Pakistan economy Review and Recommendations

1. Pakistan economy Review and Recommendations

2. Pakistan ECONOMY: Key Stakeholders perspective

3. THE CITIZENS PERSPECTIVE

4. The citizens perspective Crushing Inflation Lack of Employment Opportunities * July-December Source: State Bank of Pakistan * SBP projection

5. The citizens perspective (CONT…) Lack of Economic Justice: • Rich don’t pay fair share of taxes • Government not able to control cartel’s (mafias) • Poor and unequal access to services and opportunities (gas, electricity, education, health etc.)

6. THE multilateral PERSPECTIVE

7. The Multilateral Perspective: debt trap Source: State Bank of Pakistan

8. The Multilateral Perspective: debt trap Source: State Bank of Pakistan Caught in a debt trap and unable to survive without constant external support

9. The multilateral perspective Source: State Bank of Pakistan Under taxed and poorly documented economy

10. The multilateral perspective Source: Promoting Economic Cooperation in South Asia, World Bank, 2010 Weak trade competitiveness: • Lowest regional trade integration in the world • Poorly educated, low skill workforce

11. The multilateral perspective Over and poorly regulated economy Large, highly inefficient, cash draining public sector Source: State Bank of Pakistan

12. The Investors Perspective

13. The Investors Perspective: Out of control Public Spending • Private & Public Sector Borrowings Heavy borrowing by the government has resulted in classic crowding out effect on borrowing , reducing private investments & driving down private demand for credit. * Feb, 2011 Source: State Bank of Pakistan

14. The Investors Perspective Pakistan's Credit Rating by Standard & Poor’s (S&P) Source: Bloomberg Badly deteriorated credit standing

15. The solution

16. The Solution On a war footing address the severe energy crisis by taking critical reform decisions which tackle pricing distortions, production and distribution inefficiencies, remove bottlenecks for urgently needed imports and develop the indigenous energy resources. Take urgent & concrete steps to sharply reduce public finance deficits. • Overhaul the tax & tariff structure and bring all sectors into a uniform documented tax net. • Reform and restructure public sector enterprises, starting with the transparent appointment of capable / professional top management and boards which are empowered to take the necessary actions. • Eliminate waste in Govt. expenditure. • Phase out broad based non targeted subsidies which unnecessarily benefit the well off also. Significantly increase education, health and income support expenditures (targeted subsidies) for the most vulnerable segments of the Society. Strengthen intra-regional trade linkages

17. Address the Severe energy crisis Expedite LNG imports Eliminate pricing distortions between different fuels / sectors created by GoP taxation / pricing decisions. Accelerate development of Thar Coal Revamp obsolete power generation / distribution / transmission facilities Deregulate the sector to bring in innovation and allow market to allocate molecules Accelerate gas exploration through political initiatives by settling high prospective zones in Baluchistan & KP - offer high incentives, which are consistent with global prices, for offshore drilling

18. IMPROVEMENT OF PUBLIC FINANCE: Overhaul the tax structure Same rate of tax regardless of source of income. Bring all exempted/severely under taxed sectors in the tax net Lower the tax rate and remove all exemptions. Document the Economy Revamp FBR. Deploy technology Carry out strategic review of tariff structure to create level playing field for local manufacturing Check abuse/misuse – Afghan Transit Trade/ under invoicing / smuggling * Exclusive of 7% levies (WWF, WPPF) Source: State Bank of Pakistan

19. IMPROVEMENT OF PUBLIC FINANCE:Reform, restructure and deregulate Reform and restructure public sector enterprises • Create a "supra board" which overseas the restructuring program of all these PSE's • Take these PSE's out of control of line ministries and have the "supra board" report to a parliamentary committee for restructuring. • Appoint capable/professional top management and boards which are empowered and accountable. • Mandate to reform and restructure these PSE's within two years. Focused and integrated deregulation of key sectors like energy and agricultural commodities Strengthen regulatory agencies (CCP, OGRA, NEPRA, SECP) by building capacity and ensuring independence.

20. IMPROVEMENT OF PUBLIC FINANCE:Elimination of waste Reduce size of Govt. structure by eliminating ministries and subordinated institutions which add little or no value Introduce stronger parliamentary oversight over Govt. expenditure, including defense expenditure, by strengthening parliamentary committees Make Freedom of Information Act operational and provide citizens access to Govt. expenditure, particularly by using information technology

21. Increase education, health and income support expenditure Significantly enhance resources for education, health and social protection Instead of broad based subsidies use targeted income support programs Use innovative strategies to provide education and health coverage Enhance citizens engagement and oversight over public education and health programs

22. 3.3% Reduction in Fiscal Deficit 5.7% Increase in Education, Health and Income Support expenditure Reprioritizing expenditurePHASED OVER THREE YEARS

23. INTRA-REGIONAL TRADE LINKAGES Revisit Afghan transit treaty to take care of Pakistani business concerns and address trade opportunities with Afghanistan and Central Asia Increase trade linkages with Iran with specific emphasis on energy Work for creation of a fully integrated South/Central/ West Asia energy grid Expand trade linkages with India