Governance

"The New Growth Strategy, developed by the Planning Commission chalks out a more selective role for government in the market- government will exit from sectors in which private sector activity can prove more efficient outcomes. The government will increasingly confine itself to the first two segments, i.e. policy and regulation

Withdrawal of the Public Sector from Markets:

The public sector’s heavy presence under a free market regime distorts the entire structure of economy-wide incentives. If inefficient public sector enterprises are kept afloat through government loans and subsidies, the distortions discourage innovation, productivity, risk taking and entrepreneurship. For example, agricultural incentives have been distorted by the public sector through direct effects on agricultural prices. Public enterprises have crowded out the private sector in agricultural marketing and distribution, and the rationale for government presence in these areas is not clear.

Restructuring of Public Sector Enterprises (PSEs):

Some of the PSEs that are not viable for privatization in their current state need immediate restructuring. The operations of PSEs such as TCP and USC have been subsidized with no cut-off date. In the medium-term, transparent privatization of loss-making entities should be the only way to serve the broader interests of economic growth.

New Directions in Civil Service Reform: The reform of the civil service in most developing economies has not been very successful. Motivated primarily by budgetary considerations, these reforms have focused on downsizing and procedural changes. An extensive literature on incentives argues that, for a reform effort to succeed, public sector human resource management will have to be reformed at an early stage to establish productivity incentives in the sector.

These include introducing substantial autonomy to organisations in their work and incentive schemes. A continuous process of civil service reform needs to build in decentralisation, local leadership, and local incentives.

Rationalization of Subsidies:

The pressures on an already ballooning fiscal deficit point towards the presence of unsustainable subsidies in the federal budget. The list of entities receiving mostly untargeted subsidies includes the Water and Power Development Authority (WAPDA), Karachi Electric Supply Company, Trading Corporation of Pakistan, Utility Stores Corporation and PASSCO. Most of these untargeted subsidies find their place in the budget because of political pressures and not poverty-related arguments.

Resource Mobilization:

The low tax to GDP ratio has been a problem area for too long. The brunt of taxation has been borne by organized firms in the formal industrial sector, nullifying their incentives for expansion, whereas agriculture and services sectors have long been exempted from mainstream taxations. As a result the tax gap in Pakistan has exceeded Rs 600 billion. There are issues about multiplicity of taxes across sectors and regions. A new contract is now required between the tax-payer and the government. Such a contract must be based on trust, and taxpayers must be given confidence that their contributions are indeed being invested in projects where social returns exceed private returns.

The 18th Amendment and the National Finance Award (NFC):

The new NFC and the 18th Amendment to the Constitution of Pakistan will impact the manner in which the federation and provinces interact. There will now be increased responsibility on the provinces for improved public service delivery. In order to carry out the additional tasks all provincial governments will have to come up with their own medium term budgetary frameworks to increase implementation capacity. Planning Commission will stand ready to support all Provinces for developing their own provincial growth strategies."