Briefing the media on decisions taken during the cabinet meeting this Tuesday past Minister of Information Fawad Chaudhary stated that Finance Minister Asad Umer would soon present a comprehensive economic road map. On Friday Umer called a press conference pledging to present a medium term economic framework (MTEF) Monday (today) though the main objective of his media interaction was to arrest the rupee erosion which, he claimed, was entirely speculative and urged the public not to save in dollars but in rupees.
MTEF is an annual exercise due for release by January/February, (Hammad Azhar, the Minister of State for Revenue, had falsely stated end January 2019 that the MTEF would be released the following week); however previous administrations also routinely delayed its presentation. It is a critical exercise as the annual budget is based on MTEF which, in turn, has three objectives as per the Ministry of Finance website: (i) "to further strengthen fiscal discipline by creating an orderly framework for management of the annual budget over the medium term; (ii) to strengthen the alignment of federal resources by the government to the government's policies and strategies; and (iii) to build the capacity in federal ministries to prepare and manage their budgets in a manner which provides cost-effective service delivery (outputs) and efficient use of public funds (value for money)." Notwithstanding these lofty objectives a World Bank study acknowledges that MTEFs have serious shortcomings which unfortunately have been in evidence in Pakistan and include the following: "basic aspects of budget management, are not taken sufficiently into account.... inadequate attention is paid to the political and institutional aspects of the reform process....operational MTEFs do not resemble their textbook counterparts." In other words, our MTEFs have largely remained a wish list that did not challenge existing political and institutional considerations. Be that as it may, an MTEF may help ease market concerns on the Khan administration's way forward to resolve serious economic issues.
One persistent and overwhelmingly incapacitating issue in terms of the performance of the economy under the Umer-led Finance Ministry has been his failure to focus and/or deal with the budget deficit (unlike his predecessors who, it maybe argued, were compelled to do so as they went on an International Monetary Fund programme within a few months of the start of their tenure). The Khan administration's focus to-date has been on dealing with the unsustainable current account deficit that it inherited (through acquiring short-term loans from friendly countries which must be repaid unless rolled over - a decision that would depend on bilateral ties as well as geopolitical considerations) with no particular focus on the budget deficit (in the two supplementary finance bills 2019) that accounts for its steady rise. The first amendment finance bill envisaged 93 billion rupees higher revenue from technical improvements in tax collections (a challenge at the best of times and more of a challenge in times with a prevailing sense of uncertainty) and a second amendment bill that envisages a further reduction in revenue through tax relief to the industrial sector.
The government has hosted several high powered delegations, including prospective state and private sector investors, from Saudi Arabia, the UAE, China (remains engaged with the China Pakistan Economic Corridor projects though the pace has slowed considerably with ministers declaring that the administration is now requesting Chinese investment in productive sectors as opposed to infrastructure), Malaysia and Qatar. There is a need to define sectors where foreign investment is not welcome, like in other countries, however the Prime Minister and his team are gleefully adding up the pledges as assured investment (a mistake that previous Pakistani administrations made to their cost as well). And to top it all the Prime Minister claimed that within a few weeks the country may strike oil and gas reserves off the coast of Karachi, evocative of claims by Shahbaz Sharif during his tenure as Chief Minister Punjab of huge reserves of gold in Chiniot. One sincerely hopes that the Khan administration's calculations are proved correct however prudence based on previous experience should caution members of the cabinet that a bird in hand is worth two in the bush, or wait for the disbursement/investment inflows/oil to begin to flow into Pakistan before counting their chickens.
Given the massive scale of the economic impasse inherited by the Pakistan Tehrik-i-Insaaf (PTI) government analysts are baffled as to why a clear, succinct economic road-map is still awaited almost seven and a half months after the party assumed power. There has been a visible urgency for presentation of such a road-map from the day the party took over the reins of government as foreign/local private and institutional investors (with considerable exposure to public sector debt equities, in productive sectors as well as in the stock market) are getting more jittery - a situation constantly exacerbated by Umer's U-turns (stating one day the government would go on an IMF programme only if its conditions are met and maintaining that the country is bankrupt another) as well as blatant untruths (no discussions yet with the Fund on the rupee dollar parity). Umer continues to attack the previous administration for a host of flawed policies, and though the attack is legitimate, yet it has not abated even after seven and a half months - a time period considered very short term in terms of efficacy of economic reform measures but long enough to spread a comfort level to the investors.
The writing on the wall is clearly visible with the recent report of the State Bank of Pakistan declaring that large scale manufacturing sector's growth rate contracted by 1.5 percent during July-December 2018 compared to a 7.6 percent growth in the comparable period of the year before. Exports another sector that is being molly-coddled by the Khan administration has not performed as well considering the over 150 billion rupee cost to the treasury of export promotion policies (in the second amendment bill 2019), though the government grossly understated the cost at a little less than 10 billion rupees, and the constant erosion of the rupee value. The budget deficit is projected at 6 to 7 percent by the State Bank of Pakistan if existing expenditure and revenue measures continue till the end of the year, higher than the overly optimistic 4.9 percent envisaged during the April 2018 presentation of the budget.
Sadly, little seems to have changed from the policies that were in force during previous administrations perhaps because the finance minister is not an economist and relies on assistance from 'inherited' and politicized civil servants accounting for: (i) runaway current expenditure, (ii) inability to generate revenue for political reasons as well as due to pressure from groups/cartels, with another amnesty scheme projected to meet expenses, (iii) optimism about foreign investment inflows, imminent massive natural resource finds becoming reality, (iv) reducing development expenditure to balance the budget with negative repercussions on growth and last but not least (v) borrowing and printing money - highly inflationary policies with negative repercussions on the domestic and international rupee value.
Pakistan needs its finance minister to stop criticizing the flawed policies of the past, the Minister of Information is able and willing to take that responsibility, and to present a viable road map to the public considered critical to ease the prevailing uncertainty and last but not least he must realize that any bailout package agreed with the IMF would be uploaded on the Fund's website (the government's letter of intent as well as time bound structural adjustment agreements) and his insistence that the gap between the IMF and the government has narrowed or there has been no discussion/agreement on the rupee dollar parity would be up for as great a ridicule as his contention last year that the current account deficit issue has been resolved.