It is natural that citizens and voters build up expectations from a new government to deliver them relief. A newly elected government, which will hopefully take the reins soon in Islamabad, will also be under pressure to make such announcements, which can earn them acceptability.

A new government is often expected to announce a 100-day agenda, and in this article, I propose one. The announcements should, in my opinion, be on the one hand meaningful enough to create an impact and should be bold enough to signal a change on the other hand.

There is the usual caveat of pragmatism, especially given the IMF programme, but I also see there is always room for the new government to take such decisions, which are difficult politically. Let me present the 100-day agenda for the new government.

Abolish non-electricity dues

According to the information available at the Ministry of Energy website, electricity consumers pay eight different types of taxes and charges, which include electricity duty, general sales tax, PTV licence fee, finance cost surcharge, extra tax, further tax, income tax and sales tax.

The withholding tax collected is not adjusted because of the lack of an automated mechanism and is appropriated in the case of non-filers of income tax returns. Deduction of sales tax from commercial bills of non-filers gives legitimacy to the non-filers.

Electricity users should be obliged to pay only electricity dues. They do not need any subsidies, however, they must not be penalised for failure of the country’s tax administration.

That is why it is important to remove electricity distribution companies from the clutches of the federal government, while strengthening the institutional regulatory framework. The job of electricity companies is to sell electricity to consumers efficiently and not to collect taxes on behalf of the Federal Board of Revenue (FBR).

Announce tax holiday for small businesses

Despite claims of automation and simplification, the tax policy and tax administration in Pakistan pose a major stumbling block for the registration of new businesses.

There is a steady flow of new companies being formed under the SECP, however, a majority of entrepreneurs start informally or as a sole proprietor. We need to encourage them to join the formal economy and help them to become profitable.

The new government should announce income tax holiday for three years for all micro and small businesses registered within 100 days of the new government provided they open a bank account and register with the FBR to file returns.

Open trade with India

Food items constitute the bulk of Consumer Price Index (CPI) basket, particularly for the low-income households, reaching 60% of their average household expenditure.

The new government should resume trade in fruits and vegetables with India, allowing consumers and farmers on both sides to enjoy benefits of continuous supply of eatables at affordable prices.

Allow formal oil trade with Iran

According to official estimates released in 2023, almost 18% of the oil consumed in Pakistan is smuggled from Iran, which is then distributed across the country.

As Pakistan has announced the completion of its side of the Iran-Pakistan gas pipeline recently, its calculations show that it is ready to take the risk to avoid $18 billion of penalties, which is three times more than the IMF programme.

In this environment, it will be beneficial for Pakistan’s economy and its government to open formal oil trade links with Iran. This will also bring back Rs60 billion to the exchequer, which is the lost tax revenue.

Announce scholarships for young people

We are wasting billions of rupees each year in the higher education system. We need to divert a major chunk of this budget to technical and vocational education of our qualified young population.

The rate of unemployment is significantly higher among university graduates (about 30%, according to PIDE) as compared with those without university education.

On the other hand, Pakistan’s technical and vocational system continues to fall short of producing the required number of trained workforce to meet the national requirement. A major re-allocation to upgrade this system and the announcement of scholarships for at least 100,000 young people who qualify will be a great boost to the job market.

By announcing this 100-day agenda, the elected government can quickly create a positive environment for the country’s aspiring youth and help provide a trigger for economic growth without any major investments.

The issue of privatization of the SOEs is reflective of the complexity, ambivalence and indecisiveness of the public policy in Pakistan. These three traits are embedded in the politics and political struggle and form the core of political opportunism. 

 So, the fundamental question is how to decide: What to privatize and what not to privatize? What's the criteria? Also, why to privatize and why not to privatize? 

 Or, other than the security concerns, what criteria can be agreed upon regarding the question: what to privatize and what not to privatize?

 In this regard, a historical review of the attempts at privatization of the SOEs reveals the two significant aspects the issue of privatization needs to be tackled with. 

 First is the theoretical and political side, and the other is the practical side of the issue of the privatization. Logically speaking, the second one depends on the theoretical and political side of the issue. That is, here in this case the issue of privatization depends on one's theory of state, that is, what political philosophy is working behind the various approaches to the issue of privatization. 

 But as is evident, mostly there is no theoretical and political clarity as the case of Pakistan Peoples Party shows; it favors both nationalization and privatization at the same time. Or it’s political populism that determines their politics. 

 That means there is too much confusion on the political front. As far as privatization of the SOEs is concerned, almost all the political parties position themselves as it suits them. Now they favor it and now they don’t. 

 It is only the Leftist groups that have political clarity and a clearly defined position regarding the privatization of the SOEs. 

 And there is another factor and that is, vested interests of various actors, such as labor unions, including the political actors. 

 So, to say, from the beginning, the state of Pakistan took itself as an all-powerful state, leaving no space for the private initiatives to try their hands. And somehow that was the expectation created by the political-electoral struggle also. That is how the statist political ideology formed and grew.

 Though, Pakistan has never been a totalitarian socialist state, but the political adventurism made use of the recipe of a mixed-economy (the third way) dominated by the public sector (1971-76) in Pakistan. That wiped out the gains made out of an experimental approach by the state which believed in extending a helping hand to the nascent private sector (1958-67). 

 That dealt, and proved to be a devastating blow to the sentiment of the private investors both local and foreign for a long time to come. (The foreign investors that came to Pakistan sought such protections that in the longer term burdened the people unbearably.) And it is that environment that strengthened the Pakistani version of the ideology of statism: it is the state that has to do everything. 

 That thinking resulted in an economic legacy consisting of a heavier footprint of the state (more than 200 SOEs, and 70% state footprint), that includes from commercial SOEs to non-commercial SOEs and what not. 

 Then, economically speaking, the pendulum oscillated to the other side. A period of correction ensued: De-nationalization, privatization and liberalization provided an impetus to the economic and financial activities still benefiting the society at large (1978-1986). 

 Another fact that must not be ignored is that some commercial monopolies, such as Karachi Electric (KE), Pakistan Telecommunication Corporation Limited (PTCL), were privatized in a way that was like a monopoly changing the hands only, and that brought no benefits to the consumers. That strengthened the statist ideology since the privatization proved not beneficial. 

 Not surprising that the statist ideology still prevails. The voices of nationalization of this or that privatized SOE, for instance, KE, are still heard. And it is this ambivalence of political philosophy on the part of political parties and political circles that don’t allow the private sector to take root, and thus competition. No doubt, that environment influenced and nurtured a specific section of the private sector also that is dependent on the doles from the state.

 In the final analysis, that ambivalence, instilled by the various political parties attempting privatization while in government and opposing it while not in government, that is, their opportunistic behaviour, and an anti-privatization environment, kept and keeps the state and its institutions confused as to the role of the state and indecisive as to the determination of the economic character of the state: To do business or not to do business. 

 Also, there is no clarity that how the privatization of the SOEs, by opening competition, brings not only political and economic stability, but prosperity also, and would allow the state to focus on its protective function. 

 Now even after 45 years, we are still considering of running the SOEs under this or that regulatory framework. We still lack and need theoretical-political clarity on the one hand, and on the other, equipping the government/political parties with regulatory tools that would help them accelerate and strengthen the process of privatization of the SOEs. 

 There is too less here to celebrate and too much to reflect on. No doubt, that’s the story more of failures.

What is particularly noteworthy is that the poverty level now is higher than it was five years ago. This is a worrisome departure from Pakistan’s earlier success in steadily reducing poverty over the preceding decade.

Despite Pakistan’s recent focus on welfare, including increased spending on social programmes and widespread subsidies, the results have been concerning.

Efforts such as the Benazir Income Support Programme (BISP) aim to safeguard the underprivileged, while subsidies aim to shield the masses and the economy from the shock of rising food and energy prices.

However, citizens are facing more difficulties, with rising poverty rates and stagnant per capita income over the past five years. This outcome contradicts the anticipated improvements.

The preceding government purposefully ramped up spending on subsidies and social protection programmes in pursuit of a stronger social welfare system. Over the past five years, allocations for subsidies, BISP, and social protection surged, averaging 14.2% of the federal government’s expenditure – an uptick from the previous five-year average of 7%, which saw spending on a declining trend.

The trajectory depicts a clear increase: it began at 5.9% in 2019, doubled for the following two years, and peaked at an unprecedented 23% in 2022.

The effectiveness of these policies remains in question. While correlation isn’t causation, one must question why poverty reduction has reversed despite a greater focus on social welfare and subsidies?

The primary driver behind the resurgence of poverty has been the unexpected surge in inflation. The surge has had far-reaching implications on the overall cost of living, impacting the populace at large.

However, the middle class and impoverished citizens are the most affected, as their real incomes diminish and fail to keep pace with the inflationary pressures. The runaway inflation has rendered basic necessities prohibitively expensive, resulting in an estimated 20 million people slipping into poverty – a stark contrast to declining poverty rates in previous years.

The government attributes high inflation to the international commodity super cycle; however, this claim is untrue. Other countries in the region haven’t witnessed such a spike in inflation. This is because inflation is inherently a local phenomenon shaped by local policy decisions.

At its core, fiscal indiscipline stands as the root cause. The surge in subsidies amid growing fiscal imprudence and record deficits is not without repercussions. The government finds itself in a net borrowing position, with soaring debt levels nearing the point of unsustainability.

Financing the escalating fiscal deficits through bank borrowings has fuelled the expansion of the monetary base, contributing significantly to the inflation rate, which peaked at an alarming 38%.

Contrary to their intended purpose, substantial subsidies have negatively impacted the economic landscape by distorting the price system. The resulting adjustments are considerably more painful and less subtle.

While broad subsidies lack merit, there is a case for a targeted programme like BISP. However, it demands a more deliberate and focused strategy with clear milestones to uplift families from poverty within specified timeframes and the establishment of performance metrics to gauge progress.

There’s a necessity to transition away from providing indefinite monthly stipends and to measure progress not solely based on the number of beneficiaries and total cash disbursed.

While there is much rhetoric advocating for the continuation of subsidies and the expansion of social protection, these measures rarely assist people in breaking out of the poverty cycle. This is evident in recent years despite a focus on welfare policies.

It’s apparent that the current approach falls short, especially considering Pakistan’s consistent reduction in poverty rates over the previous decade with relatively modest subsidies and safety nets. The unintended consequences – high inflation and a reversal in poverty reduction – underscore the necessity for a more balanced and sustainable strategy.

The best way forward is for the government to stop fuelling inflation. It needs to prioritise fiscal prudence across its expenditure spectrum, which involves enhancing the efficiency of public spending, reducing the government’s footprint, phasing out subsidies, and establishing clear milestones to limit welfare spending.

In essence, creating a supportive business environment and expanding employment opportunities through growth stand as the viable means to alleviate poverty. Prioritising fiscal responsibility and nurturing economic growth are crucial steps towards reorienting Pakistan’s course for effective poverty alleviation.