Punjab Chief Minister Shahbaz Sharif has announced a 5 billion rupee Ramazan package - 3 billion rupees more than the package announced by the federal government. Punjab's one-upmanship under Shahbaz Sharif relative to the federal government was patently evident during the five years of the PPP-led coalition government (2008-2013). Of particular note was Shahbaz Sharif's announcement during that period of a 1000 rupee higher minimum wage than what was announced by the Gilani federal government - a raise that neither the federal government nor indeed the provincial governments had the capacity to implement. Be that as it may, analysts at the time had argued that the one-upmanship was a natural outcome of a democratic dispensation where the centre and the province were led by different political parties. That, of course, is no longer applicable and the federal and the Punjab governments are both led by the PML-N.
The Punjab government's recent announcement would, without doubt, also place an inordinate burden on other provinces to at least match Punjab's allocation and in the spirit of brinkmanship it is possible that this may lead to the inability of provincial governments to meet the budget surplus targets that they agreed to, during a Council of Common Interest meeting - an agreement premised on the deal between the federal government and the International Monetary Fund (IMF) to reduce the federal budget deficit in a phased manner each year of the Fund programme.
The federal government's budgeted deficit was negative 6.3 percent of the Gross Domestic Product for the current year, however, it was further reduced to 5.8 percent of GDP after the first quarterly review under the 6.64 billion dollar Extended Fund Facility. The decline in the deficit encapsulates politically challenging decisions that may include either a reduction in expenditure and/or an increase in revenue generation. During the third quarterly review of the Fund programme recently concluded the IMF team leader Jeffrey Franks noted that "the government recognises an emerging revenue shortfall in April 2014 and is committed to taking the necessary compensatory actions to ensure attainment of the end year deficit target". The compensatory measures include; (i) the 1.5 billion dollars gifted to the government by Saudi Arabia in February/March, (ii) the one billion dollars from the auction of 3G-4G licences, and (iii) the divestment policy for three public sector entities scheduled to be completed during the current fiscal year. In addition, releases under the Public Sector Development Programme have been slower than budgeted and it apprehended that a certain percentage of releases would be deferred till next year to ensure that the deficit is within the agreed limits.
For fiscal year 2014-15 Franks indicated that there was an agreement to bring the deficit down to 4.8 percent of GDP. This would require further politically challenging measures including; (i) a further rise in power tariffs, which may have socio-political implications, (ii) phasing out statutory regulatory orders that, if the past is anything to go by, may lead to strike action by those industries that are affected, and (iii) reducing subsidies in general (particularly in the power sector) and a subsidy of 5 billion rupees during Ramazan may be difficult to defend.
To contain inflation through extending subsidies is not the economically viable answer. Shahbaz Sharif would better serve the people of his province if he succeeds in checking profiteering which, unfortunately, invariably reaches new heights during the holy month of Ramazan. He must also urge the federal government to implement contractionary monetary and fiscal policies to reduce the rate of inflation. At present, the rate of inflation remains hostage to the federal Finance Ministry's rising reliance on borrowing. The IMF second staff review report dated March 2014 notes; "the government will have to roll over around 6 trillion Pak rupees (US $60 billion) of government securities in 2014 representing 64 percent of the domestic debt profile with an average time of maturity of only 1.8 years." Disturbing figure indeed, which may explain why Franks stated on 10th May this year that the Fund remains concerned with rising inflationary pressures.
Comments
Comments are closed.