While still amid severe financial, current account and debt crises, the good news is that Pakistan ‘overperformed’ on innovation for the second consecutive year.

It was ranked among economies recording ‘most significant ascent’ in the 2023 Global Innovation Index of the World Intellectual Property Organisation. It was individual entrepreneurship at its best, but of course, the country still has a long way to go in that direction.

This positive development reminds us of the importance of human resource development, individual entrepreneurship, self-

employment and the role of non-tangible (intellectual) assets in economic development and growth. It finally leads us to the issue of the social contract between the citizens and the state to spur the innovative process.

The centralised top-down approach with its limited reach is not enough to put things right and needs the crutches of the bottom-up approach to lift all boats

In this era of individual self-determination, the social contract should be designed to restore the confidence of businesses, communities, households and individuals in the economy and encourage them to work for the common good.

The social contract is stated to be about rights and the responsibilities of the government towards its citizens. And, to quote analyst Muhammad Wajahat Sultan, for a larger section of society to benefit, a new social contract is mandatory for the individual.

Some experts, analysts and bankers have occasionally stressed the need to strengthen the social contract between the government and the citizens to make the system progressive by prioritising raising taxes, cutting expenditure/waste and improving faltering public service delivery.

The social contract between the public and the government needs to be strengthened, wrote former State Bank governor Syed Salim Reza, Chairman of the Habib Bank Sultan Ali Allana and President of the Punjab Bank Zafar Masud in their recent article titled ‘Transiting away from the cash economy.’ Elaborating on their point of view, the authors observed that the government needs to show better delivery against higher tax revenue on its part, and the public must appreciate that paying taxes is necessary for better public service. (Here, the issue of rights and responsibilities of citizens comes into play).

There should be no confusion about the freedom to pursue legitimate businesses and the licence to indulge in harmful practices

They also point out that imposing withholding tax on banking transactions (non-cash) and cash withdrawals has led to a significant shift towards cash in circulation (CinC), and on top of that, the distinction between filer and non-filer added fuel to the fire.

This has contributed to the drop in bank deposits’ average annual growth rate to 12pc from 17pc in FY15. Higher domestic savings and investment rates are badly needed in commodity producing sectors to reduce unsustainable foreign dependence.

Instead, excessive CinC has contributed to fueling inflation, speculative trading and funding of the informal sector. The crackdown on speculative currency trading and smuggling, according to currency dealers, has so far yielded $900m. Overseas workers’ remittances increased by 5.3pc on a month-on-month basis to $2.2bn during September.

There should be no confusion about the freedom to pursue legitimate businesses and the licence to indulge in harmful practices.

In the formal sector, several international and local investors from diverse fields have approached the secretariat of the Special Investment Facilitation Council (SIFC) to help resolve their regulatory and procedural issues. In response, the SIFC executive committee has asked federal and provincial governments to provide information on the projects stuck up for any reason for a long time to help resolve related problems. Initiatives taken by the SICF, says caretaker Prime Minister Anwaarul Haq Kakar, should trickle down to each province.

Economist Sajid Amin says the tax system is designed for revenue extraction, not generation or mobilisation. The middle class reportedly paid Rs264 billion in taxes last year against Rs74bn paid by textile exporters who sold goods worth $28bn.

Most importantly, the reforms should increase the progressivity of the system, says a World Bank report, suggesting a comprehensive package of tax and expenditure reforms to reduce unsustainable fiscal deficit.

The public service delivery system appears to be in shambles, going by a recent statement by the provincial minister of Punjab. All 58 small dams in the Potohar Region lie dormant, and the Greater Canal Thal project remains idle, with machinery gathering rust.

This was revealed in a meeting of federal and Punjab government officials held to evolve strategies to curtail spending on edible oil imports by increasing the output of local oil-based products.

To quote analyst Mariam Saleem, Pakistan loses $4bn worth of food annually, equivalent to 26pc of its total production, while 43pc of the population faces food insecurity. About 800,000 tonnes of wheat worth Rs90bn go to waste due to inadequate storage. Inefficient cold chains further exacerbate perishable goods wastage, preventing food from reaching those in need despite ample production. And to quote another analyst, Samia Liaquat, food is becoming unaffordable as the prices have gone up by about 40pc in rural areas in a year.

The World Bank says the government should guarantee the necessary safeguards to mitigate the social impact and costs of privatisation, such as displacement of workers adding to the already high unemployment rate. The International Monetary Fund estimates the jobless rate at 8.5pc in FY23, up from 6.2pc in FY22.

The centralised top-down approach with its limited reach is not enough to put things right and needs the crutches of the bottom-up approach to lift all boats.

Published in Dawn, The Business and Finance Weekly, October 16th, 2023