The Covid-19 pandemic is perhaps the most serious socio-economic crisis Pakistan has faced since the violent upheavals of Partition in 1947. This crisis will have long-term implications for Pakistan’s economy and its impact will reverberate for years, if not decades, to come.
So far, the Imran Khan-led government’s economic response has been exemplary, especially if one were to compare it with stimulus measures taken by regional economies like India and Bangladesh. However, to pave the way for an economic recovery, the government needs to be bolder and more creative in its approaches.
The nature and scale of the crisis means that it is a tremendous opportunity to restructure the economic foundations of the country and chart a new path forward. This can be done by making policy choices that push the adoption of new technologies, catalyse innovation, and empower the country’s citizens by boosting their skills. Doing so can help build a new economic contract between the state and its citizens.
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The first measure the government should consider taking is to reduce the GST to 0% on all digital transactions for the next 12 months. Over 90% of Pakistan’s annual GDP is consumption-based. Retail and wholesale trade represents a significant portion of the services sector, which is approximately 60% of GDP. Largely informal and non-compliant with the tax regime, this segment has failed to digitise and formalise itself for years. In fact, the former head of the Federal Board of Revenue failed in his attempts to force businesses to adopt cash machines and document themselves.
While the proverbial stick has not worked, the carrot may succeed in accelerating formalisation and documentation by incentivising digital transactions. This measure will do away with a regressive tax, boosting demand while forcing businesses to adopt digital transactions. A push from consumers to save taxes will mean that businesses will have no choice but to use digital tools and accept non-cash transactions. In the medium- to long-term, the data can help policymakers develop deep insights into consumer and business transaction patterns, identify big spenders who are non-compliant, and adopt a more targeted approach to promoting tax compliance. It may in fact also lead to public health benefits, given that the virus is here to stay and could be transmitted through currency notes.
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Another measure that the government should seriously consider is the elimination of import and customs duties on electric kits for vehicles, particularly two- and three-wheelers. Pakistan's economy is dependent on energy imports, which drain scarce foreign exchange reserves. At the same time, there is surplus capacity in the country’s power sector, and Pakistan’s cities suffer from some of the worst air pollution in the world. Incentivising the up-gradation of the vehicle fleet to electric across the country can accelerate the development of a next-generation transportation and automotive industries, increase demand for power, and help clean up the air.
Given that this will be a long and painful economic recovery, tens of thousands of young graduates and millions of low-skilled workers will struggle to find jobs in the coming months. This excess labour should be absorbed by the government through two flagship programmes: the first should hire recent graduates, particularly women, in a national literacy promotion programme for a period of two years. These graduates should be sent to every district in the country to conduct literacy and training programmes for people of all ages, particularly younger adults who were not able to gain a decent education during their schooling years. The second programme should hire blue collar workers in an environmental restoration programme that seeks to clean rivers, and restore Pakistan’s urban and rural environments. The PTI has already started hiring thousands of labourers to plant trees, and this programme should be expanded to other environmental restoration projects as well.
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Critics will argue that these are expensive projects that the state does not have the money to pay for. But this is not the time to worry about fiscal deficits and tax collection. With both the formal and informal economy coming to a grinding halt, it is imperative that the government take bold and transformative measures to restore economic growth. In the early 2000s, policy enabled the rapid adoption of CNG kits for vehicles; adopting electric kits is no different. Lady health workers are a case study in how a government programme can engage with women at the grassroots level to improve their health outcomes — the country’s polio programme relies on these workers to this day.
Imran Khan has always talked about transforming Pakistan and charting a new course forward. This pandemic has given him an opportunity to walk the talk. Creative and bold policy measures are the necessity today, and if executed with intent, they can chart a more sustainable and inclusive path forward for Pakistan and its citizens.
The views expressed by this writer and commenters below do not necessarily reflect the views and policies of the Dawn Media Group.