Imran Khan: Prime Minister with an economic mountain to climb.

Imran has finally done it, and congratulations to him, and it reminds me of the long discussion he and one of his close banker friends from New York and myself had in my hotel room in Dubai back in 1996 before he took a flight back to announce his entry into politics. I remember arguing that he should not join politics but become the 'Ralph Nader' of Pakistan; to be a socially prominent Pakistani questioning the governance of the country from the outside. I told him our politics is dirty and jumping into it will drown good people into the filth. He said then, 'sometimes one has to step into the gutter to clean it'.

Imran Khan, kudos to him, not only jumped into the gutter to clean it, but also aroused the passion of a nation that the only way forward is a new Pakistan. Yes we as people always reinvent ourselves, its the one wave of emotions that instils the hope that things will not only change but will be new. His social agenda aside, the biggest obstacle, and one that can derail the promise of a new Pakistan, is going to be the horrible state of the economy in the country.

Nawaz Shareef's government has left the coffers of the country empty, a mountain of debt that needs restructuring and emergency financing to keep things going. Yes Pakistan will have to knock on the doors of the IMF yet again, and bilateral assistance from friendly countries may reduce the size of the begging bowl it will not eliminate it. The critical issue will be the long term fix that is needed in the country, and yes educating the work force to become more productive and investment in science and a better industrial base are sound policies but they will bear fruit over the longer term. Some measures have to be taken immediately for the country to get back on its feet. While insurmountable its not impossible. Here are a few suggestions.

1. Revenue Improvement.

Tax evasion and leakage of government revenues are one of the most chronic issues facing the economy. A few years ago it was estimated that 35% of the total electric power produced in the country was stolen by consumers or important political figures just did not pay the bills. In addition the tax collection, while improving, was still inefficient and in some areas even corrupt.Immediate reform of the tax system and the revenue collection improvement should be done within the first 100 days. This should start from the top and all members of Parliament should set the example of settling their bills.

2. Circular Debt.

One of the most damaging legacies of the three PML(N) and two PPP governments has been that they allowed circular debt to increase to astronomical levels. The primary reasons for this circular debt are the miss pricing of the power rates between suppliers and consumers (in addition to the subsidies) and the non collection of the revenue from key large consumers of power. The miss pricing adds about 12% of the total power bill to the circular debt and there is in general a 30% short collection from consumers. This huge gap is then financed from commercial banks against state guarantees thus adding to the national debt and weakens the financial system.

My suggestion would be to create a new power utility company, all miss priced utility supply contracts where private power providers were given 20-30% return on equity through favorable pricing should be renegotiated and/or phased out. No power company in the world has such guaranteed returns. The circular debt should then be restructured along new arrangements and a portion of the revenue collection improvement to be allocated to pay this debt off. As of now say the 30% leakage of revenue is totally plugged then 10% of this revenue is used to pay off the circular debt.

3. Boosting Exports.

A national strategy for boosting exports should be put into place. Economic zones, with tax holidays and incentives be created and seek to bring in companies from China, Japan and other areas who wish to create export based industries. This coupled with improvements in the work force, bringing law and order into the country would be a positive step. Value added exports should be seen as a priority rather than simply exporting minerals and agricultural produce.

4. Expenditure control and Enterprise Philosophy.

While Imran Khan seems to suggest a drive towards austerity, there has to be broad acceptance of this philosophy through the rank and file of the government. A more proactive foreign policy and a normalization of relations with India and Afghanistan might also augur in an era of reducing defense expenditures. While unions are preventing a major over all of large organizations like PIA and the Railway, there has to be either a dogged determination to make these companies efficient, or to simply allow new companies to be created which are lean in operating costs and more enterprise oriented.


While this is a broad brush approach to what is fundamentally a major and chronic problem for Pakistan, what needs to be understood is that for the PTI government to achieve this there has to be a clear focus between short term and urgent measures and long term systemic changes. Education and health care and job creation have to be considered fundamental to the longer changes needed but without addressing the urgent short term actions needed a long term strategy will be doomed to failure.

A key corner stone of the policy has to be accountability and for this there has to be stronger regulation and more powers to the State Bank of Pakistan. PTI is runs the risk that PPP had in the 1970s when they over promised the people and to meet those promises printing money was seen as a necessary evil resulting in inflation and with industries nationalized a weak economic performance. The electorate who so passionately rallied to the call of a New Pakistan also have to be patient that a New Pakistan cannot be created in a microwave in seconds. There are going to be serious challenges ahead of this government on the economic side and clarity of policy and purpose will be a useful tool to have.