FPCCI emphasizes genuine structural reforms Taking loans, failing to reform create problem

The Federation of Pakistan Chambers of Commerce and Industry has stressed the need for serious structural reforms, with a keen focus on value-addition for sustainable economic growth, recommending the government to raise exports to double-digit of the GDP till the end of its term, as Pakistan’s exports have bounced back after witnessing a decline in last four months. The country’s exports have fetched $1.99 billion in July 2020, witnessing 5.8 percent growth in dollar terms.
FPCCI President Mian Anjum Nisar said that consistent borrowing by developing economies to shore up its reserves in desperate times is only to lead towards a debt trap. He said that borrowing from friendly countries should only be seen as a short-term solution to prevent reserves depletion and consequent further depreciation of the currency.
Mian Anjum Nisar stressed that focus should be on promoting exports and restricting imports alongside making the domestic industry more competitive and subsequently expand its export market.
He said that exports of goods and services are an injection into the circular flow of income leading to a rise in aggregate demand and an expansion of output, helping raise per capita incomes, and reduce extreme poverty especially in developing economies like Pakistan.
He said that world trade has not still come out of the dip in the wake of the lingering corona pandemic, as exports of regional countries including India and Bangladesh registered a decline but Pakistan’s exports bounced back, reporting around 5 percent growth in July 2020 compared with regional players. The exports went up in July 2020 after registering continued decline pre and post COVID-19 pandemic.
Regarding market diversification, Mian Anjum Nisar pointed out that not much progress has been shown in this regard, as the exports still seem to be heavily dependent on traditional export markets. He underlined the need for evaluating geographical diversification to re-align the focus towards new opportunities. The government agencies will have to extend all kinds of necessary support to the exporters to achieve the targets, not only in terms of numbers but also with regards to intended policy outcomes.
Mian Anjum Nisar observed that the World Bank, IMF, and donor agencies should be considered as a stop-gap arrangement, which may have forced excessive devaluation, steep monetary tightening, cut in development, and defense expenditures. Loans simply serve to bridge the gap until the effects of the reforms take effect. The problem occurs if the country takes loans but fails to reform, he added.
While talking about tax policy, he maintained that the existing tax system is heavily skewed toward indirect taxation and a direct tax can certainly improve tax collection in some instances.
FPCCI president said the sustainable solution to Pakistan’s problems lies in the structural reforms, as we can see very large inefficiencies in tax collection. So, the tax compliance must be improved and the tax base is broadened. This cannot be achieved with a single policy change, but by a systemic approach, he added. He observed the government preferred direct taxation to meet revenue shortfall as opposed to resorting to increasing indirect taxes because direct taxes tend to be more progressive in nature, therefore, the burden on the lower-income strata of the population is lesser.
Mian Anjum Nisar emphasized that concentrating on import substitution is imperative to narrow import bills and certain imported products such as oil are of a fixed nature, therefore, the government needs to enhance focus on import substitution industries, as chemicals, agriculture, and steel are potential industries.
He said that undertaking structural reforms require political will. He said that the early signs from the government are positive and exhibit zero-tolerance against corruption. He said that enacting structural reforms, such as improvements in the tax collection system, bureaucracy, and ease of doing business requires major political will and strict implementation of policies, he added.
Quoting the central bank report, the FPCCI President said the current account deficit contracted to a six-year low, foreign exchange reserves increased, primary budget recorded a surplus, and core inflation eased. Importantly, export-based manufacturing showed signs of traction and construction activities picked up, indicating that the economy was on the path of recovery. However, further improvements need serious structural reforms to put the economy on a firm path of sustainable growth.