2014 poses challenges

Daily: Daily Times
Date: 01.01.14

No doubt, democracy has been restored, the judiciary has become independent, an
amendment to the constitution has happened and (comparatively) free and fair elections
have taken place, yet there is still a long way to realising the goals of political, economic
and social stability in Pakistan. For a developing country such as Pakistan, the year 2014
will not be a year free of challenges, most of which will come from inside, especially from the
areas of politics, the economy and society. This essay intends to address the area of the
economy only.

In the sphere of the economy, the major challenge is how to stimulate the growth rate of the
economy, which was 3.6 percent in the fiscal year 2012-2013 instead of the targeted 4.7
percent (Economic Survey of Pakistan). In the year 2013, the incumbent government took
two measures domestically to make the economy grow. In November 2013, the government
announced introducing a tax amnesty scheme for industrialists and businessmen. The
objective of the tax amnesty scheme was to facilitate the conversion of black money into
white money. The scheme was for those who could invest at least Rs 10 million in selected
productive sectors (which would not be arms and ammunition, fertilisers, cigarette, sugar,
cement, etc.) of the economy. It is expected that the scheme will pour several billion rupees
into the economy and hence aid its stimulation. In December 2013, the government
introduced a business loan scheme for the youth. The objective of the scheme was to
facilitate the skilled and educated (but unemployed) youth to be self-employed and
generate employment opportunities for others in the private sector. Though, like the laptop
scheme, this scheme also has political objectives to gain, the scheme is expected to
increase the GDP by two percent and hence aid the stimulation of the economy.

To enhance exports the government secured the Generalised Scheme of Preferences
(GSP) Plus status from the European Union (EU) in December 2013. As per this scheme,
Pakistan’s products (mostly industrial but also agricultural) will be given access, which will
be about 20 percent of exports at zero tariff and about 70 percent at preferential rates to
EU markets for three years (from January 1, 2014 to December 31, 2016) and hence will
aid the stimulation of the economy. In 2013, Pakistan’s total export to the EU was about $
six billion, which, owing to the GSP Plus scheme, is expected to increase to $ seven billion
in 2014, as per an estimation done by the ministry of commerce. Expectedly, more jobs will
be generated in the manufacturing sector of both large (e.g. textile) and small scale (e.g.
sports, surgical, leather and cutlery) industry.

If the tax amnesty scheme is viewed (without judging it on moral standards) together with
the GSP Plus facility, there are bright prospects for new investment taking place in the
manufacturing sectors of both large and small-scale industries. No doubt, large scale
industry has gone high-tech and generates fewer new employment opportunities than it
produces foreign exchange. Small scale industry is still labour-intensive and has the
potential of creating more employment openings, besides earning foreign exchange, and
hence a rise in per capita income. Moreover, the end result of both schemes (when taken
together) may be to enhance exports (and reduce the trade deficit) but herein lies the rub.
Most imports are fuel (about 40 percent), machinery and other equipment (about 18
percent) and chemicals (about 16 percent). Unless the import bill is reduced, an increase in
exports cannot produce a substantial impact on the economy. Though the devaluation of
the Pakistani rupee is one way to decrease imports and enhance exports (as is being
employed by the present government), the measure increases the volume of debt, besides
inflation. Pakistan needs a permanent and not ad hoc solution for decreasing imports and
increasing exports.

If the business loan scheme is viewed (without being sceptical about its fate), the scheme
has the obvious strength of inviting the attention of the skilled and educated youth towards
lessening their reliance on the government sector. For securing jobs, the youth have been
given the message of not only being equipped with skills and getting educated but also
adopting the policy of self-reliance in terms of self-employment. Through this scheme, the
youth is also prompted to generate employment opportunities for others. It is obvious that
the government is conscious of the possibility of pilferage and deception, that is why it has
adopted a comparatively secure method of distributing loans by introducing a guarantee
system.

The services sector is already contributing to the economy more than the agriculture and
industrial sectors. No doubt, many feasibility reports might have been deposited to issue
loans against the proposed businesses falling in the domain of the services sector and it is
easier for the government to collect indirect taxes (e.g. sales tax) from the sector. However,
while distributing business loans, the government should prefer the manufacturing sector,
functional in both the agriculture and industrial sectors. This will be beneficial for the
economy if loans are issued to those who want to manufacture a product (whether of
agricultural or industrial origin), which could feed exports meant for seeking benefits from
the GSP Plus scheme.

The major threat to all the three schemes is coming from the sector of energy. That is, the
energy crisis in terms of both absence of energy (whether it is oil or gas) and its higher cost
is prohibitive. There is need for an uninterrupted supply of energy to the manufacturing
sector at controlled prices to let this sector grow, export its products and earn foreign
exchange. The priority of the government should be to strengthen the manufacturing sector
to the extent that it could sustain its supply to EU markets even after the lapse of the GSP
Plus scheme. Certainly, the challenge for the government will be to ensure coordination
between these three schemes, the economic impact of which will be visible by the end of
2014.

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