The Accountant's body language spoke louder than his budget speech. The accent was on frivolity as he pleaded for applause from the opposition and treasury benches alike. The budget contents were no less frivolous. There was not really much, except to say what he is always saying: we inherited a mess, we have done well, the sword of withholding taxes will bring non-filers to their knees, and we are now all set to transition to growth. If our earlier columns could foretell the contours of budget speech it was not because of our prescience but the Accountant's predictability. His bare tool box says it all.
What surprised us was the TV coverage this non-event got. We had TV channels competing for 'insider information', and experts and analysts popping out of the woodworks, not one suggesting how he would do things differently. Unsurprisingly, we had thousands glued to the idiot box, not because their fortunes were going to change but because that's the only entertainment in town. Next budget Dar should tax both the experts and the viewers. At least that will be a direct tax.
There is one thing in common between the current Finance Secretary and his Minister: they both come and go. We have lost track of how many times Dr Waqar Masood reoccupied the same office, but for Accountant Dar this is his third incarnation, well on his way to become the longest serving FM under a civilian dispensation. In the process he has perfected the art of putting old wine into new bottles. Change the numbers here and there and all budget speeches read almost the same. Take this sampling of Musharraf regime's last (2007-08) budget speech, juxtaposed (in italics)to the Accountant's latest:
"When we came into power we had been cut off from the world...we had defaulted" [Today international organisations are taking Pakistan's name with respect. Those who had predicted Pakistan's default by June 2014 have been defeated] "Our GDP growth remained (an impressive) 7.02%" [Growth has been provisionally recorded at 4.71% which is the highest in the previous eight years]
"Our budget deficit was 4.2% of GDP....according to target" [Fiscal deficit brought down to 4.3% of GDP] "CBR revenue target has been met" [For the current FY In Sha Allah revenue target of FBR will be achieved] Both speeches boast of markedly lower poverty levels, higher investments, stellar FX reserves, enhanced allocations to Baitul Mal, tube well and fertiliser subsidies, greater agricultural credit, and of course zero rating of exports. Neither speech admits any failings; both thank the Lord and extol the vision of their leadership.
By the end of fiscal 2007-08 the economy was in shambles and Dar the new FM. He assiduously laid bare the true facts of the economy in his power point presentation on TV. The sad truth is that the nation gets to know of real facts only when the government is shown the door. Those who fear things are not so rosy are force-fed the glowing tributes of the world, accused of seeing the glass only half empty, and bombarded with more dubious statistics. They are made to concede things are better than before - until the morning after. That we were fined by the IMF for number-fudging is an inconvenient truth best forgotten.
The other sad truth is that instruments to get true facts to the people already exist, but the guardians of these instruments (State Bank, Bureau of Statistics, FBR) find themselves gagged. They are under the suzerainty of the FM! If there is one demand that the opposition should make during the budget debate let it be functional independence of these institutions.
The State Bank's review of the state of the economy, submitted to the Parliament each quarter, should be freed of any censorship of the Ministry of Finance and the Governor held personally responsible for its objectivity. The civil servants conduct rules should be amended to make giving false numbers, or knowingly suppressing facts, a punishable offence, with extenuating circumstances (threat of reprisals) an inadmissible defence, and the charges not extinguished on their retirement.
This budget offers little evidence of a pro-growth tilt. Yes, better capacity utilisation helps, as does filling the infrastructural gaps. But real growth is a function of foreign and domestic investment. CPEC apart, and that will take some time to produce growth dividends, there is little likelihood of any meaningful FDI. And domestic investment can be fuelled only by a remarkable jump in the savings rate on which the budget is silent.
The budget pins a lot of hope on revival of exports and strong agricultural growth. Towards this end the budget promises 'incentives'. For exports there are three new initiatives: zero-rating, cheaper export refinance, settlement of refunds. Zero-rating is a right, not an incentive, but even this begs two questions: why was it withdrawn in the first place and the extent to which it will contribute to export growth. It is uncertain if FBR has the capability to manage a proper zero rating regime; its contribution to a marked growth even more uncertain. The budget ignores the fundamentals: export-crippling tariffs, uncompetitive production base, absence of export-oriented FDI, and institutional decay. Reimbursement of refunds is a cruel joke: only those refunds will be paid whose RPOs stand approved. That will take care of less than 10% of the claims!
More and cheaper credit and subsidised inputs (fertiliser, pesticide and electricity) are the proposed remedies for stagnant agricultural production. Of course, these are necessary. But are they sufficient? Looks like the farmers will continue to look towards mother nature for better yields!
This fourth budget is entirely consistent with the earlier ones: free of even a suspicion of structural reforms. More power plants, roads, and dams is only one half of the equation. Making them work, cost effectively, and having the users pay for them, without demanding subsidies, is the more difficult half. Subsidising electricity for tube wells is illustrative - it is like digging the hole deeper. So is penalising through withholding taxes - it takes the eye off the ball. There is more to a documented economy than just revenue, and until we can make our tax system less complex people would rather be penalised than get into the tax net.
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