The final outcome of the Panama leaks on the First Family's political fortunes cannot be evaluated yet due to three lines of action by the Sharif administration whose success or otherwise is not yet apparent: the Prime Minister contends that he has already released his asset data, the government's entire machinery is continuing to be deployed to attack the opposition insisting on amendments in the terms of reference as well as more recently his increasingly abrasive media team publicly asserted that a purported apology from International Consortium of Investigative Journalists (ICIJ) was received - an assertion categorically refuted by a senior official of ICIJ.
The Prime Minister himself continues to take the line that the sins of the sons (and one daughter) must not be visited on the father, a facetious attempt on my part fuelled by Nawaz Sharif's continuing claim of innocence as his own name has not been mentioned in the list of beneficial owners in the offshore companies. The opposition is clearly focused on an inquiry which would identify dates of registration of the First Children's offshore accounts and subsequent purchase of the Mayfair flats given the conflicting statements by the family over two decades with the objective of disproving the most recent claim that friends/contacts, hard work, intelligence and luck - the ingredients critical for amassing wealth - were at work to produce three millionaires within one family. It is yet to be determined whether the First Family would be able to politically overcome the Panama revelations and no doubt the Sharif administration is relying on (i) the short memory span of our general public that accounts for the reelection of those charged with corruption in the past; or (ii) bad mouthing the opposition and the establishment (dismissing the recent ehtesab by the chief of army staff by challenging the capacity of an institution to make its own officials accountable though surprisingly this defence is not used by the politicians with respect to the foot dragging by National Accountability Bureau) to preempt any pressure; or (iii) by insisting that the economic agenda of the PML-N is so pro-development and pro-public that if allowed to complete its 5-year tenure the opposition is afraid it would lose the 2018 elections.
And it is this last claim that is compelling the Prime Minister to take actions that are simply untenable and bordering on the ludicrous for want of a more appropriate word. The launch of advertisements at state expense absolving the Prime Minister of any wrongdoing and attacking the leaders of the opposition particularly Imran Khan, announcing unbudgeted development projects during his ongoing public interaction campaign to defuse opposition's allegations and staying the rise in oil prices, utility prices as well as those of essential items for example pulses. Can the economy afford this save the First Family from the political fallout of the Panama Leaks expenditure?
Nawaz Sharif would respond in the affirmative guided as he is by his Finance Minister Ishaq Dar who, in turn, continues to limit his own view of the state of the economy to favourable statements by donors, including staff of the International Monetary Fund (IMF)/officials of western democracies, and foreign media reports. In this context it is relevant to note that the Fund staff, like other multilateral staff, are urged by their management to remain engaged with the debtor government, to ensure that the agreed reform agenda, a critical component of any lending programme, may continue, an engagement which requires limiting public criticism.
The Fund officials privy to detailed data during the mandated quarterly reviews invariably, however, include cautionary notes that are being ignored by the Prime Minister and his Finance Minister; and also ignored are warnings of possible default by Bloomberg, a market leader in business and economy news. Here are some examples of Sharif administration's ostrich like therapy defined as ignoring criticism with the hope that the public/constituents do not focus on it: (i) the inclusion of new structural benchmarks in the 10th review is unprecedented as normally benchmarks are set at the beginning of a programme to ensure their implementation; (ii) Finger on 12th January in a conference call with Pakistani journalists acknowledged that the rise in foreign exchange reserves are mostly debt enhancing; (iii) the growth rate of 5 percent claimed by the government for the current year is scaled down to 4.5 percent by the Fund and further to 3.5 percent by independent local economists; data integrity has been obviously compromised by the finance ministry and its departments which disables the government from taking informed policy decisions; (iv) Pakistan is making good progress so stated Masood Ahmed, Director IMF, a refrain echoed in all the ten reviews under the ongoing programme yet the words of caution in documents and press releases abound and include the following, 'authorities' continued commitment is welcome,' 'financial sector resilience remains pertinent' and 'continued resolve to complete the planned reforms'; (v) On 15th February 2016 Bloomberg maintained "Bets are rising that Pakistan will default on its debt just as it starts to revive investor interest with a reduction in terrorist attacks. Credit default swaps protecting the nation's debt against non-payment for five years surged 56 basis points last week to 620 points amid the global market sell-off...That's the highest since January 2015 and the steepest jump after Greece, Venezuela and Portugal among more than 50 sovereigns tracked by Bloomberg. About 40 percent of Pakistan's outstanding debt - both local and foreign - is due to mature in 2016, according to data compiled by Bloomberg. That's roughly $45 billion, of which about 4.3 trillion rupees ($41 billion) is in local currency. Since Sharif took the IMF loan, Pakistan's debt due by end-2016 has jumped about 79 percent."
Dar's strategy for the next fiscal year may well incorporate one of the following three or their amalgam in terms of the way forward. First, to prepare a budget for next fiscal year according to the dictates of the IMF but once the programme ends in September 2016 and the last tranche released the deficit would no longer be a priority. Instead Dar would focus on releases for unbudgeted development projects in preparation for elections 2018. Second, higher releases emanating from the Prime Minister's greater public interaction campaign to minimise the political fallout of the Panama leaks maybe delayed till next year. In addition, the Prime Minister's refusal to raise oil and food prices (available in Utility Stores) would raise expenditure and reduce government revenue with a deficit higher than agreed with the IMF which may be met either through even further delays in refunds with a consequent negative impact on business activity and exports or higher domestic borrowing or some accounting jugglery.
And finally Dar may announce a budget whose effectivity maybe for three months but would try to convince the Fund he means business by raising the revenue collection target for next year by more than this year's 20 percent through overstating the collections as is the norm but also through higher taxes, with withholding taxes set to account for 75 percent of direct tax collections which are not on income but on consumer items and raising customs duty across the board yet again from 3 to 4 percent - a tax much favoured by Dar.
Sadly there is no indication that the Panama leaks have led to a revisit of our inequitable tax system or a change in the Pakistan Economic Reforms Act allowing foreign exchange to be remitted abroad limited only to the amount held in banks by individuals or indeed a positive outcome to reported talks with other tax havens to share data with our tax authorities.