EDITORIAL: The induction of well-respected technocrats in the caretaker cabinet on 17 August was widely hailed but a public reeling under the July core inflation (non-food and non-energy) of 18.4 percent, a rupee-dollar parity of 294.92 that accounted for a Consumer Price Index of 28.3 percent, naturally focused on those whose decisions would have a direct bearing on their fast deteriorating quality of life exacerbated last fiscal year compared to the year before as the country witnessed negative 9.9 percent large-scale manufacturing (LSM) sector growth compared to the year before (with rising unemployment levels), remittances declined by 13.6 percent, exports by 14.1 percent and fiscal deficit rose by 34.1 percent.
It has been two weeks since the economic team was installed but sadly the market perception has so far been largely unfavourable reflected by the rupee erosion vis-a-vis the dollar gaining momentum and further deferral of all private sector investment decisions.
The economic team leaders have so far not thought it prudent to engage with the media and present their very short-term policy decisions, backed by their qualifications and life-time experience that would appease general public and market concerns alike.
On the contrary, the Caretaker Minister of Finance during a senate committee meeting forthrightly presented a dire prognosis of the current state of the economy - no fiscal space, no capacity to extend subsidy to electricity consumers without first getting approval from the International Monetary Fund - which, even though credible, but perhaps, contributed to the rupee losing 0.46 percent of its value that day.
While technically the Caretaker Minister is certainly correct in arguing that the caretakers cannot deviate from the structural benchmarks agreed under the SBA, including implementing the proposed Nepra (National Electric Power Regulatory Authority) and Ogra (Oil and Gas Regulatory Authority) recommendations, adjusting the petroleum levy to ensure that the budgeted target of 869 billion rupees is achieved, with a limit on all budgeted expenditure (with no recourse to a supplementary budget) yet within the larger framework of the SBA there is ample room to begin the reform process proposed by multilaterals and bilaterals for decades past that remained stalled due to political considerations of all administrations - civilian and military alike: (i) implementing decisions that would provide good optics (as the associated savings would be small relative to the 14.4 trillion rupees expenditure budgeted for the current year) to a citizenry struggling to meet their kitchen budgets by shutting down air-conditioners in all secretariats, prime minister’s house and the Presidency as well as ending all free units of electricity and petrol allowed to ministers, and senior members of staff in the country’s civilian and military establishments - a measure not likely to be opposed by the IMF; (ii) widen the tax net to include the non-filing traders and engage with provincial caretakers to successfully persuade the rich landlords to begin paying a tax on their incomes that is commensurate with the one paid by the salaried class, their much poorer fellow citizens; (iii) reduce current expenditure through negotiations with all the stakeholders who supported the cabinet selection that must include deferral of all procurement above a certain minimum amount for at least two years, which should, in turn, lead to lower borrowing from the commercial banks that would reduce the 7.3 trillion rupee interest payment budgeted for the current year, thereby lowering the deficit; (iv) appropriate policy decisions need to be taken to encourage remittance inflows through official channels and the potential is at least 4 billion dollars – the amount by which inflows declined last fiscal year compared to the year before due to the then finance minister Ishaq Dar’s disastrous policy of controlling the interbank rate that led to multiple exchange practices and the resurgence of illegal hundi/hawala system that had largely ceased due to the Covid-19 lockdown; (v) pension reforms requiring politically challenging decisions need to be implemented; and (vi) state-owned entity (SOE) reforms as well as devolving all subjects as per the Eighteenth Amendment.
There is no doubt that the caretaker economic team knew when it took oath that it must hit the ground running. If the only term of reference was to follow the SBA conditions then appointing technocrats to head ministries makes little sense as a secretary of any ministry is fully empowered to implement stated policy decisions.
It is, therefore, incumbent on the relevant cabinet ministers to begin to slowly carve out fiscal space by first launching negotiations within the administration as well as with the private sector elite and only then going to the Fund to show an increase in fiscal space that would lead to higher leverage that may result in providing some respite to the hapless citizenry.
Copyright Business Recorder, 2023
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