PML(N) with Old Economical Changes

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.