At a post-budget conference organised by the Institute of Chartered Accountants of Pakistan last Saturday, Dr Abdul Hafeez Shaikh began his speech in a professorial fashion, and ended as a motivational speaker. In between, he defended his team’s decisions and fought his critics in a manner that clearly expressed his anger. But was he able to convince?
Hafeez the professor highlighted five big facts about Pakistan that are worth pondering upon. Fact 1: that no single democratically elected prime minister has completed his full term in office. “Dysfunctionality lies at the heart of our national life,” he said, adding that we should think about how it affects our business and economy.
Fact 2: Pakistan has never had a growth trend that has lasted more than four years; “we have to think why do our growth spurts fizzle out”. Fact 3: Pakistan doesn’t like to do business with others; “if you want to develop, you must sell your products to others. Fact 4: Pakistan has an excessive government footprint; governments “must not get into the business of running business.” Fact 5: Quality of growth matters; “we had growth in the 60s, but it cost us our country”.
These facts are evidently convincing. But two related facts also warrant attention. Pursuing development through exports produced only for exports rather than as an exportable surplus is not the only path to playing catch-up with the developed world. Domestic commerce also matters. For instance, if Pakistan can encourage formal sector packaged meat and branded dairy within domestic markets, it would have better chance of exporting these.
Second, the expression that “it is not the government’s business to do business” is, in Asad Umar’s words, the “most non-sensical statement” (Asad has criticised that expression many times in the past). Will then Hafeez be able to privatise as much as he would like to privatise? That demands a separate discussion.
Hafeez the fighter began with a cracking shot. “Don’t believe any of that crap,” he said responding to those who have been saying that budget FY20 is an “IMF budget”. “Why are they trying to confuse the public by using loaded statements,” he charged.
“Should we not become fiscally disciplined; should we not mobilise revenues; should we not cut subsidies to those who can afford”, he asked rhetorically. “We are open for ideas. If they can tell us a painless way of doing surgery, then let them share those ideas with us.”
Again, hard to disagree. Pakistan has to decide what is good for her, and if IMF or World Bank also thinks that that is good, then it should not be construed as an ‘IMF budget’. Credits to Hafeez for trying to make that clear to the public. However, his defence against the critique on FBR’s revenue target for FY20 wasn’t convincing at all.
“We have put a challenging target. There are some people who have made it a business to talk on television every evening and say this is a very challenging target. If the requirement is of a challenging target, then what other kind of target do you want us to set,” he said with a sarcastic undertone. A few laughs followed. But read that again: it’s a classic tautological argument; a weak defence.
Consider the following facts. FBR’s taxes for FY20 are budgeted to grow Rs1400 billion or 19 percent over and above the growth in nominal GDP; 11 percent in the case of income tax and 27 percent in the case of sales tax. The revenue measures announced are expected to yield about Rs550 billion; add another Rs450 billion in terms of inflation. Where would the rest of Rs400 billion come from. (See (See Does Shabbar has a magic spell?, June 12, 2019).
Consider also that traders and exporters are threatening to go on a strike (as powerful lobbies do to protect their rents), and that FBR has not been reformed yet to the extent that it can trusted to make great headways in on-demand collection over the next twelve months. The government may well have a plan. But that plan has to be shared with the public, failing which the markets may become wary. Recall that the budgeted provincial surplus is already under threat, and accordingly the consolidated budget deficit.
The federal budget document expects a combined provincial surplus of Rs422 billion in FY20. In contrast, Sindh and Punjab have posted a combined budget surplus of Rs232 billion so far - Punjab Rs232; Sindh zero. The reality may be worse. Even in FY19, when the PTI was already in power in Punjab and in centre, Punjab posted a deficit of Rs25 billion against a budgeted surplus of Rs147 billion.
Considering that Khyber Pakhtunkhwa and Balochistan cannot post a combined surplus of more than Rs50 billion, questions seeking clarity over FBR’s targets should not be seen as naysaying or unconstructive criticism. It is only natural for markets and public to seek clarity over budget deficit, and if that means questions over tax collection targets – well fine.
Hafeez the motivational speaker concluded by saying that “most things worthwhile in life are difficult”. “We have two choices. We can abandon the pursuit or re-double the efforts. I think we will redouble the effort, and we will weather the storm.” That’s a good speech Mr. Finance Minister, and may you succeed. All the best wishes! But may you also appreciate the virtues of transparency and democratic accountability, because the people have a right to know how you plan to fill the gaps; and what shape or form those re-doubling of efforts will take.
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