EDITORIAL: Finance Minister Muhammad Aurangzeb during his press briefing on Sunday appreciated the efforts towards implementation of post-Staff Level Agreement on the nine-month-long Stand-By Arrangement, giving credit to the caretakers, and pledged that this time around the government will not back off from implementing reforms in the energy sector, state-owned entities, privatisation and collection of all budgeted taxes – policies that he claimed were homegrown. Two obvious but disturbing observations are necessary.
First and foremost the ongoing reforms reflect standard normal International Monetary Fund (IMF) conditions that Pakistan has been pledging to lenders in most of the previous (twenty-three) programmes, which were not implementable due to political considerations (reducing current expenditure rise from one year to the next that encapsulates sustained elite capture with an inexplicable 21 percent rise in the 2024-25 budget), privatisation that year after year has been deferred due to lack of the necessary investment climate domestically and internationally (the fiasco with the recent bidding of Pakistan International Airlines is a case in point) as well as refusal to undertake empirical studies of past privatisations to decide on the modus operandi of future privatisations (K-Electric continues to rely on tariff equalization subsidy to the tune of 171 billion rupees in the current year payable at the national taxpayers expense) and the heavy reliance on indirect taxes (to the tune of 75 to 80 percent of all collections sourced to indirect taxes whose incidence on the poor is greater than on the rich), which is the root cause of the extremely concerning 41 percent poverty levels that this country is experiencing.
This is not to understate the impact of IMF design flaws that administration after administration has been implementing, including the incumbent one, particularly with respect to raising tariffs to achieve full-cost recovery rather than dealing with inefficiencies in the sector, and changing the members of the Board of Directors by appointing their loyalists that has made little difference in performance. In other words, there is no element of homegrown reforms now or during the SBA with improvement in foreign exchange reserves down to debt rather than higher desired earnings, contraction of trade deficit due to import restrictions and, as per the IMF staff-level agreement report, “the shortening of the period for repatriation of export proceeds as appropriate given the still fragile external conditions,” and lower inflation, understated by 3 to 4 percent, but with the private sector unable to procure credit (registered at negative 240 billion rupees 1 July to 11 October) and therefore unable to raise output or increase wages, disposable income contracted still further this year with no feel-good factor by the public.
Secondly, the thrust of the Finance Minister was in line with the perception that reforms, identified more than two decades ago, were not implemented due to administrative failures. While discipline is an important input in the performance of several key sectors, yet it is secondary to education and relevant experience both domestically as well as internationally (for the one without the other is unlikely to pay dividends as the country has learnt to its cost).
In short, the issue is not only one of failure to implement reform but the flaws in the design of the reforms that have not been papered over even in the ongoing twenty-fourth IMF programme.
Private sector experience is not always beneficial in key government positions, mainly because there are major differences in their respective areas of concern and therefore their response to proposals raised by private entities as opposed to multilaterals and bilateral donors.
Muhammad Aurangzeb proceeded to state that in marked contrast to his approach to reforms, he would request public support in dealing with the serious climate challenge facing the country.
While Pakistan’s overwhelming contribution to climate challenge comes from neighbouring countries rather than from within, yet there is a need to legislate and assiduously implement these laws for dealing more effectively with this challenge.
However, the context of the press briefing was the end of the five-day IMF mission’s visit to Pakistan with the press release uploaded on its website this Friday past emphasising “the need to continue prudent fiscal and monetary policies” that explains Aurangzeb’s statement that administrative measures will be taken to implement the reforms, read all agreed conditions, and the Fund statement that “Pakistan should take steps to decrease state intervention in the economy”, which is at odds with the 21 percent budgeted rise in current expenditure.
Copyright Business Recorder, 2024
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