News Column

Perils of short-term economic policies

July 13, 2014

Ahsan Akbar



One of the key aspects of economic policy lies in the depth and the corresponding long term impact on the micro and macro situation of a country. Policies that are developed in haste and without a holistic approach are never successful, either in the short or the long run. To move forward firmly, each problem facing the economy needs to be tackled in its entirety with a rational approach.

Despite an intense focus on roping in more FDI and improving investment perceptions, an increased interest was not seen during the recent 3G/4G auction, with no interest from a new or foreign telco. Telecommunications sector has remained one of the most thriving sectors over the last decade with massive contributions in terms of foreign direct investment. The sector has produced a healthy and strong impact on the economy and society, thus benchmarking itself as indispensable for economic development. But, drafting policies which inversely impact this revenue generating sector will not be good for any one.

The International Monetary Fund (IMF) in its latest report has also estimated lower revenues generation then estimated by the government in the budget. This means that current expenditures will need to be curtailed further to deliver more savings towards GDP. With the revenues on the decline, and capital spending curtailed, annulled key revenue generators like ICH has raised further concerns for the economy. The current financial situation demands bold measures that increase revenue streams for the government as well as result in higher tax collection. The International Clearing House was not only regulating and documenting international calls but generating higher revenues per minute as well, in addition to contributing to tax net. Every single incoming call terminated through ICH contributed towards exchange rate stability. Other factors like monitoring grey traffic aside, this one aspect was reason enough to continue with ICH.

Similar to the rates of commodities like petrol, electricity and gas, which are regulated by GOP, the Access Settlement Rate for international incoming calls is fixed by PTA and is regulated by the government. Every minute illegally terminated by grey network is loss to exchequer and to monitor the entire traffic and curb grey traffic a single gateway is mandatory.

A rational approach is needed instead of letting perceptions drives policies. ICH had no negative effect on consumers within Pakistan. It in no way increased charges for the public in Pakistan when making international calls. The said mechanism only affected the profit margins of international operators who terminated international calls into Pakistan.

A subscriber calling from Pakistan to international destinations has to pay huge tariffs per minute. ICH brought a balance to this by enabling Pakistani operators claim equal share from international telcos and also brought a new stream of forex inflow in the national exchequer.

ICH also generates funds for Universal Service Fund (USF) which is used to promote ICT development in un-served areas and so far the ICH contribution in this regard stands at Rs 17 billion.

Instead pulling the plug on a system which is generating millions of dollars, a more holistic is required. The economic situation demands inputs from all revenue streams to reduce fiscal deficit and foreign exchange contribution of ICH is a big support to the economy. So far ICH has contributed $1 billion to the national exchequer, and revenues of 184 million dollars for the government.

Yearly foreign inflows of ICH stand at USD 550 million and estimates suggest revenues of 2.75 billion dollars in the next 5 years. This inflow will not only positively impacting balance of payments but also stabilize Pak Rupee against US dollar. The situation requires decision makers to lead the sector towards further expansion and progress. MoIT as well as Government of Pakistan must to synergize their efforts for long-term growth of the sector so that it can contribute more towards the economy.


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Source: Nation (Pakistan)


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