You have got to give it to the Accountant. He has enormous energy: Frankfurt to Islamabad to Dubai to the Parliament, adding numbers all the time. He even found time to add two members to the parliamentary committee on TORs, until the hyper Shah Mahmood cried foul. Doesn't the Makhdoom from Multan, who brings to his diction Bollywood pitch and Lohari tenor, know 'statistical discrepancies' is part of the Accountant's tool box?
We also marvel at the Accountant's ability to be simultaneously present in the PM House, the parliament, the Q block, and a seminar or two, grinding out all those numbers. Could he, by any chance, be using Holoportation technology - technology that allows some of our TV channels to show their expert sitting with the panel in Islamabad studio when he is actually in Karachi? If he does use technology, it will give him time to reflect on our pointed reference to the Brazilian President being impeached for fiddling the numbers to dress up the Budget.
But what we admire most is his unflappability. Though somewhat weary of criticism, he remains completely undeterred. The more daunting the budget numbers, the more depleted his tool box, the more sonorous he becomes. He can always be depended upon to somehow produce the numbers to match his stentorian claims. Victory is always in sight - a mere 'next year' away.
Despite the Accountant's awesome track record - he is a veteran of God knows how many Finance Bills - we get the feeling budget making this year is going to be like never before. It is going to take more than creative accounting to reconcile the two competing demands: commitments to the IMF and compulsions of the PM. IMF wants austerity and tough reforms - there is little low hanging fruit left. The PM wants appeasement and quick runs on the development board. While it is true that fiscal stimulus alone cannot save the political situation from spiralling out of control, the leadership has few options. The choker is the budget deficit target of 3.8% which can be achieved either through more taxes or less spending or bit of both. The Accountant will be hard pressed to do either. The spawning political gerrymandering will not allow the Accountant to sleep like a baby.
All eyes are on FBR that has been tasked to generate an additional 516 billion next fiscal. Privatisation is not likely to yield much, unless the 4G auction spills over. Other tax and non-tax receipts offer little growth potential, though SBP profits could be made to spike 'on demand'. So it is all up to the FBR, which can deliver only if the tax net widens, or the economy grows significantly, or there are serious new tax measures. Tax base is unlikely to expand. Despite an improved security and energy environment the growth rate will be no greater than this year's - tepid growth is built into the IMF design. That leaves us with the rollback of concessionary SROs (likely to yield Rs 130 billion) and fresh levies - plus the advance taxes and no-refunds gimmickry. Political expediency rules out any new major taxes, as also subsequent mini-budgets, unless the winds from Pindi bring the political temperatures down. That leaves the Accountant with the only stratagem of covert taxes, and that is going to require a lot of skill if the political blowback is to be avoided. And yes, a loose monetary policy will certainly help. The 'independent' Monetary Policy Committee has already obliged through a 25 bps cut.
On the expenditure side there is even less room for manoeuvre. The big ticket items - debt servicing, subsidies, defence - are inelastic in character. To stay within IMF's fiscal deficit straitjacket the only wriggle room is development spending and provincial surpluses. There are going to be serious challenges here too. The CPEC and political dictates will not allow any significant cuts in development spending. The Provinces, with their own growing political compulsions, won't be as amenable. It is also instructive that the nine month surplus of Rs 107 billion has come essentially from Sindh and Balochistan (80 and 15 billion, respectively), a trend that is not sustainable, as agriculture, health and education suffer. Translated into simple vernacular, other than hard to manage covert taxes the only tools available to the Accountant are slowing down the releases to the provinces, and no refunds.
The external sector looks equally challenged. Exports are likely to stick to their path dependent trajectory - flat. With an uptick in commodity prices the import bill could rise. Remittances are not likely to match their recent stellar performance - unless there is a 'Panama Sympathy Effect'. IMF is out in September - until the next bail out. To contain external debt servicing the Accountant would keep the Rupee over-valued. To maintain SBP's liquid reserves some more dollar/euro bonds may have to be floated, though without the IMF 'safety net' it is not going to be easy.
So what does one do when caught between the rock and a hard place? Hope for the best. That's what we reckon the Accountant will do. Present a budget with a deficit of 3.8% of the GDP, and count on IMF not being around when it hits 5%. The budget speech will tell us how far we have come off the 2013 precipice; the difficult reforms undertaken, especially in the energy sector; the shrinking deficit; the declining inflation; the lowest interest rates in 40 years - and of course how important it is for the nation to have a charter of economy. What he won't tell us about is ballooning domestic and external debt, the stagnant number of tax filers, the overvalued exchange rate and declining exports, his voracious appetite for loans from the banking sector that leaves little for the private sector. He will remind us that even though the growth target has been missed it is still the highest in the last so many years but not expand on the factors contributing to this growth - for instance the 4.7% growth in LSM has been due to protection, subsidies, and cartelization. The budget will be tall on promises and short on candour. It won't be pro-growth. He won't admit his tool box has been high jacked by the IMF; nor apologize for not releasing to the exporters their refunds.
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