Economists suggest steps for preventing macroeconomic crisis

ISLAMABAD: Renowned economic experts have asked the government to introduce a dual exchange rate, re-introduce coupon scheme for boosting exports and hike import tariffs to restrict yawning imports as well as a revised macro framework to avert a full-fledged eruption of the macroeconomic crisis.

Former finance minister Dr Hafiz A Pasha, while talking to The News on Saturday, conceded that “their generation had failed unfortunately to fix the economic ills faced by the country.” He claimed that he had never witnessed such a bleak situation since the country’s inception as three major crises struck simultaneously, including the economic crisis, severe floods and political instability. He said that there was a need for out-of-the-box solutions to fix the economy.

Pasha said that the average import tariff in Pakistan stood at 11 percent while it stood at 14 percent in Bangladesh and 18 percent in India. He said that the maximum import slab was brought down to 20 percent in Pakistan while 30 years ago it was standing at 120 percent. Such massive reduction in import slab with the maximum standing at 20 percent resulted in massive liberalisation of imports regime, he added. He proposed to hike the tariff regime.

Dr. Pasha said that there was a need to introduce a dual exchange rate in order to incentivise exporters. He said that if Bangladesh could execute it, then why Pakistan could not do it. There was a need to re-introduce a coupon incentive scheme for exporters which was used earlier to boost the country’s exports.

On the fiscal side, he said that harmonization of General Sales Tax (GST) in India could fetch increased revenue by 3 percent of GDP. Why harmonization of GST could not be done in Pakistan? He said that agriculturists, who are the most influential political elites of the country, possessed agri income of Rs1,000 billion but their contribution to the tax net stood at the meagre amount of just Rs2.5 billion on a per annum basis.

Dr. Khaqan Najeeb, who is a former Adviser Ministry of Finance, said authorities must develop a credible macro framework post floods. He suggested moving forward on the completion of 9th IMF review without delay based on the new macro-framework. The IMF as an anchor is essential to ensure Pakistan’s access to other funds.

He emphasised economic diplomacy is essential to create certainty on dollar flows from friends and bilateral side. At the same time, the country needs to do some hard work like putting together a conservation/rationing strategy for energy.