We have seen a transition of
government from one hand to another (2008-2013) with the continuity of same
policies with same but worst crises and challenges for the new government of
Nawaz Sharif. The new government will have to come up quickly with economic
policies to manage with national economy suffocated by huge debt burden.
The new government economy managers will hold the key to its success or failure.
Economy crises, serious financial crunch, energy crises, inflation, foreign debt
burden & stagnant exports would need serious attention. There is a tendency to
look all these issues in isolation from all the politics and Nawaz sharif
upcoming prime minister of Pakistan have said that we need to take on all the
crises beyond politics.
Energy crisis in Pakistan is a huge issue and quick fixes are not possible
(except import of electricity and oil from the Gulf countries and Iran) as we
have seen last government have invested large amount on Rental power projects
but result was zero. Other then energy crises, Low agricultural productivity,
narrow tax and export bases, trade policy distortions, and big government
non-development expenditure are among the major reasons why the government has
not been able to address these issues for a number of years.
Another big threat to new government is law and order situation in Pakistan.
This is the phase where government need to stand and decide to talk with
Talibans the government standing on law and order crises would base on foreign
policy. They need to develop relations with all countries especially USA on
equality basis. The leadership must decide now whether to come out this war
against terrorism or not. This would be a big challenge for upcoming government
as Nawaz sharif said we will talk USA to stop drone attacks in Pakistan because
this is against the soveranity of Pakistan.
Three E Policy:
Economy, Electricity & Exports
Apart from severe challenges the main focus should economy, electricity and
exports. Economy is suffering from huge debts, the foreign reports illustrate
that if we will not take on economy crises might possible that the rupee will
collapse. There is no electricity in Pakistan and due to this industry has been
suffering and exports are declining day by day due to shortage of electricity
and gas to industry.
The government need to privatize big departments (Railways, PIA, WAPDA) which
are in deficit and burden for the government, due to this government can get
initial money to solve other crucial issues which are damaging economy.
The government also needs to focus on tax collections; they must introduce a tax
collection scheme and use of tax money in public projects to get back trust of
people of Pakistan. Cutting off overall deficit through new (or higher) taxes
would also lower government borrowings and interest rates.
The areas where tax policy needs a review include:
(a) Cut in income tax rates for the publicly listed companies (excluding
financial sector) to 15% (b) Increase in income tax rates for the banking sector
(c) Imposition of income tax on trading income from stocks (d) Imposition of tax
on capital gains from land and property (e) Tax increase to 22% for Telecom
industry. (f) Tax relaxation for major export industries of Pakistan. (g) Tax
reduction for MNC’s to attract foreign direct investment in Pakistan.
The government should also review payroll and sales taxes for publicly listed
companies because levies such as EOAB (Employees Old Age Benefits) do not profit
the workers. Instead, the government should encourage stock options and direct
cash compensation to allow the benefits to flow through to the employees. In
this respect, the government while doing away with schemes that are de-facto
indirect taxes, should increase the minimum wage to Rs. 10,000 per month.
In the area of monetary and foreign exchange rate policies, the officials needs
to replace borrowings from the State Bank with market instruments, and let the
exchange rate determine by the market force.
The above suggested measures are just some examples but illustrate and
underscore the need for a qualitative change in policies rather than the
so-called continuity that has failed to deliver. As we have seen in last five
years government .we don’t need transitions of governments from one hand to
another, we need policy changes that would send a clear message to local and
foreign investors that the new government means business.