Former finance minister Miftah Ismail’s remarks that the government would not approach the International Monetary Fund (IMF) for assistance remind us yet again of Pakistan’s seemingly perpetual cycle of bailout, recovery, current account crisis and bailout. Indeed, that is the premise under which Vaqar Ahmed’s book Pakistan’s Agenda for Economic Reforms begins: that Pakistan’s economy needs essential structural reforms if it is to break the habit of approaching the IMF again and again.

At just seven chapters long, Ahmed’s book is concise and well-structured. He keeps it simple by limiting himself to an introduction, followed by a chapter each on six areas he believes are the most deserving of attention to turn around Pakistan’s economy. These are: macroeconomic policy governance, tax policy, public expenditure, export competitiveness, regional connectivity and labour reforms. Each chapter starts with a review of existing literature on the subject, followed by an identification of key issues in Pakistan’s context and suggestions on how these can be addressed.

The book explains how problems in the six areas impact the country’s economy adversely. For instance, Pakistan’s government fares poorly in terms of efficiency, which lowers the country’s ranking in global governance indicators. Perceptions about corruption and bad governance also impact the ease-of-doing-business indicators. In order to attract more local and foreign investment, this needs to change. Some of the solutions Ahmed offers about restructuring certain ministries and regulatory bodies appear fairly straightforward; for example, merging the water and power ministry with the Ministry of Petroleum and Natural Resources to make one energy ministry or coalescing the ministries of commerce, textile and industry. He also proposes merging the National Electric Power Regulatory Authority (Nepra) and Oil and Gas Regulatory Authority (Ogra) into one watchdog for the energy sector. Of course, the politics behind having multiple ministries are harder to deal with.

Six ways that would help Pakistan stand on its own economic feet

Fiscal policy is an area in desperate need of an overhaul. Ahmed laments that the tax system is complicated and unfair, owing to which some sectors bear a disproportionate burden of taxes, resulting in a lack of investor confidence. Advocating greater autonomy in tax administration, he proposes an apolitical Federal Board of Revenue which does not report to the treasury (similar to the idea of an autonomous central bank). Pakistan’s public expenditure also suffers from inefficiency; a major chunk of government spending is directed towards security and debt relief, leaving lesser funds for human resource development and infrastructure — both of which actually reduce poverty and increase growth. Many subsidies are untargeted and simply need to be done away with. The losses of state-owned enterprises must be brought down and their liabilities need to be restructured.

The chapter on export competitiveness laments that the country’s exports are declining in terms of both volume and value. Some of this is attributable to an overvalued rupee. However, Pakistan’s exports also suffer from lack of diversification in terms of markets and offering. Pakistan lags far behind its South Asian comparators in terms of regional trade. On the other hand, Ahmed thinks that regional trade can be one of the fastest routes to prosperity. Citing the example of the North Atlantic Treaty Organisation’s (Nato) containers’ transit through Pakistan in the previous decade, he points out that the people of Balochistan and Khyber Pakhtunkhwa benefitted tremendously, especially those working in retail and wholesale trade and the transport and logistics sectors. The author believes there is also potential for regional cooperation or “intra-industry trade” in South Asia. This would mean using the comparative advantage of individual countries to develop value chains which would be mutually beneficial. For example, Pakistan, Bangladesh and Sri Lanka could develop a textile and clothing production chain, capitalising on their respective strengths.

Building on his argument for greater regional cooperation as a means of economic growth, Ahmed stresses that Pakistan needs to have good relations with its neighbours in order to be considered a preferred investment choice for local and foreign investors. He regrets that apart from the China Pakistan Economic Corridor (CPEC) — where physical connectivity with China is expanding rapidly — the pace of land connectivity with all other neighbours remains sluggish. Likewise, the speed of enhancing Pakistan’s connectivity with Central Asia through energy pipelines and transit agreements also remains low. Using Turkey as an example of how politics can be kept separate from economics, Ahmed points out that Ankara has not let its ties with Nato capitals come in the way of energy deals with Tehran. Cautioning readers that Pakistan’s gas reserves will probably run out in 15 years, he advocates the urgency for cooperation with Iran and Central Asia on energy projects.

Fiscal policy is in desperate need of an overhaul, the tax system is complicated and unfair, public expenditure suffers from inefficiency and many subsidies need to simply be done away with.

While Ahmed insists that the book is written in language that will be easily understood by economists and non-economists alike, it is undeniable that technical terms surface again and again, which impact the uninformed reader’s experience. As an economist, I am all too familiar with this problem — striking a balance between writing knowledgeably without losing the average reader’s attention is difficult, and perhaps the author compromises on readability for the layperson in a few places. However, on the whole, Pakistan’s Agenda for Economic Reforms will be of particular interest to an audience of policymakers, academics and the donor fraternity.

The author has a wealth of experience of having worked with government, multilateral donors and think tanks; therefore, his arguments certainly carry weight. While many of the suggestions are arguably not novel, it is useful to have them in one place. What makes the proposals particularly pertinent, however, is the timing of their articulation: Ahmed thinks that policymakers will hopefully be more receptive to implementing his suggestions at this point in time because of the excitement surrounding CPEC and Pakistan’s economic revival, as energy and infrastructure projects come to fruition. He also thinks greater provincial autonomy since the 18th Amendment will mean that the provinces will be keen to implement policies which the centre might have been reluctant to introduce.

The reviewer is a political economist and has taught social sciences at various academic institutions in Karachi

Pakistan’s Agenda for Economic Reforms
By Vaqar Ahmed
Oxford University Press, Karachi
ISBN: 978-0199406050
346pp.

Published in Dawn, Books & Authors, June 24th, 2018