EDITORIAL: Prime Minister Shehbaz Sharif has formed a seven-member committee tasked to curtail government expenses comprising of federal secretaries of the cabinet, finance and I&P Divisions and three independent economists.
While the balance is clearly in favour of civil bureaucrats, to-date the beneficiaries of discriminatory taxes in their favour to a steady rise in income that in most years surpassed the rate of inflation while the rest of the public struggled with factory closures, floods that led to destruction of crops and livestock and a contracting economy, yet one would hope that the independent economists would insist on a level playing field for the general public in terms of not only taxes but also in terms of ending the elite capture that continues to persist to this day.
As a start, this would necessitate cutting down on all procurements for the next one to two years till such a time as the economy stabilises.**
While the terms of reference of this committee are not yet formalised, yet the Prime Minister has excluded defence and interest payments from its purview. This exclusion is understandable, given that the ongoing wave of terrorism requires that all defence needs are promptly met and in the event that interest payments are cut the threat of default would no doubt loom large on the horizon. However, one would urge the Prime Minister to reconsider this blanket exclusion on (i) defence.
There must be no decrease in the budgeted operational defence budget or indeed to not authorise a higher outlay for ongoing operations as that would be tantamount to derailing the war on terror, which is critical not only to ensure safety of the general public but also to attract investment — domestic and foreign alike.
This would imply that the 442.2 billion rupees budgeted in the current year for operational expenses (including transport and petroleum and products, rations, medical treatment, training) not be curtailed, employee-related expenses budgeted at 705.1 billion rupees (salaries and allowances to troops in uniform and civilian employees), be met; but some economies may be made in the 461.2 billion rupees earmarked for physical assets for local purchases and import of arms and ammunition (unless required for operational reasons) as well as 195.5 billion rupees budgeted for civil works that maybe deferred; and (ii) interest payments, given that interest on domestic borrowing rose dramatically during the recently concluded caretaker setup (borrowing more in the first seven months of the current year what was borrowed in the entire year in 2022-23) to fund the budgeted current expenditure, a highly inflationary policy whose cost was borne disproportionately by the poor. It would have been more appropriate for a cap on the mark-up on domestic borrowing, which would limit borrowing and ideally lead to lower expenditure.
One rising component of current expenditure, notably pensions, caused serious concerns to the previous four to five administrations though none implemented the recommendations of various studies carried out by government and donor consultants due to threat of strike action.
It is imperative that this committee looks at all these studies gathering dust in the relevant ministry and in the event that reforms prompt strike action then going the Margaret Thatcher route may be the only option: sending in troops to ensure compliance.
To conclude, this is not the first time a sitting prime minister has focused on reducing expenditure or then proceeded to establish a committee to make recommendations to ensure austerity though Pakistanis have come to realise that there is a wide gap between proposing measures and their implementation.
The economy no longer has the luxury of further deferral and it is recommended that measures must not simply provide good optics for the sitting government as in the past but actually reduce expenditure by a significant amount that would not only reduce the onus of raising existing taxes, which remain skewed in favour of the elite, but also increase our leverage with lenders in terms of less harsh and upfront conditions.
Copyright Business Recorder, 2024
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