will provide thought leadership and steer the implementation of specific activities proposed to be undertaken through the project. It will institutionalise coordination and collaboration among the federation and the sub-federations for the promotion of trade, investment and small and medium enterprises’ capabilities.
The project has been submitted to the World Bank for evaluation and its arm — International Development Association — for a loan of $350 million. A World Bank appraisal mission is expected to come to Pakistan in July.
An indication of these reforms was given by the prime minister’s advisor on reforms in a recent article dwelling, among other things, on the sweeping powers exercised by the finance ministry.
He wrote: the government’s chief economic advisor (expected to provide input for development strategy), has been reduced to an ‘almost peripheral position of producing the annual economic survey’.
In his view, the correction course lies in providing the Ministry of Finance and the Planning Commission with the right staff, skills and incentives. This should be followed by the devolution of responsibility of sectoral policymaking to concerned ministries.
Each ministry dealing with economic and social development and their counter departments in the provinces should have an economic advisory cell headed by a qualified professional. The role of the Planning Commission should be that of a think tank.
To balance the books, the Ministry of Finance often resorts to questionable means to raise tax revenues. One such example is of tax amnesty schemes, following one after the other with increasing frequency.
No less than five amnesty schemes have been announced over the past 11 years, rewarding tax evaders and penalising honest tax payers. The sixth one is now awaiting official announcement.
This seems to be setting a new norm in taxation policies, hampering evolution of a robust tax culture, and weakening the writ of the state. Yet enough revenues have not been raised, resulting in accumulation of unsustainable debts, to mange fiscal deficits.
Going by the experience of social democracies such as in some Scandinavian countries, laudable governance with a bias for common good encourages voluntary tax compliance.
Back to reforms, Dr Ishrat Husain has also shared with the donors the government’s plans to eliminate colonial concept of ‘Superior Services’ which is to be substituted by equality among all cadres and non cadres of public servants. Initially four streams or clusters are to be introduced to ensure that the candidates with specialised qualification join the specialised stream.
The objective is to get the right inputs from institutions for formulating sound economic policies and build up effective administrative machinery for speedy implementation of policies and programmes.
Nevertheless, the move to sell the idea — ‘Pakistan goes global’ — needs serious consideration for institutional reforms to succeed as the ground realities do not tend to support such an option at this point of time.
It may give an odd signal to foreign investors coming as it does at a time when many countries, including Pakistan, have turned protectionist after the global financial crisis of 2007-2008. There is also talk of another global economic crisis in the making with reduced options available to tackle it.
Pakistan’s export-oriented industrialisation has lost some of its lustre though supported by massive devaluation and huge subsidies. Despite corrective measures, the economy has a strong problematic import-oriented segment.
The CPEC-led industrialisation is beset with many difficulties with no noticeable progress in setting up special industrial zones with required infrastructure facilities and supporting financial fiscal package. Slogans such as’ Pakistan goes global’ should have legs to stand on and building up production and supply chains alone will not work.
As indicated by chronic trade deficits, balance of payments problems in many countries, and piling up of unprecedented level of global debt, the future of globalisation lies in international cooperation that helps build self-reliant economies.
Towards that end, an integrated approach to tackle issues in investment, production, industry and commerce is likely to help. But for this, the primary responsibility rests with domestic economic agents.
Published in Dawn, The Business and Finance Weekly, May 6th, 2019
