Saturday, September 1, 2012

"PTI's Economic Vision" - By @Asad_Umar - a good analysis of what PTI Economic Policy stands for

Courtesy: "The News" (1 Sep 2012)
The PTI's Economic Vision
By Asad Umar

The Pakistan Tehreek-e-Insaf announced its five-year economic vision recently. There has been a varied response to it, but a recurring theme in many of the responses, including that in the editorial on the subject in The News, has been that the analysis of issues is spot-on but implementation-level details are insufficient. To quote from the editorial, “The PTI’s economic policy plan gets full marks for intention and vision.” High praise, indeed. It has never been lack of plans for detailed implementation which stops reform from happening. The roadblocks are lack of political will and unwillingness to take the entrenched vested interests head-on and compromises made for political expediency and self-interests. The second major hurdle is governance failure and weak institutions, and that causes even sincere efforts to fail. The economic vision of the PTI addresses each of these and takes a bold political stance on them.

The PTI’s economic vision is based on five national emergencies that have to be declared to deal with the core structural problems of Pakistan’s economy. The first is energy reform. The key elements of resolving the energy crises include changing the fuel mix, revamping the rundown low-efficiency generation and distribution system, fast-tracking new generation capacity and gas imports, incentivising exploration activity, developing the local coal reserves, harnessing the hydroelectric potential of the country, utilising its renewable energy potential and getting the regulatory and incentive structure right for the whole energy sector. Detailed work on most of these aspects has been done, and is underway in a couple of areas. Just the conversion of furnace-oil based capacity to coal would save approximately four billion dollars a year and we would be able to get rid of the circular debt crises by reducing the cost of power generation, instead of increasing tariffs. Recognising the importance of fixing the energy crises we have included 20 billion dollars of government investment in this sector in the five-year period. Private investment will be in addition to this.

The second emergency is the need for raising revenues. Everyone knows that a modern economy cannot be run in a manner that meets the expectations of its citizens, and is globally competitive, with a tax-to-GDP ratio of less then 10 percent. The three broad thrusts of the revenue improvement strategy are administrative reform which professionalises the FBR and insulates it from political and bureaucratic influences, deployment of technology for improving the tax collection effort and minimising leakages, and direct tax measures on those who have successfully evaded being a part of the tax net so far. The basic principle to be used for the tax policy is “taxation regardless of source of income.” The blatant double standards of the current tax policies of the federal and provincial governments will be done away with. Minimum assets tax which is adjustable against income tax paid, tax on agricultural income, which brings it effectively at par with other sources of income, the law of pre-eminent domain for property taxation, etc., are some examples of the taxation measures which are proposed. Given that the system is rotten to the core, some time will provided to people to come clean and pay their due taxes at the normal tax rates. After that full force of the law will be applied to bring to justice those who are cheating on taxes.

The third emergency is on expenditure reform. The key elements of expenditure reform include eliminating the losses of state-owned enterprises (SOEs). The single biggest chunk of this saving, almost 400 billion rupees per annum, will come from the energy-sector reforms explained above. In addition, by taking the SOEs outside the purview of the ministries and insulating them from political interference, placing them in control of professionals, we will achieve significant improvement in their performance. The second major element is reduction in the ministries from 37 to 17. The third part deals with across-the-board cuts in the least value adding expenses in all civilian and defence expenditure to bring them in line with our fiscal reality. In order to create transparency and accountability of government expenditure a key reform measure will be to effectively operationalised the access to information laws and empower citizens to get engaged in ensuring that their taxes are being used for their welfare, and not for lining the pockets of corrupt elements. The fiscal improvements as a result of the revenue increases and expenditure reduction will bring debt servicing expenses as a proportion of the economy down by about one percent of the GDP.

The combination of the expenditure curtailment and revenue measures outlined above release total resources equal to nine percent of the GDP or in terms of absolute numbers with the size of the current economy about 2,000 billion rupees per annum. About one-third of this will be used to bring the deficit down to a sustainable level. The rest will all be spent on the fourth emergency...human capital development. No nation can compete in the global economy today, nor can there be sustainable poverty reduction, without investing in its people’s health, education and skills as a priority. The PTI economic vision makes a commitment to a quantum leap in this area. The expenditure on education will be increased from approximately two percent of GDP to five percent. In absolute terms, with the growth of the economy this would be an approximately fivefold increase. Similarly, in health the commitment is to increase the total expenditure from the current less then 0.9 percent to 2.5 percent. Again, in absolute terms, this would be equal to a six-fold increase.

Which leads us to the issue everyone is rightly interested in: implementation. We believe that without deep institutionalised reform we cannot achieve the creation of a welfare state which we, and tens of millions of Pakistanis, desire. Hence, institutional reform is the fifth emergency in our five-pillar reform programme. The key elements of this reform include unprecedented devolution of power, all the way down to the villages, so that we empower the citizens of Pakistan themselves to take decisions, rather than a small elite sitting hundreds of miles away doing that. This is the essence of real democracy...power to the people. The second part deals with reforming the civil service and insulating it from political influence, strengthening the regulatory agencies and increasing their professionalism, dramatically reducing the powers of the political elites and insulating the service delivery and governance system from political influence in execution of policies, creating a system which has transparency and makes the ruling elite accountable to the citizens.

The above is a synopsis of a detailed integrated strategy to lay the foundation to make Pakistan a just, peaceful and prosperous country. Detailed strategies on energy and local-governance have already been issued, and in the next couple of months detailed policies for health, education (including skills training, industrial and trade policy, agriculture and governance reforms) will be issued. It’s time we start a national debate on what needs to be done to make Pakistan a country which meets the desires and aspirations of its citizens and gets the place in the comity of nations which it deserves.

The writer is senior vice president of the Pakistan Tehreek e Insaf.


Disclaimer: This blog is not an official PTI webpage and is run by a group of volunteers having no official position in PTI. All posts are personal opinions of the bloggers and should, in no way, be taken as official PTI word.
With Regards,
"Pakistan Tehreek-e-Insaf FATA Volunteers" Team.

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