Pakistan today faces enormous economic challenges. PML (N) is fully aware of the fast declining trends in all macroeconomic indicators. This has been the result of inept federal government policies over the last five years.
The country is currently trapped in a trajectory of low growth combined with high inflation due to incompetence, poor governance and high levels of corruption. In terms of GDP growth, this has been the worst five years period in the entire history of Pakistan with a dismal annual average growth of 2.9%.In terms of inflation, only once in Pakistan’s history, we have witnessed a worse double digit inflationary spell than the present tenure and that was in PPP 1st government from 1972 to 1977. This lethal combination of low growth and high inflation has led to a massive increase in poverty and unemployment.
As in the 1990’s, PML(N) top priority will be the revival of the economy to double the GDP growth rate from less than 3% in the past five years to over 6% during the next five years. Economic revival in fact holds the key for achieving other vital economic and social targets listed in this manifesto.
- Sustainable and inclusive economic growth requires:
- Optimum utilization of the country’s physical and human resources.
- Full exploitation of the technological potential in industry and agriculture.
- Sound macroeconomic policies to reduce deficits in the budget and the balance of payments, curb inflationary pressures and reduce country’s defence on foreign loans and assistance.
- Democratic governance which requires supremacy of the constitution and the rule of law in order to reduce corruption, tax evasion, wasteful expenditure, misuse of power, and meets the aspirations of the people.
One of the most important pre-requisite for higher GDP growth will be to raise the investment-GDP ratio from 12% at present to at least 20% in the next 5 years. This has been a benchmark which was achieved during the first tenure of PML (N) in the early 1990’s. A balance will be struck between fiscal consolidation and growth. Despite the unfavorable security and law and order situation, the investment climate can significantly improve with improved governance.
In the absence of single strong driver of growth at present, Pakistan has to create several mutually reinforcing engines of growth to meet the emerging economic challenges in this age of globalization. PML(N) will give special priority to the following sectors:
- Higher investment in the energy sector as outlined in chapter 2 of this manifesto.
- Attracting foreign investment in the agriculture and livestock sector to facilitate exports of high value products to regional markets.
- Converting at least 50% of the remittances by Overseas Pakistanis into investments. These remittances currently stand at US$ 13 billion a year. We intend to take this progressive initiative by offering special financial products to Pakistani diaspora. This economic revival driver will also feature identifying growth prospects in the IT and other employment-oriented schemes will be encouraged.
- Large-scale infrastructure projects are catalysts for boosting the economy. PML(N) will focus on motorways, dams, housing projects and development of new urban centres and cities.
- Pakistan holds sizable reservoirs of oil, gas and other minerals. PML(N) will pursue mineral exploration and abstraction with renewed vigour while ensuring absolute protection of the interests of the nation. Foreign investment would be encouraged and facilitated in this sector. Development of this sector will be a game changer for Pakistan’s economy.
- A vibrant domestic commerce is a pre-requisite for innovation entrepreneurship, quality assurance and product development. It stimulates growth in the private sector and positions countries to effectively expand into international markets. Domestic commerce will be encouraged by focusing on areas like competitiveness, protection, market regulation, wholesale markets, retail markets, storage and warehousing, transportation and real estate.
As a part of our economic revival plan, PML (N) is setting the following targets to be achieved during its tenure:
1- Budget Deficit will be brought down to 4%. This will be achieved through:
a. Increase in revenues. Tax to GDP ratio to increase from 9% at present to 15% by the end of 2018.
b. One-third reduction in current expenditures other than salaries, allowances and pensions.
c. Losses from State Enterprises amounting to approx. Rs.400 billion will be reduced through revamping / privatizing these institutions.
2- Inflation will be brought down to single digit in the range of 7 or 8% by:
a. Limiting government borrowing.
b. Decreasing tax rates.
c. Reducing energy shortage and cost of producing energy.
d. Lower interest rates through effective monetary policy.
e. Removing supply side bottlenecks through increased agricultural output and reduced wastages.
3- Industrial manufacturing will be taken up to 7 or 8%.
4- Investment GDP ratio will rise to 20%.
Other initiatives for economic revival would include:
a. Open up markets and encourage regional trade. This will open up avenues for investment, growth and jobs.
b. Large investment in human capital with improved service delivery in health and education.
c. Further reforms in financial sector and capital markets.
d. Improved regulatory environment on national level.
e. Focus on youth and women.
f. Reducing bureaucratic procedures to speed up decision making.
PML(N) fully understands the gravity of the present global and national economic crises and the enormity of the tasks outlined above, but with clearly defined goals and objectives, strong leadership and highly professional team, PML(N) is determined to bring about fundamental and far reaching reforms and changes in the economic landscape of the country. By completing its unfinished agenda of turning Pakistan into Asia’s leading economy with high competitiveness, PML(N) will shape a better Pakistan. This is being aimed at, to make Pakistan to emerge as one of the top ten economies of the world in the 21st Century. A national economic agenda 2025 shall be developed with consensus for continuity in economic policies.
Industry and Trade:
Manufacturing is the third important sector of the economy accounting for about 18% of GDP and 13% of total employment. For the economy to grow and provide more jobs, the growth of the manufacturing sector which has declined from an average of 7% to less than 3% in the past 5 years must be restored. Closed industries will be revived through appropriate and effective measures. This in turn will require a major infusion of capital either through foreign direct investment and domestic resources. We will ensure that ample credit is available to the private sector, interest rates are conducive borrowing and there is steady supply of energy to the industrial hubs.
An important element of industrial revival will be the adoption of an export-led growth strategy supported by larger foreign direct investments. This policy is crucial to the development of the economy and will be pursued vigorously. Pakistan has remained dependent on cotton and textile sectors as its main earner in the international markets. Without incorporating value addition, technology and lT in our export base, we will not be able to achieve the required acceleration in exports. Tariffs will be reformed to eliminate the anti-export bias.
Our Industry and Trade policy will focus on the following:
- All exports will be sales tax free.
- A Technology Up-gradation Fund will be created in the public sector to support new investments in priority sectors.
- Private and public sector organizations will be brought together to establish an Equity Fund to encourage Pakistani companies to cater to niche markets through acquisitions of overseas brands and / or brand holding companies.
- Reduce the upfront cost of investment for prioritized sectors.
- Industrial parks, both for large and small industries will be developed and expanded, particularly in the under-developed areas.
- Clusters will be developed for industries such as gems and jewellery leather, garments, fans, cutlery, halal meat, sports goods, furniture, crockery and cooking utensils.
- An Export-Import bank (EXIM) will be set up to deal exclusively with finances related to the export of capital goods and other manufactured items, consultancy and technological services involving deferred payment terms. This bank, like similar banks in other countries, will provide a wide range of services.
- Multinational Corporations (MNC’s) in Pakistan will be encouraged to expand their production facilities, not only to cater the Pakistani market but also the Central Asian, South Asian and Middle Eastern Markets. Necessary incentives and required infrastructure will be provided to these Corporations. The incentives will be linked to the flow of foreign capital to Pakistan by these companies.
- The investment strategy will be focused on encouraging buyers-driven FDl, under which those investors will be encouraged who are interested in using Pakistan as a base to manufacture products for exports where Pakistan has a comparative advantage. SME’s and Clusters will be developed in various districts where they will be facilitated through one window operation and through marketing companies which will promote their products within and outside the country.
Over the past few years, a number of Regional Trading Arrangements (RTAs), Bilateral Free Trade Agreements (FTAs) or Unilateral GSP type programs have emerged. These arrangements place Pakistani exporters at a disadvantage vis-à-vis their competitors. Pakistan has to intensify participation in regional cooperation forums like SAARC and ECO, which include free or preferential trade arrangements. Other trading partners will also be urged to provide preferential access to Pakistani exports through lower or no duties. Our trade negotiations with international players including World Trade Organization (WTO) will be aimed at establishing a rule based and transparent global trading regime. In this way, we will succeed with our “Trade not Aid” policy.
PML(N)’s preferred policy will be to develop infrastructure projects through private sector on BOO / BOT (Build Own Operate/Build Operate Transfer) basis. In addition to the Public Sector Development Program (PSDP), we will encourage infrastructure building and financing institutions through public-private partnership to expedite infrastructure development. This has always been a hallmark priority for PML(N). As far as PSDP is concerned, initially our focus will be on the development of the agricultural, industrial, water, power, health and education sectors of the country. In the last few years, the federal government has significantly cut down its PSDP spending. Cutting development spending is, in fact, crippling the economy in the long term. PML(N) will ensure that we do not sacrifice our long term gains for the comfort of meeting our short term objectives. Cutting development spending is not a sustainable way to reduce the deficit.
A Bureau of Infrastructure Development (BID) will be established to coordinate and oversee the programme for private sector participation in infrastructure development and develop financing schemes. BID will be a single window for the development of infrastructure projects, and will provide a mechanism for mobilizing commercial and equity and debt financing. An important objective of BlD will be to improve transport and communication by constructing national trade corridors and providing mass transit facilities in all major cities.
In most developed countries, major infrastructure projects have largely been developed by provinces and local governments by raising their own funds. This can be replicated in Pakistan through the issuance of Provincial and Municipal Infrastructure bonds or project specific bonds in order to develop secondary centres of industrial activities. Development of well planned urban centres and cities can become a major engine of growth.
The provincial and local governments will have to improve their financial position in order to improve their ratings by international credit rating agencies. Improved rating would enable the provinces to raise funds for major infrastructure development projects such as provincial highways, bridges, irrigation and power generation systems. It would also enable the local governments to develop municipal services by constructing ring roads, overhead bridges, underpasses, water supply and sewerage systems.
Creation of Job Opportunities:
All infrastructure projects will entail compulsory job creation. lnstitutions like Pakistan Poverty Alleviation Fund, Micro Financing Institutions and National & Provincial Rural Support Programmes will play a major role in eradicating poverty and creating jobs by expanding their operations. We will create incentive programmes for the private sector to create maximum employment. We will start an especially designed employment program that will generate jobs at community and neighbourhood level through special development initiatives.
Housing for Low Income Families:
Special financial institutions and arrangements will also be made to expand, in cooperation with the provincial governments, housing facilities especially for lower middle income groups. At least 1000 clusters of 500 houses each for lower income families will be developed on a public private partnership mode, and the industry will be encouraged to expand investment and to provide employment opportunities in the adjoining areas. The PML(N) would strive to eventually provide a house to each Pakistani family through public-private partnership by expanding credit facilities for low-income housing and encouraging provincial governments to provide land for such housing schemes.
Development of the housing sector will also benefit a large number of other industries and sub-sectors that provide construction materials. This will not only bring down the cost of construction, but also generate employment.
Sustained growth is not possible without macroeconomic stability. Currently, central government borrowing from the commercial as well as State Bank is at an all-time high. By the time the government and the public sector enterprises have met their requirements, there is virtually nothing left for the private sector. In 2011-12, only about 14% of total credit was provided to the private sector. This in turn has contributed to high fiscal deficit, low levels of investment, and higher dependence on borrowing. During the past five years, Pakistan has more than doubled its debt and the annual debt servicing has crossed Rs.1,000 billion. Pakistan’s total public debt which was less than Rs.3,000 billion on 30th June 1999 has increased to over Rs.13,500 billion by the end of 2012. We will ensure that as a result of sound macro policies, public debt remains at sustainable level.
The quasi-fiscal activity of the government outside the budget has contributed to a build-up of circular debt in the energy and agriculture commodity sectors. As a result, the cost of borrowing in the economy has increased again. This is a counterproductive exercise that will be stopped. During our second term from 1997 to 1999, PML(N) successfully curtailed the circular debt problem which it inherited from the previous regime. As substantiated in chapter 2 on Energy, we will completely resolve the issue of circular debt.
In order to decrease the fiscal deficit, we will eliminate VIP culture and launch an austerity drive particularly expenses relating to the Presidency, Prime Minister, Governors and Chief Ministers will be significantly reduced. With the additional provincial autonomy under the 18th Amendment and the 7th NFC award, it is important that provinces follow prudent economic policies, particularly with respect to expenditure control and revenue generation. Reducing fiscal deficit is no more the exclusive domain of the federal government; the provinces must contribute their share. More autonomy must be accompanied with more accountability and responsibility.
The structural drag on Pakistan’s economy can only be addressed through deep seated and institutional reforms. We are aware that the fundamental reforms that are required to address the ailing economy would be opposed by powerful interest groups and strong cartels. As demonstrated in its earlier stints at the federal level, PML(N) not only has the ability to make these fundamental institutional reforms, but also the political will to confront the strong and powerful interest groups.
The most important area where fundamental and structural reforms are required is in the area of taxation. Tax collected by the federal government and provincial governments will ultimately determine the extent of investment in education, health, housing and infrastructure projects.
When PML(N) government was dismissed in October 1999, tax to GDP ratio was a respectable 13.8 %, which has since declined and is presently around 9%. The high tax to GDP ratio was achieved in spite of significant reduction in personal and corporate income tax rates. Tax rules were simplified, taxes made broad-based and the tax machinery more accountable and loop holes in the system effectively plugged.
Through reforms in FBR and the tax system, we will target to improve the tax to GDP ratio to 15% by 2018. Informal economy will be brought into tax net. Tax base will be broadened.
We recognize that in order to improve the overall taxation environment, documentation of economy is fundamental. Once the documentation process is successful, the informal economy can be brought into the tax net and the tax base rationalized to broaden the tax system.
The basic objective of the Tax Reform Program of PML(N) will be:
- To tax all income and to achieve greater equity in the tax system by increasing dependence on direct taxes.
- To broad base the tax system through greater use of an IT data base.
- Reduce Tax evasion by facilitating tax payers’ compliance, and where possible, rationalizing tax rates.
- Reform of tax administration both at the federal and provincial levels.
- An annual tax directory will be published indicating the taxes paid and assessed in the last 3 years.
- No increase in the tax rates. Once the tax system becomes fully operational, tax rates will be reduced over a period of time to ensure regional equity and to encourage foreign investment.
- Provincial governments will be asked to increase their own tax revenues to increase their contribution in overall taxation.
- Sales tax to be rationalized by ensuring standard rate for all items and broadening the scope of sales tax.
- Simplify the administration of taxes and compliance especially for small businesses.
- Steps will be taken to ensure elimination of money laundering and whitening of black money.
- Knowing there are too many federal and provincial taxes, reduce the number of federal and provincial taxes which will greatly reduce the discretion of the tax officials.
- Improve the process of self-assessment and audit compliance.
- To discourage import of luxury items, a regulatory duty will be levied on non-essential imports.
It is equally important to restore the sacred trust between the Government and the tax payers. Unless and until the citizens are convinced that the taxes they pay will be properly utilized for the benefit of the common man, it will be difficult to achieve Pakistan’s fiscal targets and macroeconomic stability.
Other Financial Sector Reforms:
PML(N) in continuation of far reaching reforms in the banking sector in 1990’s will undertake further reforms in line with current domestic and global requirements. At present profitability is affected by the higher cost of borrowing combined with expensive energy. This inevitably leads to a declining saving rate, which at present is only 108%, stifled growth, a crumbling manufacturing sector, rising unemployment and poverty. A vibrant financial sector supported by reforms in the capital market is vital for the revival of business confidence and private investment. With said reforms resulting into substantial new investment in the corporate sector, it would generate employment in the country.
Revival of Confidence:
One of the most important preconditions for economic revival is the restoration of confidence of the business community and other stakeholders in the future of the country. To achieve this important objective, PML(N) will engage the business community in decision making, ensure steady supply of energy, provide fiscal incentives to improve competitiveness, reduce the cost of doing business and accord high priority to the export sector and small and medium enterprises in rural areas. The promotion of IT, tourism and other knowledge-based sub-sectors will be accorded high priority. To ensure closer consultation and cooperation with the business community, various mechanisms and institutions will also be strengthened.
Pakistan will face extraordinary risks in the coming decade due to the global financial crisis that has plagued the world economy since 2008 and the resultant decline in the demand for products that Pakistan exports. These risks are further compounded by environmental risks associated with global warming and climate change and societal risks emerging from the rise of extremism in the Region. PML(N) is fully aware that hardly any country has ever achieved sustained progress without internal and external stability. It is, therefore, determined to create a secure environment for investment and economic activities by minimizing these risks through concerted policies and actions in consultation with all the stakeholders.
To build confidence of private sector, Pakistan Business and Economic Council shall be established, chaired by the Prime Minister, with equal membership of public and private sector for monitoring performance of economy. The Council shall meet every quarter.