PBC Highlights Shortcomings of PM’s Yet-to-be-Launched Economic Plan

The Pakistan Business Council (PBC) has highlighted a number of shortcomings of the “Home Grown Economic Plan” set to be launched by Prime Minister Shehbaz Sharif on August 14. In a statement on X, PBC said the plan is primarily based on the Professor of Economic Policy at the University of Oxford Stefan Dercon’s recommendations, which Dercon acknowledges are not different from those articulated by many, including the PBC. These call for higher tax revenue through a level playing field, optimization of public finance, privatization and reduction in government’s footprint, focus on exports including IT and agriculture, power sector reforms, and the digitization of the economy. To balance the external account, Dercon recommends focusing on exports instead of import substitution. To achieve this he proposes a reduction in protection provided to domestic industry through import tariffs, especially on intermediate items that are inputs for the export sector. PBC agrees that long-term protection discourages modernization and innovation of domestic manufacturing and undermines consumer value. PBC said the processor’s recommendation on reducing import protection would carry more weight if domestic industry could obtain energy and other inputs at a competitive cost. However, when local industry has to pay up to twice the cost for power, use generators when the power supply fails, fend for itself for security which should be provided to taxpayers free of cost, procure water through tankers, deal with poor infrastructure, suffer from low productivity due to the state’s under-investment in human capital and deal with FBR’s harassment, then Dercon’s proposition takes a “chicken and egg” turn. Which should be fixed first – tariffs or the provision of competitive inputs? If tariffs, who will carry the responsibility for layoffs, particularly as creating a million jobs is one of the objectives of the Home Grown Economic Plan? Who will compensate for investments now rendered redundant? The plan also fails to factor in the role that production for the domestic market plays in reducing the marginal cost of exports in businesses that address both the local and export markets. PBC said a more logical approach would be to move quicker to remove protection for sectors in which Pakistan will never have a comparative advantage and to provide l protection to those that through the scale of a 250 million population market can operate without it in a short, predetermined time limit. For that, we should have an industrial policy, which appears not to be part of the Home Grown Plan. “Lastly, we have known for some time what needs to be done. Dercon’s endorsement is a useful reminder. Our failure has been in the implementation.  PM’s vision needs to be backed by a solid plan to implement,” PBC concluded. PBC is a business policy advocacy platform, established in 2005 by 14 of Pakistan’s (now 96) largest private-sector businesses and conglomerates, including multinationals.