EDITORIAL: The government, especially the finance ministry, can’t seem to trumpet the first fiscal surplus in 24 years enough, for understandable reasons. Yet, it shouldn’t get ahead of itself.
For, the surplus, welcome as it is, came on the back of unprecedented SBP profits – driven by the highest-ever interest rates that are on the way down and will not provide the same support in the next quarter – and record petroleum levy revenue, both non-tax sources.
According to the fiscal operations report for the first quarter (Jul-Sep) of the ongoing fiscal year, the central bank posted an all-time high surplus of Rs2.5 trillion, which would not have been possible if record inflation hadn’t pushed monetary authorities to take the most hawkish ever position on interest rates for more than a year. That cushion is now gone, likely leaving the finance ministry with little to celebrate next quarter, at least as far as the fiscal deficit is concerned.
Let’s not forget also that prominent ratings agencies, especially Moody’s, warned at the time of signing the new EFF (Extended Fund Facility) that Pakistan’s problems would start, not end, with the bailout programme. That explains why optimism that the fiscal position would rule out the need for additional revenue measures or a mini-budget is quickly beginning to fade.
Already, there are reports that the IMF (International Monetary Fund) is demanding a mini-budget after FBR (Federal Board of Revenue) failed to achieve tax targets for the first quarter. And, just as quickly as authorities ruled out the need for one, they are now (reportedly) set to introduce a mini-budget worth Rs500 billion to address the revenue shortfall.
It should also be noted that, given FBR’s history, the steep tax targets required by the Fund and the government’s unfair tax policy, it’s not very likely that the next quarter’s target will be met either. There is news of heads rolling in the FBR because of the shortfall, but it’s not immediately clear how such a shake-up will ensure that future revenue requirements will be achieved.
Nobody needs to be reminded that these are extremely dangerous times, especially when it comes to the economy. And while the revenue surplus is appreciated, the fact that it came from largely cosmetic measures at a time of high interest rates, which are not likely to be repeated in the near future, should not be overlooked or underestimated.
The IMF’s position is crystal clear. It will pull the plug on the EFF the moment the government is unable to meet its targets, hence the insistence on a mini-budget just when the finance ministry was ruling out the need for one. And there’s only so long the government can pile tax misery on the small group of working class professionals that do pay their taxes. Sooner or later, there will be nothing left to squeeze out of them. And since the government is both unable and unwilling to tax the biggest, most connected sectors of the economy, it seems without a plan to deal with the situation that is sure to develop unless it can dramatically ramp up its revenue base.
Therefore, rather than celebrate a temporary, passing moment, the government should lay out its plans about keeping the EFF on track. Everybody knows how and why the last one fizzled out; and how close it brought the country to sovereign default. In fact, if it hadn’t been for the SBA (Stand-By Arrangement) that kept the treasury solvent and the economy afloat, we would surely have plunged head first into default by now.
The people deserve transparency, especially in these fragile times, and it is the government’s responsibility and duty to provide it.
Copyright Business Recorder, 2024