President Zardari flanked by his son Bilawal and Farzana Raja distributed cheques under the Waseela-i-Haq Sindh programme targeted to provide self-employment to 35,000 people between the ages of 19 to 35 with at least a secondary school pass and scoring between 16 and 30 on the poverty scale. He stated that if allowed to complete its term (one year remaining) the government would implement major positive changes and inexplicably blamed the bureaucracy for failures during the past four years in the economic arena. The Prime Minister in Davos also referred to the government's intent to complete its full term.
These statements have generated speculation that elections may not be held much in advance even though reports indicate that the PPP's central executive committee is agreed to hold elections by the end of the third or early fourth quarter of the present calendar year. Irrespective of whenever the elections are held the PPP-led government is adamant that it would present the 2012-13 budget. The question that stumps many an economist is why given the poor performance of all the major macroeconomic indicators.
The most damning indicator of all that would have to be shared by the government with the parliament is a budget deficit that is likely to be greater than what this government inherited in 2008 (7.6 percent) reflecting a range of flawed policies that continue to fuel domestic inflation and unemployment. Three of these flawed policies need to be highlighted. First is the failure to arrest subsidies in spite of repeated budgetary claims that subsidies would be massively slashed. In the budget for fiscal year 2010-11, the Finance Minister pledged 84 billion rupees to Wapda/Pepco and 3.3 billion rupees to KESC. The revised estimates for the year reveal that actual subsidy was 296 billion rupees for Wapda/Pepco with inter-disco tariff differential the major recipient of the rise. The government has relied almost exclusively on raising tariffs under the guise of full cost recovery, however what it has ignored is arresting existing inefficiencies within the system that account for large injections for inter-disco tariff differential as well as line losses and failure to ensure payment of about 20 percent of the bills with the largest offenders being government departments/ministries. Thus the public which pays its bills on time is not only subjected to massive load shedding but the bills payable for declining electricity supply are rising. At the same time the government by not implementing reforms in the power sector is directly responsible for raising subsidies on the one hand and injecting unbudgeted cash into Pakistan State Oil (given the recalcitrant inter-circular debt) to enable it to pay for critical fuel imports. No one has benefited from this policy and it continues to this day given that power subsidies in the current fiscal year are expected to cross the 350 billion-rupee mark. The budgeted subsidy to the sector was less than 150 billion rupees.
Second is the continued failure to implement policies targeted towards promoting domestic productivity. Reports have surfaced which indicate that several manufacturing units have begun relocating abroad including in Bangladesh where energy as well as law and order are not issues. Additionally the government, compelled to borrow domestically (as external sources of finance for budgetary support have dried up consequent to the failure of the government to get a Letter of Support from the International Monetary Fund that would have indicated that the government has begun implementing tax and energy sector reforms) is crowding out private sector investment. And to add insult to injury the government is slashing development expenditure with direct negative implications on output and employment opportunities.
The third major policy failure is in terms of appointments in public sector entities at the senior-most level and using these entities as recruitment centres for political loyalists. The result is large annual bailout packages for several SOEs that the treasury can ill-afford. Corruption is also fairly evident in procurements by state-run corporations/ministries/departments.
In this context, the preparation of the budget 2012-13 is likely to be extremely challenging which, to my mind, is an understatement. Would it not be advisable for the PPP government to go for elections prior to the budget and thereby allow the new government if not led by the PPP to take decisions that are likely to be politically disastrous for it? Or if the PPP does emerge as the largest party in parliament then it would be in a better position to take politically difficult economic decisions as it would have a fresh mandate from the people? This is what the thought pattern would be in an established democracy. In Pakistan the mind set, to use a pet phrase of the President, is markedly different. And this was evident from the forum from which the President made his speech: the inauguration of the Waseela-i-Haq Programme in Sindh. Presenting government money, or in other words our tax money, to the needy is a proven successful election strategy, not possible outside the government.
In power, a political party has full control over the treasury and that control goes hand in hand with the ability to make a deal with powerful domestic institutions, including the establishment and the bureaucracy. That this is understood by the incumbent PPP government is patently evident from the fact that salaries of military personnel (and not only those engaged in the war on terror) and bureaucrats were raised by 50 percent across the board when the treasury could ill-afford the money. Hefty salary rise in Pakistan was all the more inexplicable given that most countries of the world are cutting down on the workforce and capping pay rises in the public sector as part of an austerity drive to combat recession. In short, the bureaucrats and the military personnel benefited from Pakistani government's economically untenable decision while the rest of the country continues to pay a heavy price. One can only hope that in 2012-13, the government would not raise the pay of bureaucrats but, given past precedence, that appears unlikely.
There is also evidence to suggest that the freeze on recruitment is in the process of revision to ensure that recruitment of jiyalas can proceed prior to the elections. This policy would no doubt raise the total salary bill and also further weaken state-owned entities. But it would go some way in easing jiyala anger against the government for ignoring them for the past four years.
The PPP can also begin constituency-specific development projects that would ensure that those areas where public anger is visible, for example the flood-affected areas in Sindh that remain under water months after the deluge, can be attracted back into the fold.
A party in power would also be able to have a major say in the appointment of offices that are relevant to the election process, itself notably the chief election commissioner as well as other appointments related to vote counting. Thus the PPP is not likely to allow the budget to post-date elections.
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