Zafar Masud, CEO of the Bank of Punjab, and a visionary economist shared insights into Pakistan's fiscal challenges and potential avenues for sustainable economic development. The conversation cast a critical light on the nation's pressing fiscal issues, emphasizing the need for innovative strategies to secure a resilient economic future.
In a candid analysis of Pakistan's fiscal landscape, shedding light on the nation's burgeoning debt levels and excessive reliance on borrowing was paramount. The dire situation was articulated, laying bare the risks it posed to Pakistan's long-term economic stability. Central to the discourse was the concept of political and financial devolution, paralleling China's successful model. There is a need for a bottom-up approach, urging the delegation of tax collection and utilization to the district level. This approach, mirroring India's practices, was proposed as a powerful instrument for enhancing transparency and accountability while streamlining tax collection. Zafar Masud asserted, "For sustainable economic growth, Pakistan must decentralize its tax collection and utilization down to the district level, emulating the transparency and accountability found in China's system."
There are glaring disparities in tax contributions between Pakistan's provinces, placing an excessive burden on the federal government. The remedy, as proposed, lay in augmenting provincial tax contributions, a move that would redistribute fiscal responsibility, thereby lightening the government's debt load. This fiscal reorientation would inherently render the system more equitable. Perhaps, even more, is the looming challenge of debt servicing, especially in the context of persistently high interest rates and their impact on inflation. And this calls for a fundamental shift in monetary policy towards aligning with core inflation, akin to global practices. The envisioned result was a reduction in interest rates, inflation, and government borrowing, a significant step toward fiscal stability.
In the realm of subsidies, there is a need for a strategic overhaul, and in order to do that, there needs to be an evaluation and gradual phase-out of subsidies across various sectors, reserving them exclusively for vulnerable demographics and export-oriented industries. This tactical realignment aimed to foster economic diversification and innovation, thereby reducing reliance on subsidies.
Addressing loss-making state-owned enterprises was next on the agenda, with Zafar Masud proposing the establishment of a fund to support privatization. He suggested offering concessions instead of direct asset sales, fostering competition, stimulating investments, and ultimately relieving the fiscal burden on the government.
Essentially, there also lies an opportunity in the exploration of Pakistan's untapped potential in climate funding. The economist emphasized Pakistan's vulnerability to climate change and the urgency of harnessing climate-compliant funding. This transformative financing source has the potential to fortify climate-resilient development and green financing, shaping Pakistan's economic future.