Budget week is finally here, but there are still more questions than answers. In the run-up to the tabling of the Finance Bill, Dawn is speaking to experts to seek their input on some of the more pressing challenges facing Pakistan’s economy and how they can be addressed.

Today, Ehsan Malik, CEO of the Pakistan Business Council, explains why — despite a gloomy outlook — they are hopeful of a positive change.

Q: How does the PBC view proposals being floated for structural reforms?

A: The deep flaws in Pakistan’s economy have compounded over decades to the extent that it will take considerable political will to fundamentally restructure institutions and processes and implement sustainable reforms. Building consensus for fundamental reforms will take time. Fortunately, no handouts are forthcoming to allow us to continue living beyond our means by importing more than we export and earn from remittances, or by spending more than we raise in taxes.

This, together with new leadership in the Ministry of Finance and a longer, larger, and more reform-centric IMF programme is the basis of PBC’s hope for positive change. PBC is also encouraged by the government’s resolve to restructure the Federal Board of Revenue (FBR). However, it is unrealistic to expect significant benefits from this in FY25. The expenditure side of the fiscal balance will be tested by the new government’s propensity to spend and the newly elected MNAs’ expectations for funds.

Q: How can the budget incentivise the integration of the informal sector into the documented economy?

A: Formalisation of the economy requires a carrot-and-stick approach. The cost and consequences of remaining outside the tax net must be raised through higher advance taxes on utilities, travel etc. Digitisation and reducing the use of cash will facilitate documentation. Restricting the purchase of cars and real estate to those who file tax returns is another useful step.

Q: How do subsidies to state-owned or affiliated enterprises (SOEs) affect private businesses?

A: When SOEs operate in the commercial space, they provide unfair competition to the private sector. Additionally, they provide poor service to users. The aviation sector is a case in point. With a disproportionate burden of taxes on a few taxpayers, saving a few thousand jobs in SOEs cannot be justified.

The term “strategic SOEs” has been rearing its head of late in a bid to avoid privatisation and waste more time and money on trying to restructure. The government has no business to be in business. The best way to improve their performance is to allow private sector ways of working and open up SOEs to competition. However, the government can consider retaining a minority interest in privatised SOEs to maximise its proceeds when they become more profitable.

Published in Dawn, June 10th, 2024