EDITORIAL: Finance Minister Shaukat Tarin laid the money bill in the Senate on Tuesday amidst loud Opposition protests followed by adjournment when lack of quorum was pointed out while the State Bank of Pakistan (SBP) amendment bill was tabled on 30 December 2021 also amidst opposition uproar – the two prior conditions of the sixth review agreed by the government on 24 November 2021 with the International Monetary Fund (IMF).
Two observations are necessary and reflect well on the government’s decision to table the two bills in the upper house where the government is in a minority. First and foremost, the government is not required to table a money bill in the upper house and its decision to do so may be attributed to its: (i) genuine desire to seek the Senate’s input into the money bill with the salutary objective of forming a consensus based on what is widely considered to be necessary for the country today; and (ii) perhaps in return seek the opposition senators cooperation in the passage of the SBP amendment act, required for its passage, that is patently not in evidence. In other words, opposition for opposition’s sake when the country’s economy is at stake cannot be supported.
And secondly, before the government can expect cooperation from parliament it must deal with the prevailing confusion about the money bill. While the government has stated that 343 billion rupees will be generated from the money bill, mainly from raising/imposing a 17 percent standard sales tax on 150 items, yet it has claimed that 251 billion rupees would be refunded/adjusted (input output adjustments) and therefore only 91 billion rupees would be passed onto the consumers.
Business Recorder would urge the Finance Ministry to: (i) stipulate, as it routinely does for the finance bill proposed in a budget, how much is projected to be recovered and of that how much is projected to be refunded and consequently what would be the net collection of revenue. In this context, it is relevant to note that the Federal Board of Revenue (FBR) reportedly informed the Cabinet that the IMF had requested a rise in revenue of 700 billion rupees while the Board had successfully negotiated it down to 343 billion rupees.
The question is whether the amount of the refund envisaged by the Board would reduce the tax collection well below the IMF stipulated and agreed figure of rupees 343 billion. If that is so, then the IMF condition would not been met. It appears that this confusion has arisen because of the government’s effort to blunt the criticism by the opposition and others of an inflation Tsunami as a consequence of the so-called mini-budget.
The SBP amendment act has met with stern resistance from within and without parliament. However what has come to light is that it was also opposed by several cabinet members and additionally a report that the Prime Minister’s office also expressed reservations at components of the amendment has surfaced, and has not yet been officially denied. What is important to note, however, is the fact that this is a prior condition and no doubt given the current state of the economy the cabinet, chaired by the Prime Minister, approved the amendment.
This amendment is premised on similar acts in a few western countries and seeks to end the flawed decision-making by the ministry of finance (examples abound ranging from Dar’s insistence to keep the rupee overvalued to understate his enhanced reliance on foreign borrowing on the inexplicably erroneous assumption that as the borrowing rate abroad was lower than domestic rate it was preferable to limitless borrowing from the apex bank to fund current expenditure by successive administrations including the incumbent government). In our unique historical context, there is a marked distinction between de facto and de jure conditions which prevail in all facets of public decision-making and key appointments. So, all apprehensions that the central bank would become a state within a state are misplaced and unnecessary.
It is, however, essential that the central bank should have functional autonomy and not be an adjunct department of the finance division. In addition, one would hope that the appointment process of SBP governor and deputy governors may remain with the President on advice by the cabinet but the initial process be made more rigorous than is evident today with academic qualifications (monetary economists) and relevant experience be the preferred criteria.
Copyright Business Recorder, 2021
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