Profound moments: message to political leadership

The frequency of transmitting the message shows the level of its importance and the urgency it needs to be attended. In yet another briefing on 25th January, and this time to the Parliamentary Committee constituted by the Prime Minister, Ministry of Finance informed the political leadership in very unambiguous terms that fiscal deficit during the current fiscal could easily cross eight percent of GDP (or Rs 1368 billion) in case the business as usual continued and they failed to take tough economic decisions.
On the expenditure side, defence spending was expected to go up by Rs 100 billion due to war on terror while allocation for Pakistan Railways was likely to increase by Rs 30 billion. Interest payments were also estimated to be more than Rs 750 billion. All of this was happening at a time when revenue proceeds and income under other heads are either stagnating or declining.
The monetization of such a high level of budget deficit would stoke inflation, especially at a time when the growth rate of the economy was projected to be only 2.5 percent due to the 'super' flood and its impact on various sectors of economy. The manufacturing and agricultural sectors were particularly affected and the damage to all the major crops except wheat was quite substantial. On the positive side, exports are likely to exceed dollars 20 billion, and may even touch dollars 22 billion while home remittances are expected to cross dollars 10 billion for the first time in the history of the country.
Foreign exchange reserves were unprecedentedly high at dollars 17 billion. Later, talking to the media, the Finance Minister asserted that, despite these achievements, measures were needed to be put in place to contain the fiscal deficit within reasonable limits.
He was, nonetheless, certain that the government would be able to take action for proper fiscal management. Senator Khurshid Ahmed of the Jamaat-e-Islami added that a bleak picture of the economy has been painted by the government's economic team. A massive increase in expenditure and a significant shortfall in revenues would increase the budget deficit to over eight percent of the GDP if policies are not changed and corruption, leakages, tax evasion and nepotism in appointments are not effectively checked.
He also revealed that the government was asked to reduce expenditure by 30 to 50 percent and take measures to minimise the line losses of over 35 percent in the power sector.
We believe that the presentation made by the government's economic team in the Parliamentary Committee was quite objective and to the point and could be useful in forging a national consensus on economic issues of vital importance to the country. It was good to see that almost the entire focus was on the unsustainability of the increasing level of budget deficit which is the mother of most of the economic woes of the country.
Targeted in the budget and agreed earlier with the IMF at 4.7 percent of GDP, fiscal deficit is now projected to be over eight percent and, to complicate the matters further, expected to be largely financed through printing of more currency notes, which would definitely fuel extreme inflationary pressures in the economy.
Already caught in the vicious circle of poverty and unemployment, such a scenario would be catastrophic for vast majority of the population. A very low growth would further accentuate downward spiral of the key economic indicators and dash any hopes for an improvement in the standards of living of ordinary people. SBA facility with the IMF stands almost suspended while multilateral donors seem to be in a mood to halt budgetary support to the country.
The government has tried its level best to impose RGST and enhance the domestic prices of petroleum products in line with the international prices in order to improve the budgetary position but the resistance against these measures, both within the parliament and outside, was so resolute that the authorities had to capitulate.
The latest initiative of the government to take the representatives of the parliament into confidence is, in our view, a step in the right direction. Hopefully, political leadership of the country, if told the truth and promised transparency and necessary commitment at the highest level, would be able to rise to the occasion and help the government in devising an appropriate strategy to raise enough resources to achieve a reasonable balance in the budget.
This is necessary not only for containing price pressures, stabilise exchange rate, continuity of the SBA, etc, but for ensuring sovereignty in economic management of the country. However, it is quite natural that certain leaders would opt for traditional political posturing, in the beginning of the exercise, but that is an integral part of the political game in every country.
For instance, everybody knows that proposal to reduce government expenditure by 30 to 50 percent made by certain parliamentary leaders is hardly feasible, especially when most of our current expenditures are inflexible. Similarly, revenues amounting to hundreds of billions of rupees reportedly lost in corruption are not easy to collect. We, nonetheless, hope that consistent persuasion by the government to tread the right path would ultimately yield the desired results with a view to finding a plausible answer to high fiscal deficit, which poses a serious threat to country's economic sovereignty.