EDITORIAL: The release of the federal and provincial fiscal operations show that the economy July-December is on track to achieve the targets set by the government in the budget.
Trends clearly visible as per data released by the Federal Board of Revenue show the widening of revenue collection from the target set for the month commencing December with a shortfall estimated at 22 billion rupees (with the January figures showing a further widening of the shortfall) with the non-tax revenue July-September at 241.5 billion rupees more than doubling to 697 billion rupees during the first half of the current year — well short of the budgeted 2 trillion rupees which explains the pledge to sell off the two power plants that have been pending since the PML-N government.
And expenditure rose from 2.24 trillion rupees July-September 2021 to 3.32 trillion rupees July-December 2021 lower than the budgeted total expenditure of 8.48 trillion rupees — the decline attributed to slashing of the 900 billion rupees budgeted for development expenditure.
However, what is relevant to note is that the basis of these percentages, critical for taking any mitigating measures, rests with the projection of 63.9 trillion rupee Gross Domestic Product (GDP) for the current year — up from the budgeted 53.867 trillion rupees, the rise no doubt attributed to the re-phasing exercise and the release of the upgraded data by the National Accounts Committee in January this year (rather than the usual practice of releasing it in May).
The question is whether the government would be able to reach the 5 percent growth target for the current year or as Finance Minister Shaukat Tarin states in his even more optimistic avatar between 5.5 to 6 percent.
This optimism must be viewed in the context of some disturbing observations by the International Monetary Fund (IMF) in its recently released sixth review report which include: (i) the budgeted revenue is unrealistic which necessitated the passage of the 343 billion rupee withdrawal of exemptions from parliament end 2021 with another money bill reportedly under consideration for passage next month; (ii) the current expenditure budgeted at 7.5 trillion rupees rose from 1.96 trillion rupees July-September 2021 to 4.67 trillion rupees July-December and at this rate would surpass the budgeted amount of 7.5 trillion rupees by the end of the current fiscal year on 30 June 2022 to reach an untenable 9.3 trillion rupees, making a mockery of the reduction in development expenditure of around 300 billion rupees; (iii) expansionary policies pursued since the advent of the current fiscal year which are not supported by the Fund: “the approved FY22 budget marked a departure from Extended Fund Facility objectives and contributed to rapidly increasing macroeconomic vulnerabilities…in addition the budget delayed key reforms and reversed some key policies damaging revenue prospects.”
Bank urged to use this as a mitigating tool to support the balance of payment. This recommendation does not take account of the fact that thread effective exchange rate is considered to be undervalued — it declined from 96.7 in December to 98.5 in November — a source of inflation as a quarter of all imports consist of petroleum and products. In addition, cutting the discount rate by 3.75 percent in recent months was also supported in the report.
There is a consensus within the government that the IMF support is critical at the present state of the economy, and it is significant that the Fund report argues that “given budget and capacity constraints, tangible mitigation progress critically depends on external support, mainly financial and know how transfer. Pakistan should therefore intensify its collaboration with bilateral and multilateral partners, seek more private financing and facilitate foreign direct investment (particularly in green technologies).”
In short, the advice is to enhance external indebtedness to fund the budget, further compromising the government’s claims that it has effected major savings and is incurring foreign loans only to pay off past loans, and to seek collaboration with both bilateral and multilateral partners with the latter urging green technologies instead of the Independent Power Producers established under the umbrella of China Pakistan Economic Corridor — China at present being the only country considering making investment in Pakistan today though issues of meeting contractual obligations by Pakistan have surfaced in recent years.
This newspaper would urge the government to begin to take some economically viable homegrown remedies that must include a significant compression in non-essential imports and slashing current expenditure from what was budgeted by employing the argument that it is preferable to reduce outlay on the recipients of the current expenditure who are in a better position to withstand inflation than the general public, which, in turn, would reduce the need to borrow and therefore increase the administration’s leverage with the Fund.
Copyright Business Recorder, 2022