Earlier this month, the Pakistan Institute of Development Economics (PIDE) issued its findings on the national economy, blaming structural flaws for the perennial crisis facing the country.
Pointing to the government’s claims of the core issues being low tax revenue and hefty energy prices, it said bigger unaddressed issues were a lack of decentralized governance, an inefficient tax policy, and trade barriers that hamper economic growth. The study advised a policy overhaul that moves away from excessive regulation and a tax-first approach to a strategy promoting market development, innovation, and economic productivity.
However, the most pressing concern for industrialists remains energy losses, which the International Monetary Fund (IMF) has proposed overcoming by increasing prices. The government, fortunately, has taken some initiative in this regard. It has vowed to end the single-buyer model and shift away from uniform pricing. Achieving this, however, would undoubtedly face pushback from entrenched groups that thrive on subsidies the national kitty can no longer afford. A key step to overcoming resistance would be decentralizing power currently vested within the government and bureaucracy. A few civil servants wield disproportionate control, undermining the growth of key sectors like education, energy, and infrastructure. This facilitates whoever is in government, as it allows them to “reward” loyalists while “penalizing” opponents.
Unfortunately, Pakistan’s governance relies on such “incentives,” with public resources misallocated, and government officials benefiting from a system that encourages perks such as subsidized housing and overseas assignments over transparent cash salaries. One proposal holds that monetizing all perks could potentially unlock billions of dollars in investment by freeing up valuable real estate currently occupied as housing by government officials. In Islamabad alone, this reform could attract an estimated $55 billion in investment, with similar potential in the other major cities. Pakistan’s tax structure, similarly, relies on revenue extraction, without addressing an inherently unstable tax structure and an inefficient regulatory environment. The country, unfortunately, continues to fall behind its Asian neighbors, with low rates of productivity-growth and an unsustainably high burden of external debt. There are no signs that these challenges would be addressed any time soon.