When it rains, it pours. Financial as well as political pressures are clearly combining to leave the government with no option but to gamble with another expansionary, typically election-year budget even though it knows that the economy cannot afford, and the IMF (International Monetary Fund) will most likely not allow, it. But such things have not stopped it before.
Details of the agreement with the IMF to get the EFF (Extended Fund Facility) going again have revealed that the finance minister was not being honest, yet again, when he said that he had flatly turned down all demands to raise personal income tax rates and electricity tariffs in order to isolate salaried classes from so-called prior actions.
Now, it turns out, the government had already agreed to additional taxes of Rs430 billion in the next budget so the FBR (Federal Board of Revenue) can achieve its target of Rs7.25 trillion, up Rs1.15tr from the current financial year.
Energy prices will also go up because they’re tied to the rest of the money and the government will do what it has to, having tried to keep these tariffs out of it and failed, because it needs the fiscal space for the budget; even though it will strain the EFF.
IMF’s also called out the finance ministry for its sudden shift to loose, subsidy-laden, fiscal policy in the last budget because the effort “shifted towards expansionary macroeconomic policies and reversed some earlier reforms in an attempt to spur growth”.
That’s when Finance Minister Shaukat Tarin boasted that there would be no mini-budget and he’d bring the Fund round to the government’s point of view. That didn’t go quite as planned. So the government has to deal with the general loss of confidence in the economy as well as its general loss of credibility.
And all this is happening just when the combined opposition is also tightening the no-confidence noose around the ruling party’s neck. They’re making landmark cross-city trips, meeting among themselves, and with the government’s coalition partners - going for the kill as well as they are able to. Everybody’s talking about PTI’s (Pakistan Tehreek e Insaf’s) complete failure in controlling the economy; which is made worse because its instinct is always to mislead the people by pretending everything’s under control. All this only increases the need for more gifts in the next budget. Even if things with the bailout programme are forced into more long rounds of negotiations, the people will have something to be grateful for and it will give the campaign the traditional election-year-budget-push.
The economic situation, especially as it relates to things like jobs and earnings that concern common people, is perhaps as grim as it’s been in a while. And political headwinds have also become the strongest since PDM (Pakistan Democratic Movement) first mobilised and Nawaz Sharif made those game-changing speeches about the military. That limits PTI’s choices. Surely, it won’t just go to the polls with more taxes and tariffs and the line that it’s got nothing more to show because of problems created by previous rulers. This argument has been defeated far too often at far too many polls to be considered.
Yet the more money the government throws into the budget, the more economic activity and also inflation would rise, and the independent state bank would have to tighten monetary policy. That leaves the market with the one certainty that there will be more uncertainty down the road, which is the usual signal for a risk-off environment.
The clouds have indeed darkened for PTI as it plans its last innings of the electoral cycle. Aggressive, front-foot batting in overcast conditions, when the ball is swinging in all directions, becomes the best strategy when it’s the only strategy, especially when there are chances of getting out on an entirely different pitch in an entirely different match, one that involves a no-confidence motion in the house.
Copyright Business Recorder, 2022
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