EDITORIAL: The slugfest between Pakistan Tehrik-i-Insaaf (PTI) and Pakistan Muslim League-Nawaz (PML-N) on accusations and counter accusations as well as claims and counterclaims on Thursday left the populace largely peeved. There is overwhelming evidence that more than four years of Ishaq Dar were marked by three extremely flawed economic policy decisions – (i) an overvalued rupee that eroded the export base and artificially reduced the budget deficit by understating the rising indebtedness; (ii) while China Pakistan Economic Corridor (CPEC) witnessed inflows used for public sector projects (mainly energy and road building) yet as pointed out by Tarin, Dar wiped out the 450 billion rupee circular debt on the last day of 2012-13 fiscal year by forcing the banks to open on a Saturday, thereby putting the cost of the borrowing on the Asif Zardari-led government; by the time the PML-N tenure was over the circular debt had escalated to 1.2 trillion rupees or, in other words, the PML-N is responsible for a total circular debt of 1.68 trillion rupees; and (iii) tax-to-GDP ratio was higher during the PML-N tenure, however, with refunds in hundreds of billions of rupees remaining unpaid the PML-N claims need a revisit.
There is no doubt that during the short period that Miftah Ismail was in charge of the Finance Ministry there was a policy reversal with respect to the overvalued rupee as well as an attempt to reform the tax structure in the budget presented by the PML-N before its term expired end April 2018. However, the major constraint facing Ismail was that 2018 was an election year and political compulsions were allowed to take precedence over economic considerations and he was simply unable to check the expenditure allowed to parliamentarians.
The PTI administration began its term on a low note – the unsustainable current account deficit of 20 billion dollars that included repayments on loans/debt equity incurred during the PML-N’s tenure. However, the agreement signed with the International Monetary Fund on 12 May 2019 by the then newly-appointed PTI economic team consisting of upfront severely harsh monetary policy (a 13.25 percent discount rate linked to the consumer price index and not to core inflation and a massive rupee depreciation that economists claim undervalued the rupee) as well as fiscal policy (attempt to widen the net failed and the government pressured existing taxpayers to cough up more) which led to stifling of productivity and unemployment. And contrary to the Prime Minister’s claims that the government was compelled to borrow to service and repay loans incurred by previous administrations the government by focusing attention on primary deficit (minus borrowing costs and repayment as and when due) borrowed heavily to not only pay past loans but also to fund the budget. As per a report submitted to the National Assembly, the government borrowed 5 billion dollars to fund its budget deficit during the two and half years of its tenure. This in turn accounts for a budget deficit that will be in excess of 8 percent of GDP in the current year, a highly inflationary policy, which Shaukat Tarin would have to deal with in the forthcoming budget.
In other words, the Dr Hafeez Shaikh-led economic team did achieve a current account surplus (though in recent months remittances are contributing towards this desirable state as the trade deficit continues to deteriorate) but their policies lacked empathy with the people of this country as they were at a cost of lower productivity, higher inflation (the IMF projected a rate of 13 percent against the under 7 percent inflation pre-programme implementation) and unemployment – factors that quickly used up the Prime Minister’s considerable political capital. Imran Khan’s attempt to energize the Ehsaas programme together with langar khanas/no one goes to sleep hungry/Sehat Sahulat Card indicate his heart is certainly in the right place; however, this must be seen in the following context: (i) poverty levels rose from 31.3 percent in 2018 to 40 percent by end 2020 or an increase from 69 million to 87 million people as per the Borgen project, a non-profit organisation based in the US; (ii) Benazir Income Support Programme envisages 2000 rupees per family per month – an amount whose purchasing power is constantly eroding with food inflation consistently in double digits; and (iii) an actuarial review of the Sehat Sahulat Card was recommended this year as it was feared that hospitalization visits would rise as use of the card became more widespread to ensure it remains financially feasible. In other words, the Prime Minister’s ambition to extend it to all should be tempered with supporting data.
Shaukat Tarin has the unenviable task of sorting out the issues not only predating the PTI administration but also until the time that he was appointed on 16 April 2021. In this context, it is relevant to note that Miftah Ismail stated to a private channel that he has a greater comfort level with Tarin relative to Sheikh and there is no doubt that this perception is shared by many based on the empathic IMF conditions that Dr Hafeez Sheikh agreed to in September 2008. However, a more factual assessment would of course be possible after the announcement of the budget 2021-22, scheduled for next week.
Copyright Business Recorder, 2021