EDITORIAL: Pakistan has been focusing on revenue generation, inclusive of reforming the Federal Board of Revenue (FBR), with the objective of minimizing leakages requiring administration reforms as well as meeting steadily rising unrealistic targets set by administration after administration – a focus supported by multilaterals including the International Monetary Fund (IMF) which made reforms more academically palatable by insisting on widening the tax net. This is not to say that the need to widen the tax net and bring the evaders, the avoiders and indeed those operating in the cash economy into the legal economy is not compelling; just that the sole focus on tax collections tackles only one side of the problem and trumps correction/reforms in tax policy and administration with the result that the problem persists despite the fact that Pakistan is currently on its 23rd IMF programme.
Power sector is another persistent source of concern that has been the subject of much debate during negotiations with the World Bank/IMF and here too administration after administration has failed to improve the sector’s financial viability by: (i) pledging massive subsidies each year which are below the requirements. In the current fiscal year, for example, the requirement was around 200 billion rupees more than what the government has pledged – with the difference anteing up the circular debt to more than 2.5 trillion rupees today; and (ii) passing on the system’s inefficiencies, including the interest payable on loans, onto the consumers that contributes to inflation, compromises the capacity of our exporters to compete even regionally and fuels smuggling across our porous borders, thereby reducing demand for local products.
But disturbingly, what has been ignored in the IMF/World Bank assistance is the focus on checking expenditure. Prime Minister Imran Khan is constantly referring to the economies he has ushered in the Prime Minister’s House as well as in line ministries including sale of livestock; he would, however, do well to realize that in 2017-18 total current expenditure (revised estimates) were 4.298 trillion rupees against 7.523 trillion rupees in the current year – a rise of 75 percent in three years. True that the IMF is credited with keeping the salaries of civilian/military personnel constant in 2020-21 (a policy decision not repeated this year), this, however, did not imply that current expenditure actually declined and though it was 6.349 trillion rupees last fiscal year against 7.37 trillion rupees in 2019-20 this decline is sourced to the G-7 debt relief initiative for developing countries.
The PML-N government (2013-18) raised allocation on current expenditure from 3.198 trillion rupees in 2013-14 and if one adds the 97 billion rupees under the Benazir Income Support Programme that is credited under current expenditure (transfers and disbursements) post the Khan administration, then too, the rise is no more than 30.4 percent. True, part of the problem relates to the compounding phenomenon due to (i) the pension budget rising massively with no contribution by the employees (and sadly no corrective policy decision has been taken yet); (ii) failure to check civilian administration expenses; and (iii) the burgeoning debt with interest payments rising from 1.18 trillion rupees in 2017-18 to 3 trillion rupees in the current year’s budget on the back of a 5 billion dollar budget support loan during the past three years (with around 20 billion dollars borrowed to pay off past loans as well as interest on commercial loans) and a rise in domestic debt from 16.5 trillion rupees to over 25 trillion rupees today.
It is obvious that until and unless Pakistani administrations slash expenditure, particularly non-development expenditure, the onus on the taxpayers for all state inefficiencies will continue. And to achieve this, requires a spirit of sacrifice of all state entities as well as a commitment from the administration to not only focus on present day corruption but also penalize the inefficient and the incompetent costing the exchequer millions of dollars with the understanding that firing/replacement does not solve the problem.
Copyright Business Recorder, 2021