EDITORIAL: Prime Minister Shehbaz Sharif in his independence day address once again raised the topic of ‘charter of the economy’ in an obvious attempt to focus attention on economic as opposed to political considerations while in response Fawad Chaudhary, Senior Vice President of the Pakistan Tehreek-e-Insaf, tweeted that it is a “foolish idea. Political parties only join heads to develop a political framework. Having a unanimous economic framework is only found in communist systems.” Disturbingly, neither of these two comments reflects a realistic state of affairs.
The Prime Minister’s comments indicate his lack of awareness of the fact that all the ongoing economic policies can be sourced to the seventh/eighth staff review agreement with the International Monetary Fund (IMF) which are a continuation of the sixth review policies that the previous administration had signed off on with the Fund.
The only deviation from the previous government’s policies, and indeed from all previous administrations, is in the finance bill or on who gets taxed at what rate. The IMF has specified the Federal Board of Revenue (FBR) target for the year and in the event of any adjustments — for example after the tweeted instructions of Maryam Nawaz to Miftah Ismail to revisit the fixed tax on traders — another sector has to be brought under the tax net or an existing taxed sector subjected to a higher tax rate (cigarettes). Additionally, much is being made out of the Letter of Intent (LoI) received by the government from the IMF with Ismail stating that he will sign off on it, a prelude to the Board approval for the tranche disbursement.
However, what needs to be highlighted is the fact that the LoI is a document prepared and signed off on by the two economic team leaders of a borrowing country, the finance minister and the governor of the central bank. The fact that Ismail announced he had received the LoI from the IMF indicates that even this document was subject to the Fund review and while it is unclear at this time precisely what was pledged in the draft by the economic leadership and changes, if any, made by the Fund; however, uploading the seventh/eighth review staff documents on the Fund website would give an idea of any additional changes in the LoI that may have been made.
Fawad Chaudhary’s dismissal of a charter of economy as a “foolish idea” also reflects his lack of knowledge of what has been happening in this country not only during the pre-2018 era but also during the three years and eight months of PTI’s (Pakistan Tehreek-e-Insaf’s) tenure, however abortive. First and foremost, there have been no structural reforms undertaken which explains why the circular energy debt has reached more than 2.3 trillion rupees, reflecting a level of incompetence, inefficiency and corruption in this sector that accounts for its emergence as the largest drain on the government’s scarce resources, for making productive sectors uncompetitive internationally (thereby impacting on exports) and within the country (with smuggling across our large porous borders).
State-owned entities (SOEs), apart from the energy sector, today account for a rising percentage of our resources and, again, claims of improvements through changing the board members or strengthening the boards or appointing senior management on merit or ensuring that overstaffing is dealt with are pledges that have been made by each incoming government that remain unfulfilled to this day. And successive governments, including the present and the previous, have increased expenditure particularly current expenditure, by a considerable amount — one trillion rupees in the current year and the same amount in the budget for 2021-22 — and relied on borrowing from abroad as well as domestically to fund it.
In addition, all administrations, again including the incumbent and the previous, have extended subsidies and monetary and fiscal incentives to the productive sectors at the cost of the common man, which is evident from the sustained heavy reliance on indirect taxes whose incidence on the poor is greater than on the rich while bitterly complaining about elite capture. And not surprisingly, the development budget is overstated each year to reflect the commitment of a sitting administration towards public welfare while this is the first item slashed mercilessly as the budget deficit reaches unsustainable levels.
Copyright Business Recorder, 2022