State of Pakistan Economy: Challenges, Causes and Way Forward

Title:               State of Pakistan Economy: Challenges, Causes & Way Forward

Author:          Prof. Khursheed Ahmed

Publisher:       IPS Press, Islamabad, 2021

This is an Urdu compilation of speeches by Prof. Khursheed Ahmed which he delivered in Senate of Pakistan. Prof. Khursheed Ahmed has been one of the pioneer scholars in Islamic economics. He has been a close associate of Maulana Abul Ala Maududi in Jamat-e-Islami. Besides being a prolific researcher, he has been active in policy circles. He has worked as Deputy Chairman of Planning Commission of Pakistan. For four decades, he has remained Chairman of Institute of Policy Studies in Pakistan. This institute has been one of the top think tanks in Pakistan.

In this compilation of speeches, it is interesting to study how a prolific economist who has worked in the field of Islamic economics sees the need for reforms for welfare and socio-economic justice oriented policymaking. Before we summarize his key suggestions for policy reforms, it is also worth highlighting the way he put forward his serious suggestions with facts and figures in an objective way. Usually, in such speeches, politics and short sightedness is exhibited in order to compete against the political opposition. However, quite refreshingly, his way of delivering speech shows the proper conduct and demeanour in highlighting the key issues and challenges, pinpointing problems and suggesting concrete steps to resolve the problems.

On taxation, Prof. Khursheed suggests that direct taxation shall be relied upon rather than indirect taxes. He suggests that instead of blanket subsidies and high general sales tax on all types of goods, there shall be targeted subsidies and cascaded structure of general sales tax, which should not be as high as it is now and should be lower on essential items of use. He highlights the need for transparency in resource allocation and their use.

He reveals that development budgets are announced, but the actual utilization during the year remains much short of the announced allocation. He emphasizes the need for cutting non-development expenditure and for enhancing the allocation and disbursement of development budget.

He also underscores the need to revitalize Zakat and Ushr system and make it more effective. People engage in voluntary charitable giving due to the trust deficit in the administration.

On monetary policy, he criticizes the ministry of finance domination and hijacking of monetary policy. Running large deficits and keeping high policy rates affects masses as reliance on indirect taxes increases which are regressive from the redistribution perspective.

He raises the inflationary impact of policies of rapid devaluation and raising indirect taxes. Instead of providing blanket subsidies through a small network of utility stores, he suggests that if indirect taxes are reduced, it will give direct relief to the people at large.

He sheds light on importance of job creation, agriculture-supporting policies and incentivising local small and medium enterprises. There should be incentives in the form of access to credit at subsidized rates, and concessions in utility tariffs. Reliance on imports only benefits the small class of traders, but it is counterproductive to the aim of building local industries and creating jobs at large.

He emphasizes the need for professional management at the helm of affairs of public sector enterprises. When these state owned enterprises incur losses, it adds burden on exchequer. He does not dismiss the idea of privatization, but questions the element of transparency and the value at which certain transactions happened in the past.

While the governments were able to sell those enterprises which were relatively profitable and efficient, it struggled to sell the real white elephants or to reform them with infusing professional management.    

He also thinks that budget making process needs to be more integrative and well planned. The economic survey reports shall be published at least a quarter prior to the budget sessions so that policymaking and budgetary allocations take note of the latest statistics. Currently, both the economic survey and federal budgets are announced one after the other.

Through his speeches, he contributes in informed policymaking and questions the way certain policy steps are announced to the public. He underlines the need for engaging civil society and industry in time to ensure informed policymaking in the budget and finance act.

He also questions transparency in reporting. He mentions that there are defence related expenditures which are not mentioned all within the defence budget. He criticizes the involvement in war on terror which brought huge loss of lives to Pakistan. He reveals that the financial support received from the U.S Administration was much lower than the total costs incurred by Pakistan. He thinks that it was not wise to enter and then prolong involvement in war on terror which jeopardized Pakistan’s security situation domestically and regionally and also hurt the economy.

For economic development, he maintains that structural reforms are necessary which should be comprehensive and should be pursued with commitment and consistency. Industrial development, education and health need to be prioritized while the expenditures and leakages should be curtailed through direct taxation, reforming loss-incurring state owned enterprises and keeping policy rate at low level so as to reduce debt servicing expenditures and avoid crowding out of investment.

He contends that inflation can be effectively controlled through supply side checks as well as allowing the gap in production to be filled with more investment in real productive economy. This can happen under a low policy rate and low tax rate scenario rather than otherwise. 

Overall, it is a comprehensive introduction about the challenges which are faced by Pakistan and such other developing economies. His policy suggestions are well informed, backed by empirical evidence and are communicated in a prolific and passionate way. The book is a good read for general citizens, students of economics, journalists, and academicians to get a comprehensive view of economic challenges faced by the economy of Pakistan and weigh the policy options with a succinct summary and explanation provided by Prof. Khursheed Ahmed in his prolific style without political rhetoric and biases.

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