PAKISTAN’S short- to medium-term economic outlook appears bleaker than before and even the meagre suggested GDP growth rate target of around 1.9-2.3pc for the next fiscal year appears quite ambitious with coronavirus infections spiking rapidly and fatalities surging across the county following the relaxation in the lockdown almost a month ago.

The number of confirmed infections had reached 91,365 and death tally 1,899 by Friday as Pakistan moved up to the 14th position on the list of the nations most affected by the global contagion, overtaking China, the place where the disease had originated from in December. The government started to ease the virus lockdown to ‘protect the poor from starving to death and the economy from tanking’ at a time when many expected more stringent movement restrictions.

The expected surge in the disease over the next several months and its potential impact on the economy, according to businesspeople, requires the government to implement a post-Covid plan in the next budget, targeting growth, jobs, exports and investment while mitigating the impact of the disease on the vulnerable segments of the population. Such a plan, some say, should include significant fiscal and monetary policy response to create ease of doing business to help businesses and encourage fresh investments in the industry.

‘The budget itself is merely one instrument, among many, needed to stimulate a desperate economy. If it is to provide ‘more of the same’ then we can only expect more economic calamities’

The Pakistan Business Council CEO Ehsan Malik suggested that with limited resources the corona budget should target to help those most affected through sectors with the capacity to generate employment through measures that would make it cheaper and easier to do business. For example, reforms in the minimum tax on turnover, which taxes businesses unevenly, affects their competitiveness, discourages new investments and creates cash flow challenges, would significantly help the companies affected most by the health crisis.

In order to boost private investment – which has already dropped to 9.8 per cent in Pakistan compared to 21.5pc in India and 23.4pc in Bangladesh – Mr Malik proposed the restoration of tax credit on balancing, modernisation and replacement (BMR) in plant & machinery and industrial building, exemption from income tax and the general sales tax on import of plant & machinery for manufacturing, the removal of minimum tax on turnover for the first five years and when availing the tax holiday in special economic zones (SEZ).

Additionally, he wanted a reduction in the interest rate of 7pc on 10-year industrial loans and ‘plug and play’ facility for the investors at the SEZs.

The Overseas Investors Chamber of Commerce and Industry, which represents foreign investors in Pakistan, is also pursuing the government on tax matters mainly relating to the ease of doing business. “We recognise the measures taken by the government to help the vulnerable section of society and for easing pressure on distressed businesses, particularly the export and the small and medium enterprises (SME) sectors, despite limited fiscal space,” OICCI secretary-general Abdul Aleem told this correspondent.

“We believe the immediate need for the economy is business confidence-building measures through the ease of doing business and those promoting new investment measures to incentivise economic stakeholders, including potential local and foreign investors, to plan longer-term investment in manufacturing and service sector in Pakistan. For this investors require the government to execute – barring exceptional situations – a predictable, consistent and transparent fiscal policy framework and ensure its implementation, specifically assuring that taxation policies and incentives will be for the longer term.”

“The pandemic has exposed the weaknesses of the economy that was already struggling to recover from the crisis caused by fiscal and external deficits. The conditions are tough for everyone: the common people, businesses and government,” argued Syed Nabeel Hashmi, the chairman of the Punjab Industrial Estate Development and Management Company.

He advised the government to allocate sufficient funds for health and education sectors (local procurements conditions to apply). For the SMEs, he was of the view that the government should eliminate the tariff on import of basic raw materials and implement a cascading duty structure to support ‘Make in Pakistan’. Further, he said, construction of industrial factories should also be included in the already announced construction package.

Former Lahore Chamber of Commerce and Industry chairman Almas Hyder argued that tweaks in the country’s fiscal and monetary policy framework could bring about major changes and rev up economic activity in the post-Covid-19 period. “The budget focus should be on deepening ease of doing business policies and supporting new investment in the country.”

Some of the steps he suggested for the government to implement in the next budget included a 5-year tax holiday for start-ups, establishment of commercial and industrial zones in every city, provision of financial support to firms for training employees, provision of electricity and gas at doorsteps, simplification of labour laws, provision of energy at $0.075 a unit to all new establishments for three years and BMR facility for the SMEs at a fixed rate of 5pc.

Iqbal Z Ahmed, who has large business interests in the gas sector, thought the next budget offered a unique opportunity to the government for kick-starting the post-Coronavirus economic activity. “The budget itself is merely one instrument, among many, needed to stimulate a desperate economy. If the budget is to provide ‘more of the same’ we can only expect more economic calamities,” he argued.

He said the budget should provide an advantage to the local industry and consumers of the lower global liquefied natural gas prices as part of the economic stimulation package. He said the budget was an opportunity to remove energy sector anomalies. “For example, in the liquefied petroleum gas industry the government policy tilts heavily in support of its import rather than supporting local production.”

Like other businesspersons, he also called for a National Accountability Bureau (NAB) reforms package, which the government has been considering for some time because without it there would be only limited economic activity. “Also, government policy should be announced to provide comfort to bureaucracy and to encourage them to work and protect them from the highhandedness of the NAB. If these issues are tackled as part of the overall budget/economic policy the path to economic recovery will be set and we can expect good results.”

Published in Dawn, The Business and Finance Weekly, June 8th, 2020