The Caretaker Cabinet expressed satisfaction at its six-month two-and-half-week performance during its meeting on 22 February presided over by the Caretaker Prime Minister Kakar.
Self-assessment divorced from ground realities has also routinely been exhibited by the leadership of all three national political parties forming (or leading) the government in the Centre since 2008 - Pakistan Peoples’ Party (PPP), Pakistan Muslim League-Nawaz (PML-N) and the Pakistan Tehreek-e-Insaf (PTI) in that order.
While the mandate of the caretakers is limited by the constitution yet the outgoing eleven-party coalition government led by Shehbaz Sharif empowered the Kakar-led caretakers through the passage of two major legislations.
First, establishment of the Special Investment Facilitation Council (SIFC) on 17 June 2023, to be chaired by the sitting prime minister (elected or caretaker) with representation of the highest level from military and civilian administrations (federal, provincial) as well as national and provincial members of the executive.
There is ample evidence that without SIFC support the Caretakers would have been unable to successfully implement: (i) punitive actions against currency speculators and initiate structural reforms in the exchange companies sector that brought the 306.95 rupee to the dollar parity on 7 September 2023 to 279.28 parity on 27 February 2024; and (ii) launch an anti-theft drive in the power sector the same day which has generated a little over 80 billion rupees.
Second, Parliament on 26 July approved insertion of the following in Section 230 of the Elections Act: “(2A) Sub-sections (1) and (2) shall not apply whenever circumstances exist which render it expedient for the caretaker government to take such actions or decisions necessary for the purposes of protection of economic interests of Pakistan dealing with bilateral and multilateral agreements with the international institutions and the foreign governments, including continuation and conclusion of, projects initiated under the Public-Private Partnership Authority Act, 2017, the Inter-Governmental Commercial Transactions Act, 2022 and the Privatisation Commission Ordinance, 2000”.
This amendment implied that the budget 2023-24, approved by parliament on 26 June 2023 and more critically approved and amended by the International Monetary Fund (IMF) as a prior condition for approval of the staff level agreement (SLA) on the Stand By Arrangement (SBA) reached three days later, on 29 June 2023, would be adhered to in terms of expenditure and revenue sources.
It is disturbing that in this particular context the caretakers not only upped the current expenditure that had already been ill-advisedly raised by 26.5 percent from the revised estimates of the year before and by 52.9 percent from the budgeted amount the year before (even though the budget for 2022-23 was also approved by the Fund) but, like her elected counterparts, the caretaker finance minister opted to slash development expenditure to meet the targets set in the budget by 5.9 percent as per the Monthly Update for February.
Private sector credit was dampened by enhanced borrowing by the government (a decline of 80 percent from the comparable period the year before) and a high policy rate of 22 percent had obvious negative repercussions on the growth rate.
To fund the shortfall in revenue the caretaker finance minister borrowed heavily from the domestic market, a highly inflationary policy, necessitated because Pakistan’s rating did not improve subsequent to IMF loan approval and the success of the first review on 15 November 2023, which disabled the caretakers from borrowing the budgeted 6.1 billion dollars from commercial banks abroad as well as from issuance of Sukuk/Eurobonds.
One would have hoped that she had used her negotiating skills to convince the powerful civilian and military stakeholders to voluntarily cut their current expenditures for the current year so as to contain the need to borrow and at the same time increase leverage with the Fund with respect to meeting revenue targets.
Instead she pledged in the first SBA review to implement a number of additional taxations measures, all indirect taxes whose incidence on the poor is greater than on the rich.
The caretakers were also empowered to implement privatization as per amendment to the Act, which led to the appointment of Fawad Hassan Fawad as the caretaker privatization minister.
This pre-supposed that not only is privatization the only way to go, a stance that can be easily challenged given that years after K-Electric was privatized the government continues to budget a subsidy under the head of tariff equalization, budgeted for the current year at 170 billion rupees, a policy that needs to be revisited; otherwise, any other distribution company that is privatised would similarly be the recipient of a large annual subsidy.
Additionally, any privatization of a profit making entity must take account of future stream of income rather than focus only on generating revenue to meet the budget deficit.
And finally, SIFC focused on converting pledges of direct foreign investment (FDI) as enshrined in non-binding Memoranda of Understanding that incidentally were also signed during the tenure of previous administrations dating from 2008 but which never materialized.
FDI rose to 785.9 million dollars in the first seven months of the current year against negative 148.8 million dollars in the comparable period of the year before yet it is under a billion dollars – far short of the 25 to 26 billion dollars envisaged in the current year.
In this context a word of warning is in order: PPP and PML-N governments have both signed off on contracts with foreign firms that have impacted negatively on the people of this country for example the contracts with Independent Power Producers (IPPs) favoured the producers because it allowed them fuel imports, capacity payments and repatriation of profits in dollars.
Given the low foreign exchange reserves today, the import restrictions in place have implied inability of the IPPs to import fuel and to repatriate profits leading to threat of litigation ion international fora. One would hope that contracts be carefully reviewed with their possible long-term implications on the general public.
The actual performance of the Caretakers however can be seen in the statistical Monthly Update data for February that was uploaded on the Finance Division website on the eve of the last day of February: (i) inflation was estimated at 28.7 percent July to January 2024 against 25.4 percent in the comparable period of the year before which may well account for at least 80 to 85 percent of the rise in FBR revenue estimated at 29.8 percent; (ii) Public Sector Development Programme declined by 5.9 percent for the first half of the current fiscal year and yet fiscal deficit rose by a massive 43 percent during the first half of this year compared to the year before indicating that current expenditure was unwisely allowed to rise and a rise in the mark-up component of the budget as reliance on domestic borrowing escalated; (iii) decline in negativity of Large Scale Manufacturing Sector - from negative 2.10 percent July to December 2022 compared to negative 0.40 percent during the first half of the current year.
To conclude, self-assessment has a natural bias in favour of the assessor which explains why external audits are required by companies and governments. One can hope that this practice is abandoned by our elected governments and by the non-elected short-term caretakers as it serves no purpose and the feel good factor remains elusive as the general public would remain unimpressed if the purchasing power of each rupee it earns is eroding at a faster pace than a rise in income.
Copyright Business Recorder, 2024
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