n austerity plan, prepared by the Ministry of Finance for Cabinet approval, was not taken up, on Tuesday, due to the absence of the four chief ministers. The necessity for austerity in Pakistan today cannot be understated.
With the acknowledgement of the Finance Minister recently that the budget deficit target, agreed with the International Monetary Fund (IMF), would not be met it has become imperative for the government to either increase its revenue or decrease expenditure if it is to convince the IMF to release the much needed fourth tranche of the Stand-By Arrangement before the end of the year.
This is irrespective of the causes behind the failure to meet the deficit target, with the government attributing declining exports to global recession, though exporters allege that law and order, massive energy shortfall as well as high interest rates are the main contributors to lower domestic productivity, and consequently, of exports.
Government sources have expressed optimism that they have satisfied the IMF staff with respect to meeting critical conditionalities, including reforms as well as improved governance, yet the IMF website reveals that "discussions are continuing".
This is substantiated by a news item on the IMF website that post-dates the talks that were held in Dubai in November, which state that, "discussions between the authorities and the IMF staff on the third review of the economic programme supported by the Stand-By Arrangement are scheduled to be completed shortly." There is therefore a need for the government to ease IMF concerns about Pakistan's adherence to conditionalities.
This is evident in the recent government decisions which include the announcement of politically unpopular decisions like an imminent 12 percent rise in electricity tariff. Some major components of the austerity plan are, however, expected to hit the ruling elite more than the public and as such have overwhelming public support. This makes the need to ensure successful implementation of the austerity plan all the more important.
The government guaranteed in the 2009/10 budget considerable space for itself to reduce expenditure during the year by showing a 54 percent rise in Public Sector Development Programme or, in actual terms, over 200 billion rupees. This entire increase is expected to be slashed, a cut that would not lead to a public outcry as the development expenditure this year would then be at par with last year's.
However, a rise in the tax-to-GDP ratio, a long-standing demand of macroeconomists, can only be met if the FBR is able to bring non-filers and short filers into the tax net. Haemorrhaging of the budget continues due to large injection doses to tackle the circular debt due to continuous failure of Pepco to collect the dues and pay the oil marketing companies on time.
A drop in profits in the government managed oil and gas sector companies also means lower dividend receipts. Media reports of rampant corruption in PSEs and absorbing contract employees into the regular cadre are expected to add to their losses. The austerity plan was prepared by the government, and is for the government.
As such, it must seek to ensure that not only development expenditure is curtailed, but also current expenditure. In democracies, visible extravagance by the government must be the first casualty, especially during hard times. In this context, the Finance Ministry's austerity plan seeks to reduce the number of ministers (sixty plus at this time) and reduce foreign visits at state expense.
However, the expenditure of the two most important secretariats in the country, namely that of the Prime Minister and the President was not dealt with in the austerity plan. The huge secretariats staffed by thousands, need to be drastically slashed.
The entire secretariat of both the President and the PM must be no more than 30 or 40 people each, the sum total of what a British Prime Minister has. The government's response in the past has been to dismiss this suggestion by pointing out that this forms an insignificant part of the total expenditure. That maybe so, however, what is important at this stage is to let the people know that their government is belt-tightening too and that it is not alone in being asked to make sacrifices.
The government is also required to set right the wrong tendencies, such as the increasing instances of favouritism and nepotism shown by its elected representatives. A 'code of conduct' for them has to be introduced to check nepotism and corruption and have a transparent and merit-based system for appointments, promotions and postings. They also need to adopt a simple lifestyle.
The government should be harsh on those who accept hospitality extended by corporate and private lobbies, including dinner and lunch invites and expensive gifts. The elected representatives are also required to be extremely careful in relation to situations showing conflicts of interests because a conflict of interest can arise in a variety of situations. They must act in accordance with the stringent standards and transparent policies for addressing potential conflicts of interest. A conflict of interest statement should become part of their oath.
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