1.Do not control prices, work on supply

The government should resist the temptation on controlling prices, as this provides wrong signals to both producers and consumers. Consumers go on panic buying and producers stop investing in supply. The government should still regulate, focus on supply, and take measures against cartelization and hoarding especially when it comes to food and medicines.

2.  Remove trade barriers

As we have advocated in the past, open trade helps in free flow of medicines and medical equipment, and government should withdraw such tariff and non-tariff barriers at least till the time the crisis is over. If Pakistan was a signatory to the Information Technology Agreement, as we recommended many times, import of medical machinery would be possible duty-free. Allow the free import of 3-D printer to help boost innovators.

3. Re-allocate resources to invest in critical manufacturing

Government should further reduce the interest rate and induce commercial banks to reallocate capital to the industries with plans to boost production in critical medical equipment such as ventilators and hospital beds..

4. Protect daily wage workers in the industries

Government should announce a new regulation to ensure that the workers on daily wages employed by the industry should continue to be paid during the factories closure.

5. Re-prioritize Zakat spending

Government should re-prioritize Zakat spending and should also encourage private companies and foundations to create a pool of funds to provide cash to informal workers in the industrial, agricultural and services sector during the crisis.

Pakistan’s policymakers are in an unenviable position while formulating the upcoming fiscal year’s budget

Everyone from small and medium enterprises to large-scale manufacturing industries is looking for relief measures to cope with the Covid-19 crisis. Even without the pandemic, many would expect some relief in the existing taxation regime as the government is reaching the halfway point of its tenure.

Unfortunately, there may not be much room for any major tax reductions. Already this year, the country would be fortunate even to achieve 70% of the original tax collection target of Rs5.5 trillion (which has been revised downwards several times).

While some blame lies with Covid-19, it was apparent from the beginning that the original target was almost impossible. One key lesson is that there should be some realism in setting the revenue target as that is the foundation of the whole budgetary exercise.

It should not be too difficult to estimate a ballpark revenue figure as the size of gross domestic product (GDP) and the growth rate are relatively better estimated, and the tax-to-GDP ratio does not change much.

Given historical trends, expenses almost always surpass estimates, while revenues are often much lower than the set objective. Notwithstanding these realities, according to press speculations, the IMF is pushing for a significant rise of 34% in overall revenues next year.

As the economy is likely to contract into negative territory, any tax increases will be self-defeating and not likely yield any additional revenues. It would be in everyone’s interest to have a realistic tax target – say about 15% higher than the anticipated receipt this year.

Having an achievable revenue target will result in more credibility on the expenditure side. Also, major stakeholders on the expenditure side will realise the seriousness of the situation and limit their demands.

Next fiscal year’s priority should be to curtail non-development expenditure and focus on such budgetary expenses, which can create employment. Thus, keeping a reasonable level of Public Sector Development Programme (PSDP) would be valuable.

At the same time, tax reforms can facilitate the business environment and often bring more revenues. It is particularly vital that the industry, especially the small and medium enterprises, can restore its activity so that some of the job losses could be recovered.

Tariff board

The budgetary measures, which are also the main channel for determining the trade policy, will be the first test of the new Tariff Policy Board, headed by the prime minister’s adviser on commerce. The initial milestone will be whether the new tariff policy can change the direction to support Pakistan’s industrial growth, international trade and other public interests.

Even if the tariff rates cannot be seriously rationalised to give much-needed relief to the local industry with cheaper inputs and reduce rampant smuggling, at the very least, the Tariff Policy Board can simplify the tariff.

Every government intended to provide a level playing field for various industries by reducing the number of Statutory Regulatory Orders (SROs) and tariff slabs to reduce tariff dispersions. Still, for more than a decade, it had been mostly lip service with no real reforms.

The Tariff Policy Board can change it. In addition to the simplification of tariff, there is an urgent need for budgetary measures to cope with the Covid-19 health emergency.

The minimum concessions for coping with Covid-19 should include an extension of the temporary exemption for medical and other healthcare equipment from import taxes till the pandemic is over.

A recent study by World Bank economists, giving the comparison of applied tariffs in 20 developing countries, showed that Pakistan is one of the three countries which have the highest import taxes on Covid-19 products. It is unfair to not prefer people’s health and welfare for the sake of minor revenue.

Malnutrition

Another linked issue is that of malnutrition, which is already affecting almost half of the Pakistani children and women but will become worse with the impact of Covid-19.

Prime Minister Imran Khan highlighted stunting in his inaugural address. According to a recent study, the consequences of malnutrition cost Pakistan’s economy $7.6 billion every year.

With the help of the World Food Programme, the government has been working on increasing access to food supplements for the vulnerable section of society. But the high incidence of import taxes on the ingredients of food supplements makes it difficult to manufacture them locally. In this Covid-19 period, malnutrition must not increase.

The budget may not be able to set any lofty goals but it should at least save common people from further economic losses and protect the poor from falling into destitution.

The writer is a senior fellow with the Pakistan Institute of Development Economics and has served as Pakistan’s ambassador to WTO

Published in The Express Tribune, May 18^th, 2020.

Federal Budget 2020-21

By DR MANZOOR AHMAD

COVID-19 (coronavirus) is an unprecedented catastrophe of modern time. Governments all over the world are looking at all sorts of options and policy tools to meet this challenge.

Pakistan’s government has recently taken many reasonable steps, including adjustment of fiscal and monetary policies to combat this. Still, considering the magnitude of the problem, a lot more will need to be done.

This article points out some other areas where policy decisions are urgently needed.

First, looking at the trade policies, the government has exempted medical and other health care equipment from import taxes initially for a period of three months. It is not likely that within this short period, the objectives will be met, considering that there is an acute shortage of these goods and many countries have imposed export bans.

Importers face severe constraints while entering into any purchase contracts. In case there is any delay, punitive tariffs and other import taxes will be applicable when the goods arrive.

There are very few countries that are usually taxing life-saving medical instruments. Most countries are members of the World Trade Organisation (WTO) Agreement on Information Technology, which was updated in 2015 to include advanced medical equipment.

Under the agreement, the member countries allow duty-free imports. Pakistan should consider becoming part of this global alliance. Still, if it is not possible immediately, it should not limit the exemption from taxes on life-saving goods to only three months.

In the context of COVID-19, the most urgent problem is the lack of ventilators, which are currently the only option to save lives.

Due to high cost and unavailability at present, groups of local volunteers including engineers, doctors and biomedical professionals are working round the clock to make affordable ventilators and related accessories.

They could take cue from the efforts of an Irish team that has recently developed a 3D-printed mechanically operated ventilator prototype. It is an open-source ventilator implying that anyone can make use of this model to make their own.

Pakistani entrepreneurs may find themselves disadvantaged by the fact that currently the import of 3D printers is not allowed in Pakistan. 3D printers are being used in various countries to meet high demand for reusable plastic facemasks and protective gears for health workers.

These printers build almost anything, including body parts, physiotherapy goods and hospitals.

Even before the current crisis, they were spearheading the digital industrial revolution. Maintaining a ban on their import does not make any sense. We need them urgently to produce mass-customised health care and other products.

Import of insecticides

Another related and foremost issue is last week’s federal cabinet decision to reject a proposal from the Ministry of Commerce to allow the import of insecticides from India even on a one-time basis to control the imminent threat of the spread of dengue fever.

Punjab government’s health care department made the proposal. There is no realisation that just last year there were about 45,000 confirmed cases of dengue fever, including 75 deaths in the country.

If dengue spreads as widely as it did last year, the casualties could be even more than anticipated from the coronavirus.

Since the mosquito that causes dengue fever starts laying eggs in early summer, there is very little time for taking preventive measures. It is hard to imagine the doomsday scenario resulting from the combined havoc from dengue and coronavirus.

Considering the social, economic and political implications of COVID-19, all national stakeholders must adequately be represented in the decision-making process. What we are still missing is a cross-functional COVID-19 response team representing all the three sectors.

There is also a need for frequent virtual meetings of the Council of Common Interests (CCI) to avoid any misunderstanding and ensure a coordinated effort.

In case essential supplies from one part of the country fail to reach another, it can give rise to severe law and order situation.

Global cooperation

As at the national level, cooperation is proving to be a challenge at the international level. Over 50 countries (including Pakistan) have applied new trade restrictions on medical supplies, and the trend is continuing.

But there are some bright spots as well. China is one of the few countries, which having overcome its adversity is now extending material and technical assistance to many other countries including Pakistan.

Many countries are also forming regional forums and funds to fight the crisis. South Asian countries have set up the Saarc Corona Emergency Fund. India has made an initial contribution of $10 million while all other countries have also made their contributions ranging from $5 million from Sri Lanka to $1 million by Afghanistan and $100,000 by Bhutan.

Pakistan is the only country, which is so far staying apart from this regional initiative. The country’s policymakers must realise the importance of cooperation, whether domestic or international.

The writer is the senior fellow at Pakistan Institute of Development Economics and ex-ambassador to WTO

Published in The Express Tribune, March 30^th, 2020.