PBC dismayed at U-turns in economic policy

The Pakistan Business Council (PBC) – a business advocacy body on Thursday expressed disappointment on ‘U-turns’ in economic policy of the federal government, and feared of decline in exports and investments.

PBC recalled that on January 1, 2019 the government had announced an all-inclusive tariff of 7.5 US Cents/KWh for the five export sectors. This enhanced the competitiveness of Pakistan’s exports.

However, barely a year later, on January 13, 2020, the Ministry of Energy instructed Discos to charge add-ons and surcharges amounting to 70 percent, raising the aggregate cost to 13 cents/KWh. To make matter worse, the add-ons and surcharges will apply retrospectively i.e. from January 1, 2019. “PBC is disappointed over this knee-jerk U-turn in government policy,” it said in a statement.

This is not the first policy reversal with retrospective effect on business. Earlier, the Finance Act 2019 cut the tax credit to half for investment in plant and machinery already made or to be made by June 30, 2020.

It also totally withdrew the 10% tax credit previously allowed on investment between July 1, 2020 and June 30, 2021, even if the same had already been committed. If not reversed, this threatens Pakistan’s exports and will discourage investment in capacity and capability.

Policy U-turns, especially with retrospective effect do not bode well for export competitiveness, import substitution, investment or employment. Yet all these are critical for Pakistan’s economy. Moreover, job creation is a centerpiece of the government’s manifesto.

How are Pakistan’s exports when subjected to 13 cents/KWh expected to compete with those from India and Bangladesh at 7-9 cents/KWh and China between 7.5-10 cents/KWh?

How are exporters expected to pay the difference of tariff arising from the retrospective U-turn when it was not factored into the price of exports already made?

A more relevant question is why exporters should be encumbered by legacy, inefficiency and idle capacity costs of our poorly managed energy complex?

The 7.5 cents/KWh cost already included a margin of 5.27 cents to cover distribution and fixed costs.

A third recent example of a policy U-turn is the reduction in import duty on mobile phones. Earlier, the import duty had been raised to encourage local production. Several investments had been made.

The Pakistan Business Council’s advocacy of “Make-in-Pakistan” has three objectives: promote value-added exports, encourage import substitution and create jobs in the country. Policy U-turns, especially with retrospective effect, run counter to these objectives.

The PBC urged the government to review each of these U-turns, restore the competitiveness of Pakistan’s industry and promote investment. It also urges a holistic view to be taken of policy changes to ensure alignment. Often policy reversals arise from the ministries working in silos. A prime example is chasing revenue to meet a ministry’s short-term target, in the process sacrificing the long-term health of business and the economy, defeating the government’s objectives.

Published in Business Recorder