The Abbasi administration has been consistently appreciative of the performance of the economy encompassing the period when Ishaq Dar was a functioning Finance Minister. Till Dar was indicted for possessing wealth beyond known means of income and his subsequent flight from the country (first on an official plane ostensibly to attend the Central Asia Regional Economic Co-operation Ministerial Conference in Dushanbe and then onwards to Saudi Arabia and London at his own expense) there are numerous instances of Dar intervening, with complete impunity, on matters relating to allied ministries whose portfolios' were held by influential federal ministers like the minister of industry, water and power, petroleum and natural resources, and planning and development. These federal ministers, including the incumbent Prime Minister Shahid Khaqan Abbasi who had held the portfolio of Petroleum and Natural Resources prior to 1 August 2017, frequently, though privately, expressed their reservations at Dar's policy dictates. And yet, surprisingly, the Dar era policies continue. The question is whether politics is at play given the time remaining for the next general elections? Or whether Dar left the 10-month remaining tenure of the PML-N government with no option but to continue his flawed policies? The answer is a bit of both.
There is no doubt that politics is at play with respect to the economic policy measures of the Abbasi administration given that elections are less than half a year away - the standard practice during previous administrations facing an imminent general elections. The basic thrust of incumbent governments facing an election has been to release significant unbudgeted funds to its own parliamentarians in the national and provincial assemblies to enable them to undertake development work in their constituencies (an exercise targeted to not only garner public support in the elections but in a country where members of parliament are notorious for changing loyalties to keep them firmly in their camp). Additionally, given the current economic milieu, (a widening gap between imports and exports/remittances as well as a rising budget deficit) the consensus is that the country would have to go back on an International Monetary Fund (IMF) programme. The PML-N leadership has reportedly decided to defer any negotiations with the IMF for procuring another loan till after the elections - a decision reminiscent of what was decided by the leadership of the PPP-led coalition government in 2012/early 2013. The reason then was the same as it is today: concern that the Fund conditionalities would cost the ruling party dearly in the forthcoming elections. In the present instance claims continue to be made that the economy has stabilized due to improved management and hence there is no need to go on another Fund programme - a claim that no independent economists support.
Programme/budget support plummeted once Pakistan completed the IMF programme (September 2013-16) as other multilaterals and bilaterals no longer had the comfort level with the government adhering to politically challenging structural reforms without rigid IMF monitoring. It is therefore little wonder that Dar's last budget (2017-18) envisaged programme loans of 95.5 billion rupees in contrast to the 249 billion rupee programme support in the revised estimates of 2013-14 after the approval of the Extended Fund Facility by the IMF Board in September 2013 - about 38 percent less. In addition, as Dar repeatedly overestimated inflows one may assume that the amount budgeted for this year under programme loan is an over estimation.
But lower programme/budget support from multilaterals and bilaterals led Dar last fiscal year, after the completion of the IMF programme in September 2016, to begin to rely on procuring commercial loans from the external banking sector - loans which are at high rates of interest with a very small amortization period (in months and not in years). One repeatedly heard of foreign bank officials visiting Islamabad eager to lend to Pakistan due to the high returns involved. Last fiscal year Dar procured over 4 billion dollars worth of loans from the foreign commercial banking sector which accounted for net outflows by the second half of last year. Data released by the Economic Affairs Division for the current year indicates that the government has procured over one billion dollars in loans from the external banking sector - an amount that Dar had budgeted for the entire year.
Dar's budget projections were invariably unrealistic and accounted for mini-budgets during the past four years which is not on the cards in the current year as it is an election year - a mini budget defined in Pakistan's context as levying higher tax on utilities and petroleum products, the major source of revenue increase due to ease of collection. However, inability to announce a mini-budget may compel the Abbasi administration to rely more heavily on borrowing from the foreign commercial banking sector which may well surpass last year's 4 billion dollar mark thereby further ratcheting up the budgeted current expenditure through a rise in debt servicing and principle amount due during the year.
Eurobonds/sukuk at higher than the market rate are also on the cards. It may be recalled that the PPP-led government had desisted from issuing these bonds and sukuk because the rate of return was considered too high to be financially feasible for the country; but the PPP leadership engaged technocrats to run the finance ministry while Nawaz Sharif extended full support to an accountant who engaged in data jugglery rather than on sound economic policies.
Hence the Abbasi administration has not reduced its reliance on the most expensive borrowing source on the market and neither has it reduced current expenditure with the objective of reducing the budget deficit. What it has done is again what was in practise in the recent past: it has released only 25 percent of the budgeted outlay on China Pakistan Economic Corridor with the resulting negative impact on growth which may have to be massaged through data manipulation by the Pakistan Bureau of Statistics.
The incumbent administration has however extended the export incentive package till the end of the current fiscal year, though the package was formulated by Dar yet he had stopped its implementation by the end of last fiscal year. Imports on the other hand continue to grow at a higher rate than the growth in exports and remittances leading to a widening current account deficit. And the solution to this deficit: procure more foreign loans irrespective of the rate of return - a vintage Dar policy.
One reason cited for the continuation of the Dar era policies may well be that all senior appointments - be they at the Federal Board of Revenue, Pakistan Bureau of Statistics or even the not so autonomous State Bank of Pakistan were made by Dar and one would assume consist of individuals supportive of Dar's polices however flawed they maybe. Unfortunately, with Nawaz Sharif firmly in control of all decisions, especially those with implications on the forthcoming elections, issuing a notification appointing a new minister of state for finance or indeed an advisor to Prime Minister on Finance with the status of a federal minister may increase the emoluments payable to a cabinet member funded by the tax payers but has not brought about any shift in policies.
To conclude, Nawaz Sharif and his party reckon that meeting demand supply gap in electricity alone would win them the next elections. This is a considerable achievement though time alone will tell if other factors (including the Panama papers case, the ignominious departure of Dar from the country, the rising current account and budget deficit) would impact on PML-N voting base.
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