EDITORIAL: Finance Minister Shaukat Tarin during a press conference flanked by relevant ministers highlighted the Economic Advisory Council's (EAC's) economic blueprint - short, medium and long-term - for 14 sectors aimed at achieving the overarching objective of high growth budgeted at 5.02 percent in the current year and 6 percent over the next three years. The blueprint, he added, was firmed up after consultation with the stakeholders, with 60 to 70 percent already incorporated in the budget 2021-22, with the Khan administration planning to ensure its continuation even beyond its tenure ending in 2023. The claim that 60 to 70 percent had already been included in the budget for the ongoing year without any pressure on the balance of payment (BoP) precluded the need to highlight details of the blueprint, which include ambitious targets that may nonetheless be a challenge to achieve within the current year in particular: (i) fiscal policy premised on the blueprint would assume two major policy proposals of the Finance Minister notably third- party audit and sharing of data with Nadra for which an ordinance has been drafted though not yet issued. The Federal Board of Revenue (FBR) has projected 1 trillion rupee additional collection in the current year with 621 billion rupees sourced to a GDP growth of 5.02 percent and inflation of 8.2 percent; raising the tax-to-GDP ratio by 1 to 1.5 percent each year - a target set in 2010 by the then Tarin-led initiative which resulted in the successful conclusion of the seventh National Finance Commission award - is an objective that remains unmet to this day; (ii) federal Public Sector Development Programme, an engine of growth in Pakistan, is budgeted at 900 billion rupees and with monetary and fiscal incentives as a component of Tarin's bottoms-up approach, envisaging credit to the small and medium enterprises as well as interest-free credit to vulnerable families (urban and rural-based) if implemented may well account for a growth of 5 percent this year; (iii) targeted subsidies particularly with respect to utility rates (power) would fuel growth as would construction- specific incentives that will continue; and (iv) state-owned entities (SOEs) would be targeted for reform and a mega SOE, Pakistan Steel Mills, is on track (an expression of interest scheduled for next week).
Tarin added that formal talks on the suspended sixth review with the IMF will commence end September but added that he would attend the October annual meetings of the board of governors of International Monetary Fund/World Bank in Washington (11-17 October), perhaps implying that he would directly negotiate with the senior leadership of these two institutions and convince them of the efficacy of the plan - a need which has arisen as the February 2021 agreement with the Pakistan authorities, including raising the electricity base rate, power sector reforms as well as tax reforms, were not only anti-growth but also showed little empathy with the general public; these were stayed after Tarin's appointment as the finance minister on 16 April 2021. Tarin would do well to remember that in 2008 (his previous stint as finance minister) the pledges to the IMF that he (Tarin) had negotiated on Pakistan's behalf particularly with respect to the power and tax sectors, led to the programme suspension by the third quarter of that year. And equally if not more relevantly, the US was highly supportive of Pakistan at the time.
Tarin also added that the relevant ministers/advisors - Industries and Production, Commerce, Food Security and Research, Energy - would be answerable to the Prime Minister on a monthly basis. Sceptics may remain dissatisfied as the Prime Minister has not only repeatedly stated that he holds all his ministers accountable and failure to perform would imply losing their job yet few have actually lost their jobs and performance/governance remains dismal across the board though the Prime Minister continues to publicly extol the performance of his cabinet colleagues.
These policy options must be appreciated - policies that administration after administration identified as necessary but abandoned as soon as political considerations linked to threat of public protests and a looming election surfaced. However, there was no mention of (i) reducing expenditure to ensure that the budget deficit remains contained, which is responsible for double-digit sensitive price index (SPI) today. This is particularly with respect to a rise in current expenditure - from 3.7 trillion rupees in 2017-18 (the last budget of the PML-N government) to a projected 7.5 trillion rupees in the current year; financed by (ii) rise in domestic debt - from 16.5 trillion rupees (inherited) to 25.5 trillion rupees by March 2021 and external debt from 95 billion dollars (inherited) to 116 billion dollars March 2021 (with 5 billion dollars used to fund the budget deficit as per a government declaration during a parliamentary standing committee meeting); (iii) foreign exchange reserves with more than 50 percent debt-based - equity debt and swap arrangements; and (iv) an eroding rupee since May 2021 when the rate was 153 rupees to one dollar (on which budget estimates were made) while today it is in excess of 165 rupees to one dollar - each rupee loss versus the dollar raises debt by 100 billion rupees. The foregoing, therefore, gives birth to a critical question: Is the economic blueprint presented by the finance minister really blue? In our view, it isn't.
Copyright Business Recorder, 2021