Finance Minister Ishaq Dar, unconditionally backed by Nawaz Sharif, the party supremo, as well as by Prime Minister Shehbaz Sharif (a man known to repeatedly defer to his brother’s decisions even if they are patently flawed) and perhaps not so pervasively by the 85 plus cabinet members belonging to the other ten parties, is adamant that he will present the federal budget 2023-24. The date set is the 9 or 10 June.
Dar’s insistence to formulate the next budget is reminiscent of 2018 when the Shahid Khaqan Abbasi-led cabinet decided to present the budget for the following year (2018-19) on 28 April 2018, a date brought considerably forward than the norm given the Ramazan dates (17 May to 16 June) and the end of its tenure on 30 May 2018.
On 27 May, four days prior to the end of the government’s tenure, President Mamnoon Hussain of PML-N, approved Shahid Khaqan Abbasi’s plan to hold elections on 25 July 2018. There was one critical political and one economic difference in 2018 from the prevalent situation today.
First political, national and provincial assemblies stood dissolved on 31 May 2018 and the caretakers, as per stipulated procedure, were selected after appropriate mandated consultations between the leader of the house (Abbasi) and the leader of the opposition (Khurshid Ahmed Shah).
Elections under the caretakers were held on the date stipulated on 25 July 2018. Today two provincial assemblies stand dissolved – Punjab on 14 January 2023 and Khyber Pakhtunkhwa on 18 January 2023-with the caretaker setup in Punjab installed by the Election Commission of Pakistan (ECP) as per procedure as there was no consensus on any of the proposed names between the PML-N and the PTI.
The election date for the two provinces remains elusive to this day notwithstanding the 14 May set for Punjab elections by the apex court; however, there was a reported consensus during the court directed/suggested negotiations between the PTI and the government that federal and provincial elections must be held the same day.
The political situation remains highly charged today after the 9 May violence with polarization within the electorate and institutions no longer the major trend on social media though accusations backed by videos/audios are now being hurled at one’s perceived opponents.
The apex court in its hearing on Monday 15 May again suggested negotiations on setting the election day between the two protagonists, but unexpectedly deferred the hearing till 23 May – a deferral viewed as an indication of the success of the counter measures inside and outside parliament by the coalition partners.
Today there is little evidence that any meaningful negotiations on an election date will be launched and the period between the due date (defined as the end of the tenure of the incumbent national assembly on 13 August 2023 which would trigger a caretaker setup for a maximum of 90 days after which elections may be held) and the PTI demand to hold elections by July continues to evaporate.
The economic factor for not announcing the budget is even more compelling than the political factor. While in 2018 the highest-ever current account deficit was inherited by the Khan administration yet today the economic impasse is much worse as: (i) three international rating agencies post October 2022 downgraded government issue to junk status that has compromised the government’s capacity to borrow from the foreign equity market through issuance of Eurobonds/sukuk with the country teetering on the verge of default; (ii) the International Monetary Fund’s (IMF’s) insistence that the government first secures financing requirements from friendly countries (a component of the ongoing Fund programme, which was also applicable to the Fund’s recent Sri Lanka bail-out package) before it will declare the ninth review a success is constraining access to pledged assistance from multilaterals as well as bilaterals, and even more concerning from an economic perspective is the (iii) IMF’s recent statement that Pakistan must stay within the framework agreed in the ninth review (not yet shared with the public) should sound alarm bells within the cabinet.
This warning comes after Dar’s preferred but extremely flawed policies from an economic and social perspective (preferred as he implemented them not only during his previous three tenures but also during his current tenure) (controlling the rupee rate which negatively impacted on remittance inflows to the tune of 2 billion dollars and providing an estimated 110 billion rupee electricity subsidy to exporters at a time when 33 million Pakistanis were living under the open sky due to the floods) were abandoned only after the Fund suspended all negotiations.
There is a real danger that if Dar is allowed carte blanche to formulate the budget, as is patently evident, then there is a real danger that he may revert to these very flawed policies which would be the final nail in the economy’s coffin.
In addition, what has been a feature of our budgets during the past two to three decades spanning more than four administrations is the shortening of the time of its applicability with some commentators maintaining facetiously but with a rising degree of veracity that the budget becomes irrelevant on 1 July, the first day of the new fiscal year.
The reason: many of the tax proposals are unrealistic (some are challenged in the court and some on the streets) while current expenditure is understated especially with respect to debt servicing cost due to sustained irresponsible borrowings (largely domestic these days as international lenders are wary of extending credit with the ninth stalled IMF review) and development expenditure routinely over-stated which, by the end of the year, is slashed to keep the deficit at sustainable levels.
In an election year development funds are typically handed over to members of parliament to enable them to get votes - late 2017 Shahid Khaqan Abbasi did release large sums to party members of parliament and there is a real danger that this practice will be repeated in next year’s budget. Salaries of civilians and military personnel are also likely to be raised in spite of severely limited fiscal space and untargeted subsidies may be provided given the high inflationary pressures to gain votes though a more sensible approach to benefit the common man has never been taken notably to reform the tax structure by reducing the heavy dependence on indirect tax collections (to the tune of 80 percent of all revenue collected today) whose incidence on the poor is greater than on the rich.
The federal budget’s unrealistic revenue and expenditure figures will have a cascading effect on provincial capacity to set realistic goals. The divisible pool is almost routinely over-stated, which is the major source of provincial revenue, and provincial surplus identified not through consultations but as a wish item designed to keep the federal budget deficit within sustainable levels to meet accounting as opposed to economic principles.
Article 126 of the Constitution stipulates that “at any time when the Provincial Assembly stands dissolved, the Provincial Government may authorize expenditure from the Provincial Consolidated Fund in respect of the estimated expenditure for a period not exceeding four months in any financial year, pending completion of the procedure prescribed in Article 122 for the voting of grants and the authentication of the schedule of authorized expenditure in accordance with the provisions of Article 123 in relation to expenditure.”
Today with two Caretaker provincial governments in place - both having exceeded the constitution’s 90-day limit for elections – the dangers inherent in the federal government insistence on announcing the budget are two-fold. First, Ishaq Dar’s inability to learn from his past mistakes and his refusal to take advice from those much better qualified that would reflect better on his own performance.
Dar’s recent statements challenging the IMF’s stalled ninth review indicate that he has not kept abreast with the evolving IMF policies that are uploaded on its website.
And secondly, the political and economic situation is much worse today than in 2018 and it would be advisable for the eleven coalition parties as well as provincial governments to insist on granting approval of funding for the next four months on the same pattern as in the budget for the current fiscal year, which was presented by these very parties in June 2022 and was supported by the Fund.
Copyright Business Recorder, 2023