Elections 2018 special report: Demystifying political manifestos through a business lens

Election promisesFinanceIndustryAgribusinessSocialComments With the future of democracy apparently fairly secure in Pakistan, the young electorate is learning to focus on the quality of the exercise. The growing awareness and citizen activism in an age of vibrant social media mean political parties can no more treat the election agenda as a ritual. Despite efforts by all parties to articulate a distinct position, the similarities remain striking. In what will likely be a trilateral contest, the three parties are promising the moon — once again — while underplaying the failings in their performance delivery. Long-delayed manifestos seem to be little more than a result of internal contests, pitching populism versus pragmatism. In this special report, the Dawn Business & Finance team tries to demystify electoral promises and seeks the opinion of stakeholders for a more informed debate on future options Populism versus pragmatism By Afshan Subohi Democracy in Pakistan is moving from strength to strength. As 106 million get a chance to cast their ballot on July 25, for a record third time, the perception and electioneering skills of political parties, more than their actual election platforms will decide the final outcome. The late announcement of manifestos by major parties, (the PPP and the PML-N last week and the PTI in the week ahead) days before the general elections lends credence to the assumption that the leadership perceives the election agenda to be one of limited appeal for voters. They know that as democracy stabilises, voters are going to judge them on their performance more than promises. PTI gave Imran Khan’s 11-point agenda for the reference for this report. Political parties in this nascent democracy are still struggling with articulating their distinct vision and translating it into a future strategy. They do not appear to be too keen to draw public attention to their manifestos. In the election campaign the leadership seems to be consumed in excelling in the ‘science of winning’, and the ‘art of making and breaking deals’ in constituencies to bag maximum seats. Recognising the value of instant information dissemination with ever deeper penetration of smart phones in the country, each party has put in place a social media cell besides a regular point person for image building and coverage. The weak internal structures of parties mean additional burden on political hierarchy of dealing with intra-party conflicts. From the sit-in at Bani Gala to protests and news conferences, the competing groups and disgruntled elements gave leaders a bitter taste of their own medicine. A close inspection of manifestos, summarised in five points for the readers’ benefit in this report, revealed some interesting facts. Generally, they are reflective of a transformational society where conflicting trends coexist and look more like a work in progress. The PPP, on the basis of its past positioning and the current manifesto, on paper appears to be the left of the centre but its performance has been dismal and the approach comparatively conservative of all the three leading parties. Sindh, the province under its rule for the past decade, trails behind others but Balochistan in terms of all indicators on the current human development index. The PTI is the most visible on social media with eradication of corruption as its theme. It has also been focusing on prompt delivery of justice and social services. However the party is perceived to be soft on religious militancy, archaic customs, the civil-military power balance and regional trade. Ideologically PTI seems to be on the right of both PPP and PML-N. However, with a youthful following it conducts itself as a 21st century party capitalising technology to its hilt. It did not announce its manifesto till filing of this report. PML-N has evolved in terms of its orientation and approach over the past three decades. From a pro-establishment conservative party of the 1980s, it has morphed into a party striving to claim more space for political elements and civil society. It is hard to say how much of the shift was planed. Its current manifesto plays up the content on the social sector but seems to be most confident of inherent strength of the country and its potential of capital formation at a rapid pace. With greater focus on the social content in the election agenda of all parties, a consensus seems to be emerging across the political divide in this area. Each party pledged multiple schemes to address the issues of food, health, education, environment and employment security. All major parties of Pakistan embrace a market economy and generally support deregulation, privatisation and liberalisation at the basic level, but the conversion ends here. They differ on sequencing and specifics. The divergence is most stark in the proposed economic strategies in the short run. “Good economics almost always makes good sense. The health of the economy decides the political future of the incumbent. Is Pakistan an outlier where growth rate does not necessarily generate political capital?” asked a political observer. “On the face of it, for the electorate in Pakistan, political context precedes everything else. They instinctively side with an anti-establishment party. But they are not stupid. For them the litmus test of economic success is their own life. If the people opposed undemocratic regimes it was also because they were excluded from the benefits of higher growth,” remarked another commentator. Manifestos duck the IMF question, silent on external account challenges By Khaleeq Kiyani Apparently, whichever party comes into power will have to bank solely on the eternal wisdom of the bureaucracy to secure more and more external loans Despite a record external account deficit of $17-18 billion and official central bank reserves of less than $10b at the close of the fiscal year, one of Pakistan’s biggest economic challenges appears to be absent from the radar of mainstream parties vying to take up the reins of power later this month. The PML-N that ruled the nation until May 31 and the PPP that was in power until 2013 have unveiled their manifestos while the Pakistan Tehreek-i-Insaf (PTI) has announced its agenda for the first 100 days in power. Illustration by Rahada Tajwer. Apparently, whichever party comes into power will have to bank solely on the eternal wisdom of the bureaucracy to secure more and more external loans — some of them being part of the published budget documents — to meet international obligations. These documents project inflows of foreign loans, bonds and grants close to $10b for the current year that seem highly insufficient and will inevitably need support from the International Monetary Fund (IMF) that no party wants to talk about for political reasons. The PPP gives some hints though. Strangely, the PML-N manifesto is almost silent about external account challenges. It does not say how it plans to address them even though it states in details its economic achievements of five years and promises for the next term. No party could have had a better idea about the actual situation on the ground than the PML-N because of incumbency. Nevertheless, it has explained its long-term plans for the external sector. For example, it plans to reduce input costs and rationalise import tariffs for industrial raw material, develop special economic zones to boost industrial production and grow exports by 15 per cent every year, rationalise the tariff structure to remove the anti-export bias and harness the potential of the China-Pakistan Economic Corridor (CPEC) to access international markets. Conceptually, the PML-N is reviving its intentions to open debt markets for foreign remittances to increase returns on savings for over-seas Pakistanis that it could not do in the last five years, but it has no plan to address immediate financing needs. It also aspires to market abroad tourist destinations as hotspots for foreign direct investment (FDI) and convert Pakistan’s tourism industry into a $10b one in five years to fuel economic growth and generate the much-needed foreign exchange. The PTI’s agenda for the first 100 days refers to the subject as a critical challenge. But it does so in a passing remark without envisioned solutions while talking about all-time low exports, dangerously low reserves and an all-time high foreign debt. That’s all, no way-out proposed. PML-N offers no plan to address immediate financing needs despite fully knowing the gravity of the crisis. The PPP gives some hints. While a request to PTI’s economic tsar Asad Umar could not materialise, another senior member explained that the party would come out with a comprehensive plan of action for every sector within its first 100 days in power. Some of its senators are already working closely with the ministries of commerce and finance to under-stand the actual challenges and how the bureaucracy wants to lead their way in case the party gets a leading role in the next government. The PPP appears to be taking a mature line albeit with its inherent political approach over the longer term. Blaming the previous government for leaving the country saddled with copious debt, alarming external trade and balance positions and a fictitious growth story pegged entirely on external investment coupled with white-elephant projects, the PPP sees no choice for the incoming government but to deal with the crisis. It promises to remain cool-headed and credible if voted to power so as to take painful measures while protecting the vulnerable from the fallout. It vouches to conduct an immediate, independent and rigorous assessment of the macroeconomic situation, including debt and external imbalances. It promises to create a working group of Pakistani experts and initiate contacts with key global economic players for the agreement on a home-grown plan for stabilisation. The PPP also promises to seek out a basic national economic reform agenda for the medium term — a demand former finance minister Ishaq Dar kept making without any support from other parties, including the PPP. The PPP now also calls for reviewing all free trade agreements to secure a level playing field for Pakistani exports. This state of affairs exists despite the fact that international rating agencies have already started looking at Pakistan’s fragile external and fiscal accounts negatively. Last week, New York-based Fitch Ratings noted increasing risks to Pakistan’s external financing risks due to declining foreign exchange reserves and a widening current account deficit. The country is already on Fitch’s negative out-look since January. “Further and considerable policy efforts would be required to stabilise the external position, and a new government has limited time to act after the July 25 elections as external debt obligations will pick up more rapidly in 2019,” it noted. Earlier, Moody’s had downgraded Pakistan’s rating from stable to negative on June 20 on similar considerations of a heightened external vulnerability risk. It said reserves had fallen to low levels and would not be replenished over the next 12-18 months in the absence of significant capital inflows. “Low reserve adequacy threat-ens continued access to external financing at moderate costs, in turn potentially raising government liquidity risks,” it said. Leaders' opinions on the economy Shahbaz Sharif The PML-N firmly believes Pakistan is heading towards a bright future as the nation is blessed with all that is needed to earn a place in the league of responsible emerging nations on the global stage. The PML-N’s last government has already carved the path. The real challenge is to address the public trust deficit on the government and the continuity of key economic policies. We believe there is enough wealth in this country to sustain the growth trajectory. To channelise a fair portion of the private wealth for public good we reduced the depth of taxation to achieve required breadth. According to our assessments chopped tax rates will benefit 1.2 million tax payers in the country. Earlier the high tax regime exerted a debilitating burden on professionals such as doctors, dentists, architects and other self employed service provid-ers. Small and medium enterprises, the backbone of a country’s industrial base, also preferred to stay out of the tax net because of high incidence of gov-ernment levies. The simpler and rationalised tax regime, we believe will motivate more people to legalise their earnings and increase public resource mobilisation. We think this is a nation of responsible people who would like to chip in their share in nation build-ing if they know that their contribution will not be wasted and instead be utilised efficiently. There is no question of backtracking on our taxa-tion policies. If voted to power we will encourage people to partake in economic development both individually and collectively. We are perfectly aware of the challenges on the external front but are confident that stability is achievable without compromising growth. People who dismissed the tax amnesty scheme as bogus and predicted its failure were proved wrong. The final count of resources mobilised under the scheme is not out yet but it is public knowledge that it worked or it wouldn’t have been extended by the Caretaker setup through a Presidential Ordinance. We expect that declaration of assets abroad will partially ease the pressure on foreign exchange reserves in the short run. The export promotion schemes of PML-N’s last government are also delivering as the country’s export earnings have been increasing slowly but consistently over the last three quarters. To contain the import bill we have increased regulatory duties on luxury items. The devaluation also served the dual purpose of dis-couraging imports and encouraging exports. And to top everything else is CPEC. Yes we mobilised investment and facilitated funding from Chinese lenders but these loans are not booked on the government’s accounts. Under our watch capital formation not just restarted but is picking up pace in Pakistan. Do you think all this investment in power, roads, railways, bridges and ports will go waste? We trust the youth and our entrepreneurs. If busi-ness facilitation works anywhere there is no reason for it not to work here. The rapid pace of industriali-sation will lead to exportable surpluses produced competitively. We hope to narrow down trade deficit by encouraging trade in new products and new markets in the medium term. The question of compromising growth doesn’t arise; we will brave all challenges on the strength of spectacular growth. Bilawal Bhutto-Zardari First of all, the PPP runs an internal policy conversation all year round as part of our core organisational dynamic. We work with development economists, like we have through the last several manifestos to flesh out our public spending and policy costing proposals. Pie in the sky is not encouraged beyond ten minutes, because frankly, people want delivery from democracy now, and we can’t promise what we can’t cost, plan or resource. There are several targeted poverty alleviation and social welfare proposals in our manifesto. We are acutely aware that many of these proposals are parked in sectors which already make demands on public spending, but as I said, like the successful Benazir Income Support Programme which we launched, none were un-costed. Public expenditure on education, for instance, which is critical and should rise to match rising higher capacity to use it, is already above two per cent of GDP, but without the critical link between education and the world of work, educated young people are left without prospects. Secondly, our manifesto pledges for the expansion of welfare measures are built on the following principles: cost effectiveness, reprioritisation, tar-geting, and a wide usage of information technology for management and targeting. We have carefully costed all of our proposals using existing cost structures and various scenari-os. The cost of our social policy proposals ranges from between 1.1-1.8pc of GDP depending on the policy options and spending chosen. Thirdly, our manifesto also plans for a critical increase in the tax base. So instead of constant ad hoc borrowing to feed our spending, we must strive to ideally reach a tax to GDP ratio from 12.5pc to around 15pc over the term of the next parliament. Additionally, we have proposed cost savings measures in sectors such as energy. There are revenue proposals for provincial and local governments too in our manifesto. But our main thrust at the federal level will be to utilise our experience in Sindh, particularly with the revenue board, for expanding tax compliance and collection. The most buoyant source of tax revenue increas-es in the recent years has been the increase in GST revenues on services collected by provinces. Unfortunately, the previous government, despite a favourable external environment, such as historically low global oil prices, has left our economy in a precarious situation. Exports are down from the historic highs reached in our previous tenure. When external balances become precarious, stabilisation is not an option but a necessary measure, whether we like it or not. But we do have some options within stabilisation of ensuring that as little of the penalty is paid by the poorest, who contributed nothing to the crisis. Also, there are options, if exercised carefully, for resumption of growth along a more sustainable path. In our 2008 tenure, we ensured that the poorest be protected through the establishment of the first large-scale social protection programme (BISP) in the country. In fact, as everyone knows, this programme helped Pakistan in negotiations with the IMF in the subsequent stabilisation programme. While it is not prudent to either talk up a crisis, or to give away too many of our negotiating points at this stage, our party is of the view that we are uniquely placed to deliver a stabilisation programme that will protect the poorest and most vulnerable, return to growth responsibly and quickly, and set us on the path to sustainable growth rather than another stop-start-stop cycle. Our manifesto specifically addresses the problem of how our economy typically moves in depressingly predictable stop-start-stop cycles because major structural reforms needed to put our economy on an inclusive growth path have not been given sustain-ability. We believe that structural reforms which we have outlined are essential for breaking this cycle. Imran Khan We are clear and committed towards undertaking a comprehensive package of reforms, once voted into power. The economy, with all emphasis, is one of the prime areas of focus. We believe that Pakistan is blessed with the treasures of both resources and potential; however the most devastating issue is the absence of true spirit and political will. Rulers, one after the other have compromised the interests of the nation and treated the economy as an instrument to accumulate wealth for them-selves or facilitate the corrupt, wealthy elite that invests heavily to bring them into power. Details of our plan to reform the economy can be found both in my “hundred-day plan” and “PTI’s mani-festo” however, I would specifically like to mention that my government will go to every possible extent to exploit our own resources to generate capital and fix our tax administration to ensure minimum leakages. Comprehensive overhauling of the tax system to enhance the tax base without hurting production forces (both industrial and agricultural), too is a part of the priority agenda we would like to implement. Pakistan’s economy is mostly based on indirect taxation and means of resources collection. The society by large lacks confidence in successive governments, thus the tax base and tax collection has constantly been declining. PTI will restore the confidence of the tax payers, reduce indirect taxa-tion and rationalise taxes. Our government will seek the support from over-seas Pakistanis in the form of FDI and remittances. Published in Dawn, The Business and Finance Weekly, July 9th, 2018 Banks don’t easily buy into political promises By Mohiuddin Aazim Whether the next government will be able to fix critical economic issues and accelerate growth is something that analysts will continue to debate. Much would depend on whether a better version of the democratic system built upon the strength of institutions emerges after the upcoming elections. Apart from confronting domestic challenges of governance and civil-military relationship, tackling regional and global powers that are hostile to the China-Pakistan Economic Corridor (CPEC) and adjusting the national position vis-à-vis the US-China trade war will require both wisdom and nerves to boost the economy. Laced with promises of building the economy, manifestos of the two major political parties — the PPP and the PML-N — are out now. Imran Khan of the Pakistan Tehreek-i-Insaf (PTI) has outlined an ambitious 11-point plan for reforming the economy. But a formal party manifesto was not launched until July 6. Even a cursory look at the 2018 manifestos of the PPP and the PML-N is enough to make one believe that economic progress will accelerate if either of them comes into power. The same can-not be said about the PTI as the party has yet to present before the nation its detailed economic programme. In general terms though, the PTI has talked about boosting the economy in multiple ways. It has put more emphasis on fighting corruption. From initiating mega housing schemes to bring-ing about an agricultural revolution, pursuing energy sector reforms, restructuring state-owned enterprises, reinvigorating trade and industry and developing natural resources, there is a long list of promises in the manifestos of the PPP and the PML-N. Some of these promises are also included in Mr Khan’s 11-point agenda. It is of immense interest for banks to know which political party would tighten the fiscal belt quicker than others because that would have a direct bearing on their business Each one of these promises is lucrative enough from the bankers’ point of view. After all, delivering on every promise should require banks to play a proactive role. That certainly means more business opportunities, higher revenues and fatter bank profits. The PML-N manifesto even talks about “providing financial markets a boost” and “fostering a culture of innovation and competitive advantage”. “Our government would actively facilitate business-to-business linkages between the Chinese financial sector, Chinese industries and Pakistani entrepreneurs,” boasts the party manifesto, adding that “The availability of risk capital for new businesses creation would be assured in coordination with the Chinese government and banks.” These are big promises capable of creating lots of opportunities for banks and development finance companies. But bankers are very practical, pragmatic people. They keep their eyes fixed on the bottom line. They know that words, however fanciful and promising, cannot help them do better and make more money. “It is the fulfilment of those words and fuller implementation of the given programmes that can impact the overall economy and the banking sector,” said the head of one of the top five banks. For banks, perhaps the most essential question is which party has the finest plan for improving fiscal management and whether it has the spine to implement that plan. Most economic ills originate from fiscal mismanagement. Once fiscal imbalances start taking a toll on the economy, banking institutions also feel the heat. Similarly, a slower pace and the poorer quality of economic growth have a negative effect on sustainable growth of the financial sector. Another important thing for banks is to know which political party can be expected to give more autonomy to the central bank and spare the financial system unnecessary involvement of fiscal authorities in monetary matters. But sadly, the manifestos don’t offer substantial hints about it. Similarly, it is of immense interest for banks to know which political party would tighten the fiscal belt quicker than others because that would have a direct bearing on their business. During the past decade, excessive government borrowing from banks has perhaps done more harm than good to the economy by crowding out the private sector. But it has also remained a constant source of interest income for banks via zero-risk investment in government securities. Keeping these points in mind, scanning the economic sections of the manifestos of the PPP and the PML-N as well as broader economic uplift promises by the PTI can be very helpful. All these parties, for example, have talked about launching big housing schemes and revolutionising agriculture. “Unless the next government delivers on these two promises, how can banks benefit by lending more to housing and agriculture sectors?” said a senior executive of Habib Bank. “If the party in power can honestly pursue its manifesto plans, banks happily cooperate with it as long as their participation in the implementation of those plans makes sense.” Sensing a growing demand for qualitative improvement in public life, political parties have also incorporated in their manifestos new plans for enhanced service delivery in social sectors, like health, education and women and youth empowerment. Combine this with the talks about promoting small and medium enterprises (SMEs) and exploiting economic potential of the CPEC, and you get a picture of how banks can benefit in many ways if the next government fulfils its electoral promises. All this means banks will have enough opportunities for new and possibly huge project and trade financing, consumer lending and investment and banking advisory businesses, senior bankers say. But many of them doubt the ability of the three key political parties when it comes to fulfilling their promises. After the elections are over, top bankers will be analysing the post-poll political situation for forecasting various scenarios that can emerge following the rise to power of a particular party or the formation of a coalition government. Bankers say the purpose of conducting such in-house exercises is to perceive the economic and market environment, assess peculiar risks and position their institutions accordingly. Stockbrokers eye the new kid on the block By Dilawar Hussain A split mandate remains a cause for market concern. Perception is stronger than reality. But between the Pakistan Peoples Party and the PML-Nawaz, the investor community has forever favoured the latter. The fear of PPP policies struck in the hearts of the industrial and investor classes remains rooted since its founder, Zulfikar Ali Bhutto, released its first manifesto in 1970. Under the populist slogan of “Socialism is our economy,” Mr Bhutto vowed in the 1970 manifesto to nationalise all major industries. He affirmed that under private ownership those were the sources of excess profits, inefficient production, wastage of resources and unhindered exploitation of workers. “Public sector will include not only large-scale production of gas, oil and coal but transport, railways, shipping and airways.” In the party’s 1977 manifesto, the PPP recalled that 10 basic industries, including life insurance and banking, were nationalised on Jan 2, 1972. Although nationalisation has been rolled back slowly over the years, the damage was irrepara-ble and so was the loss of confidence by the business and industrial classes in the party’s economic policies. But it was during the first Benazir Bhutto govern-ment that the doors of the stock market were thrown open to foreigners and fund managers in major international capital markets. They rushed in to lap up low-value and high-growth Pakistani stocks, enriching the broker community in the process. Yet it did nothing to restore investor confidence in the party’s long-term economic policies. A week earlier, PPP Chairman Bilawal Bhutto-Zardari released the party’s manifesto that pledged to “curtail hunger, rebuild the country’s economy and foster harmony between different institutions of the state”. By contrast, industrial, business and investment classes have generally favoured the PML-N. It is because of the people’s perception that the party is more aware of the problems and needs of the economy since its leadership, the Sharif family, belongs to the business class. The perception is that their policies help improve corporate profitability, which reflects in the escalation of stock prices. To be fair, the PML-N government in its first term came up to some expectations with regard to its business- friendly image. But history did not repeat itself when the party was again voted to power in 2013. The earliest disappointment was the anti-stock market budget. While setting all demands of the bourse aside, investors were saddled with the burden of more taxes. It was followed by the government’s inability to attract foreign fund managers to the Pakistan equities despite its status upgrade to the emerging market from the frontier market by MSCI. That episode in May 2017 has since cast a pall of gloom over the country’s capital market, which posted a negative return of 10 per cent in 2017-18. It became the worst-performing emerging market from being the best-performing one a year earlier when it gave out a fabulous return of 44pc. The PML-N government under the stubborn Finance Minister Ishaq Dar did nothing to bail out the market. The regulators he appointed were more interested in framing rules and regulations than taking steps to improve the country’s ranking in the Ease of Doing Business Index, resulting in smaller profits and nil dividends. On July 5, PML-N President Shehbaz Sharif unveiled the party’s manifesto for 2018. He did not dwell upon any economic and industrial issues, but highlighted the supposed end to loadshedding and the improvement in the security situation. Of the five major points in the latest manifesto, two seem to be dedicated to the economy: “Consolidating growth by expanding industrial base, capitalising on CPEC” and promoting regional trade. But it is the new kid on the block that most polls suggest. Experts weigh in Salim Raza Former governor of the State Bank of Pakistan The exchange rate should be left to find its own level, so that central bank reserves are used only to smooth daily fluctuations rather than to defend a particular rate. Tandem adjustment in interest rates will be warranted to counter the inflationary impact of rising international energy prices and a weaker rupee. Talks with the IMF must commence post-haste; anticipated withdrawal of quantitative easing has already led to rising costs for emerging-market sovereign debt, and further commercial debt is undesirable. Administered prices have led to excess wheat and sugar stocks. These must be offloaded at current world prices. The holding cost of these stocks simply adds to the eventual loss the country will have to absorb. Saeed Ahmad CEO of National Bank of Pakistan There are export promotion incentive schemes, which have not been fully implemented. These should be implemented. The refund of dues from the FBR and other government entities to export houses should be ensured. The government should diversify exports by including items such as halal food, mining and medical research services. IT services should be streamlined for exports. The export of value-added goods, rather than just raw material, should be promoted. It should encourage export industries and import substitute items. The emphasis should be on export-driven growth prospects rather than domestic consumption-led growth. Published in Dawn, The Business and Finance Weekly, July 9th, 2018 Being the hand that guides industrial growth By Nasir Jamal Illustration by Rahada Tajwer. “When it comes to the industry, it doesn’t really matter if a party has a better plan than the others,” says a former president of the Lahore Chamber of Commerce and Industry. In Pakistan, election manifestos mostly employ political sloganeering and rhetoric to solicit votes on the polling day rather than laying out carefully planned strategies to address the political, social and economic challenges facing the people. As we head for another election later this month, the question is if any of the three main contenders for power — Pakistan Muslim League-Nawaz, Pakistan Tehrik-i-Insaf or the Pakistan People’s Party — has a real plan to attract new investments and revive the export-oriented manufacturing that has been declining for the last many years. A cursory study of the election manifesto of the PML-N as well as the “plan” the PTI intends to implement during the first 100 days if voted into power shows that these parties may have economic targets they want to achieve over the next 5 years, but not a strategy to pull it off. The PPP, which is often considered cut-off from the country’s new economic realities with anti-business bias due to its nationalisation policy of the 1970s, on the other hand has briefly laid out a combination of its targets for the manufacturing and export indus try and strategy to meet them. The PPP manifesto for election 2018, for example, talks of building a national consensus for what it calls a basic national economic reforms agenda to be prepared by a joint parliamentary committee to ensure a cross-party commitment to broader macroeconomic reforms. It then moves on to specific actions it intends to take to improve industry’s competitiveness and boost dwindling exports. These include rationalisation of surcharges on five major manufactured exports, including textiles, a review of all free trade agreements, transfer of control over Export Development Fund (EDF) to exporters for better management, establishment of exclusive economic zones for foreign companies that will be required to export half of their production, agreements of currency swaps with Pakistan’s trading partners and encouragement of foreign buyers and brands to open their buying houses in major cities. Moving on the PPP also has a plan for closed factories and intends to rehabilitate sick industry through a scheme to be formulated with the help of the central bank. It promises to ensure availability of energy at affordable prices to ensure the industry’s competitiveness in the world markets and prevent future mass industrial closures. The PPP that saw exports peak to $25 billion from $20bn under its five year term between 2008 and 2013 is also aware of the narrow product and market base of the country’s exports and plans to work on these issues to reduce dependence on textiles, which form 55-60 per cent of export shipments. The party isn’t averse to subsidising existing export industries to sustain them and encourage new industries to push exports for a limited time. The plan promises industrial restructuring to increase the value added intermediate and capital goods industry by ensuring financing and finding niche markets outside the county. As we head for another election later this month, the question is if any of the three main contenders for power has a real plan to attract new investments and revive the export-oriented manufacturing that has been declining for the last many years Interestingly, the PPP is the only party that speaks about greater regional economic and trade integration by separating trade from other geopolitical issues. The PML-N that launched its manifesto for the next election last week also talks about boosting industry and exports but in far less clear terms than the PPP. It vows to grow exports by 15pc annually if re-elected on July 25 by improving ease of doing business for manufacturers and exporters. It promises to cut input costs for exporters by rationalising import tariffs on their raw materials, remove anti-export bias, harness opportunities offered by CPEC to increase access to international markets, continue the support package it had announced for exporters and so on. Simultaneously, it has a plan to push the investment to GDP ratio to 22-25pc to boost industrialisation in the country and create 2million jobs a year. Private investors will be facilitated to invest in new projects through establishment of special economic zones, operationalisation of a national single window to reduce trade time and cost by bringing 20 government departments and agencies under one roof, checking smuggling and under invoicing of imports and cutting corporate tax to 25pc in five years. Also, small and medium industries will be helped to access finance and form joint ventures with foreign companies around the CPEC. Businesspeople insist that the PML-N did not take their input before writing their election manifesto. This is despite the fact that Punjab’s textile industry invited the heads of the three parties. “We invited the heads of these parties to give our input for the revival of manufacturing and exports. Both Asif Zardari and Imran Khan turned up. Shahbaz Sharif didn’t. “After listening to our presentations, both the PPP and the PTI promised to truly zero rate exports, help revive over 100 factories — mostly in Punjab — closed down because of energy shortages, higher gas and power prices and bad government policies, and reduce the cost of energy to regional level so that our exports become competitive in overseas markets,” the Aptma group leader said. The third contender for power, PTI, has yet to give its programmer for the polls. But its plan that the party wishes to implement in its first 100 days in power indicates that it plans to revive manufacturing and exports through reduction in taxes and energy rates, payment of export refund claims and so on. Additionally it intends to make interventions in the housing market to kick-start the industries associated with the construction sector. Many businesspersons argue that it is a mistake to read too much into election manifestos. “At the end of the day, these are just slogans and political rhetoric to charm voters,” a former president of the Lahore Chamber of Commerce and Industry said on condition of anonymity. “When it comes to the industry, decisions are made according to how much clout a particular industry enjoys over the sitting government and its economic team. Manifestos become meaningless and forgotten once a party comes into power. So it doesn’t really matter if a party has a better plan than the others.” Despite reduced urgency, reforms remain top priority in Power By Khaleeq Kiyani Five years down the road when they return to the electorate, addressing electricity shortage is no more an issue for the PML-N and PTI even though it still remains a challenge in the eyes of the PPP Before the 2013 general elections, energy shortages and loadshedding were among the top most chal-lenges facing the country, and the major political parties — PML-N, PPP and Pakistan Tehreek-i-Insaaf (PTI) — laid out steps in their manifestos to overcome them as a top priority besides reforming the governance structure of the sector. Five years down the road when they return to the electorate, addressing electricity shortage is no more an issue for PML- N and PTI even though it still remains a challenge in the eyes of the PPP. Even though the urgency has lessened, reforming the sector remains among the top priorities of all parties. All the three major parties, nevertheless, appear to be feeling the need to improve the fuel mix and reduce tariffs even though they have different lines of action. They also equally want to transform state owned power companies — generation companies to distribution companies — as a means of improving the energy sector and addressing the chronic circular debt problem. Perhaps because of its hands-on experience, the PML-N has a far better, more comprehensive roadmap for the power sector on paper, including initiatives it miserably failed to implement in the last five years, privatisation being the most important. Followed by this is the PPP that also has a comprehensive plan for the power sector including many tall promises it could not deliver on in its five year 2008-13 term — providing electricity to every citizen at an affordable cost and materialising the Iran-Pakistan gas pipeline. PTI trails behind with a significant lag both in quality of objectives and preparedness. It has not yet spoken in detail about the power sector and is currently in the learning process through various standing committees of the senate. Its three prominent senators Nauman Wazir, Shibli Faraz and Mohsin Aziz have developed a 360 degree-view of the entire power and energy sector owing to their leading different standing committees. It plans to begin with Imran Khan’s 100-day plan if voted to power and then come up with a detailed policy direction and implementation plan. Individually Senator Nauman Wazir is convinced the smallest possible transformers must be introduced and feeders should be leased out on a revenue sharing basis for billing, recovery and power supply, starting with the most inefficient Peshawar Electric Supply Company. The party, without explaining how it planned to go about doing so, wants to start reforms on an emergency basis in Gencos and Discos and begin work urgently to shift towards sustainable and affordable energy. It also loftily talks about addressing the root causes of circular debt and initiate regulatory reforms designed to move away from rent seeking models and towards increasing system efficiency and recovery of losses. In its next term (2018-23), PML-N aims to transition Pakistan from sufficiency to breakthrough efficiency, affordability and sustainability. It promises to introduce IT based monitoring and evaluation systems to provide operational and financial information of power companies on a real time basis and pursue privatisation of Discos. It also promises universal access to power through innovative on-grid and off-grid solar and cluster based mini grid solutions by ensuring targeted subsidies and concessional agricultural tariff. “The cost of electricity would be dramatically decreased through retiring and replacing inefficient plants, reverse tariff biding, smart metering, and developing accountability in an open access and competitive market place,” the PMLN promises for the next five years. While the PML-N has been imposing surcharges to block declining electricity rates to shift funds to cover losses and theft, it now promises to ensure reduced costs to consumers and to rationalise tariff. It plans to add another 15,000 megawatts by 2025, including 5,000-7,000MW through Thar coal and hydroelectricity to be able to reduce tariffs by creating a comprehensive plan for water storage and run of the river hydropower generation. The PPP also wants to provide electricity to all as a basic need irrespective of urban-rural settlement. It has a four-pronged strategy to address the energy requirements of a growing population and economy “on a sustainable basis, by providing adequate, affordable and progressively cleaner energy to all.” For this, it promises to fully utilise all domestic resources of energy, including Thar coal, natural gas and hydropower, and ensure maximum exploitation of Sindh’s rich wind corridor for at least 12 hours a day to move away from imported fuels. “By 2023 wind and solar parks in Sindh will add at least 5,000 MWs to the national grid,” the PPP promised in its manifesto and pledged to ensure the Bhasha Dam project, which has remained stalled so far, is taken to quick completion along with resuming work on the Pak-Iran pipeline. It also promises to increase the share of renewable energy in the energy mix to 5pc in five years. Business leaders' persepctive By: Kazim Alam Q: Do you think the next government should compromise growth to achieve stability? Growth consolidation would likely entail lower taxes, a big development budget and a higher fiscal deficit. Or would achieving economic stabilisation by reversing tax breaks and cutting development spending would be a better approach? Q: How can the next government best address the challenges of the external sector? Can the decline in reserves be contained? How do you view the rising borrowing from Chinese lenders? Do you favour a return to the IMF? Ghazanfar Bilour President, FPCCI A1: Pakistan’s economy has the capacity to grow at a high rate if it is managed properly. Since 2013 -14, exports and remittances contributed $111bn and $98bn, respectively, while the country received $ 9.5bn in investment inflows. Tax revenues amounted to Rs3.8 trillion last year. All these indicators reflect that the economy has potential to grow without taking foreign aid. However, it takes time and prudent policies to achieve sustainable economic growth. It will not be possible to finance government expenditure without enhancing the tax base. The current situation reflects that the fiscal deficit will keep widen-ing unless the government creates some fiscal space by raising revenues. The government may not compromise growth while sustainability remains a prerequisite for achieving development. A2: Pakistan’s reserves are a mix of borrowing and foreign earnings. During the past five years, a gradual slide in the country’s exports cost cumulatively $13.8bn. Pakistan received $23.6bn loans from the IMF during the same period. Pakistan and China have signed a currency swap agreement of approximately $1.5bn to facilitate bilateral trade. But given the trade deficit with China, borrowing from Beijing will not solve this issue. Pakistan has two options. It can either manage the economy on its own or go to the IMF to achieve stability. However, we observe that the country received both IMF support and foreign investment for mega projects during the past five years. But the macroeconomic situation is still unstable. We have to rely on our own resources and manage the economy ourselves. Irfan Wahab Khan President, OICCI A1: Pakistan needs consistent economic growth with stability in its policy and actions. The next government must give priority to the economy and address other political and administrative issues later on. The new leadership must ensure that issues with economic fundamentals are comprehensively addressed in the first two years of the term with input from all major stakeholders, like the Overseas Investors Chamber of Commerce and Industry (OICCI). This will require commitment and participation from all leading political parties so that a change in government every few years does not result in any fundamental change in economic policies. We think that higher economic growth can be achieved by leveraging technology and promoting digitisation in key economic sectors. The next government should seriously engage with business stakeholders to build a better economic and business environment for the economy to thrive. Transparent, consistent and predictable policies are critical for attracting foreign direct investment (FDI) in manufacturing and key strategic projects with a longer maturity timeframe. A2: Challenges on the external front are serious, but not insurmountable. Foreign exchange reserves can be boosted through a smart but urgent review of trade policies as well as attracting funds held overseas by the Pakistani community — a process that has already been initiated under the ongoing amnesty scheme. The OICCI recommends that there should be a Private- Public Dialogue Forum headed by the prime minister. It should comprise key stockholders, like the OICCI and government leadership, to period-ically review key economic challenges. We expect the new government to introduce a forward-looking, longer-term export policy with significant incentives for the diversified value-added product range and destination, with an increased focus on growing regional trade. The government is advised to engage world-class consultants for assistance on the export diversification strategy and attracting FDI in export-able sectors, including from China. Moreover, there is a need for restricting imports by creating a positive environment to boost domestic production and revise many free and preferential trade agreements in the country’s interest. We do not favour going to the IMF because of tight conditions it entails. Nor do we favour frequent borrowing from China as it creates a bad precedent and defers tough measures that policymakers need to take. We favour self-sufficiency, which may be painful but dignified. Many countries in the region, including India and Malaysia, have prospered without seeking IMF assistance despite tough challenges. Pakistan should also show determination and good governance to navigate through challenging times. Ehsan Malik CEO, The Pakistan Business Council A1: The next government’s key priority should be to achieve macroeconomic stability, with the twin deficits – external account and fiscal – as the main areas to focus on. There are no shortcuts here, but the first thing that the government must do is to curtail its expenditure. Reversing the tax breaks should be the last option. High rates provide a bigger incentive to evade taxes. The country needs a broader tax base. However, in setting the tax rates for different classes of taxpayers, the globally followed principle is to tax corporations at a lower rate than individuals. Incorporated entities promote higher standards of governance and accountability. Taxing companies at a lower rate prioritises job creation over consumption, which is already high at 80 per cent of GDP and has encouraged imports and undermined domestic manufacturing due to fundamental flaws. One consolation for the new government is that tax revenues will be bolstered by devaluation. However, an International Monetary Fund (IMF) programme is inevitable. A2: Successive governments have indulged in temporary fixes, which at best amount to first aid when the economy needs drastic surgery. Relying on short term loans is not a sustainable solution. China, the provider of such assistance, is also the source of Pakistan’s largest trade deficit — over $15 billion per annum or $1.25bn a month. Short-term loans from Beijing help sustain exports from — and jobs in — China whereas the need is to create jobs in Pakistan for value-added exports and import substitution. Implemented intelligently, an IMF programme — along with structural reforms to fix fundamental flaws that have undermined domestic manufacturing — will restore the balance on the external account. Published in Dawn, The Business and Finance Weekly, July 9th, 2018 Manifestos promise the moon, but misgivings persist By Mohammad Hussain Khan Illustration by Rahada Tajwer. Two of the major political parties have come up with their manifestos for the 2018 election. Both documents make a number of commitments to the farming community. Agriculture is a now devolved subject. Provin­­ cial governments oversee this sector after the 18th Amendment. There is a greater need for them to address basic issues that confront farmers. For small and medium-size farmers, growth in the agriculture sector is directly linked with strong institutional oversight, which is currently missing. The federal and provincial governments avoid taking initiatives to ensure input cost control and adequate commodity prices. The PML-N also makes many promises in its 2018 manifesto and reminds the electorate about the initiatives it took in its last term to serve the farming community. The PPP has devoted a large part of its manifesto to the agriculture sector and related subjects like water and livestock. It discusses sectoral issues in greater detail this time around than in its 2013 manifesto. The PPP manifesto talks about an agricultural revolution and seeks to address the issue of support prices. It aims to overhaul the entire support price system and improve grain storage by making the required investment. The party made a similar commitment in its 2013 manifesto when it pledged to announce support prices for the four major crops: sugarcane, wheat, rice and cotton. But it could not honour its commitment. On the contrary, farmers struggled to get the indicative price for the sugarcane crop fixed by the PPP government. The row over the sugarcane price for the 2017-18 season continues to date as the apex court has yet to adjudicate on it. The Sindh government appeared to be taking sides with sugar mill owners. The PPP says it will extend the price support system beyond the wheat crop to achieve higher diversification in the country’s crop portfolio. It will provide farmers in non-irrigated areas with an opportunity to benefit from this mechanism for the first time. The PPP intends to complement it with an innovative crop insurance scheme. It also says that farmers will be allowed to store their produce in government-run storage facilities for onward sales at a later stage. The PPP has come up with the idea of a Benazir Kisan Card, which promises to introduce crop insurance and ensure the provision of subsi-dised fertiliser and electricity for small farmers. It will be good if the party indeed overhauls the entire support price system to include a range of crops as well as the announcement of prices ahead of the sowing season. According to Sindh Abadgar Board (SAB) Vice President Mahmood Nawaz Shah said political parties make lofty commitments, but farmers end up getting nothing in the absence of an implemen-tation plan. As for depleting water resources, the PPP is targeting efficiency and conservation besides controlling water-logging and salinity, improving water quality management and augmenting supply by investing in new technology. As far as subsidies and the conservation of groundwater supplies are concerned, the PPP made a pledge in 2013 too when it announced that it would “hold periodic consultations with all stakeholders to fund farm subsidies for the pur-pose of arresting waterlogging and salinity and conserving groundwater supplies”. But nothing to this effect happened in last five years. For the conservation of water, the PPP plans to focus on the lining of canals, rainwater harvesting, effective storage and irri-gation system, including the promotion of drip irrigation. Currently, two World Bank-funded projects – the Sindh Agriculture Growth Project and the Sindh Irrigated Agricultural Productivity and Enhancement Project – are being executed. These projects cover components like the lining of canals and the improvement in rice, chilli, onion and date crops. According to a safe estimate, Sindh has 45,000 watercourses. But not even 30 per cent of them are completely lined. Mr Shah said the 2013 manifesto was never implemented. “Take the example of the PML- N. It says it has provided farmers with 7,000 laser lev-ellers. Our counterparts in Punjab might have received them, but we have got none here in Sindh,” he said. However, he said he appreciates the fact that the PPP has decided to invest in stor-age facilities — something Sindh currently lacks. The PML-N had announced a Rs341 billion Kissan Package under which subsidies at the rate of Rs5,000 per acre were to be provided to cotton and paddy growers before the local government election in 2015. Provincial governments were supposed to share the 50pc cost of the subsidy. While Punjab-based farmers received the subsidy, their counterparts in Sindh could not get it as the provincial government did not pitch in its share. Sindh Chamber of Agriculture (SCA) leader Nabi Bux Sathio appreciated the fact that the PML-N seeks to invest 1pc of gross domestic product in the agriculture sector. However, he said the PML-N and the PPP did not explain explicitly as to how they intend to reduce the cost of input to ensure affordable commodity prices. Growers remain at the mercy of buyers due to the missing institutional oversight, he added. Both parties talk about access to farm credit. However, Sindh-based growers have had a bitter experience with agriculture credit. Mr Shah claimed that up to 80pc of agriculture credit is diverted to Punjab. Farmers want this disparity in credit disbursement to end forthwith, he added. The PPP also failed to do anything tangible about research and development for seed improvement. There is overreliance on the hybrid variety of seed in the paddy crop and the BT variety of cotton. The plan listed in the 2013 manifesto about on-site, field-oriented research went nowhere. One could only hope the two parties will honour their promises to their constituents this time around. With shallow reserves, the next govt is in deep water By Ahmad Fraz Khan View of the Rawal Dam, Islamabad. The country has been in the grips of a severe drought for the last few months, setting new records of abysmal river flows and reservoirs drying up. The current water scenario is so alarming that it can change the very scope of agriculture, wreaking havoc on livestock and human lives Almost all parties now realise the critical role of agriculture in national development. The Pakistan Muslim League-Nawaz, pledges to continue down the same path. The Pakistan People’s Party, more prone to pandering to rural voters, also has elaborate plans for its next stint in power. The Pakistan Tehreek-i-Insaf is now promising to address the “agriculture emergency” if voted to power. However, with the way things are going, the parties might want to consider declaring a “water emergency” before they do anything else on the agriculture front. The current water scenario is so alarming that it can change the very scope of agriculture, wreaking havoc on livestock and human lives. The country has been in the grips of severe drought for the last few months, setting new records of abysmal river flows and reservoirs d

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