EDITORIAL: The budget 2022-23 is to be presented in parliament in June and while there is every likelihood that it will be passed easily because the opposition benches are well nigh empty — a factor that would allow the government time till the last day of June — yet there is evidence that the Shehbaz Sharif-led Cabinet is struggling to get the eleven plus coalition members on board to take politically challenging decisions with the possibility of achieving some economic stability a year down the line that would ease public pressure in favour of subsidies as well as donor pressure for ending subsidies.
Today the country is once again at an economic crossroads reminiscent of August 2018 when the Khan administration was sworn in: stabilisation instead of growth has to be the overarching objective as the current account deficit is all set to exceed the 20 billion dollar mark in 2018 with foreign exchange reserves less than two months of imports, be it attributable to external factors including the pandemic that disrupted global supplies or the fallout of the ongoing Russia-Ukraine war; or be it due to flawed domestic policies that included heavier than ever reliance on borrowing (external and domestic) to fund a dramatic rise in current expenditure — from 4.3 trillion rupees in 2017-18 to a whopping 7.5 trillion rupees budgeted for the current year (with the February 2022 relief package not yet factored in).
During the past three years and seven months, the country’s external borrowing rose by 52 billion dollars (against 49.7 billion dollars borrowed by the PML-N in five years) with 36 billion dollars retired (against PML-N’s 27 billion dollars retired in five years).
Domestic debt was allowed to rise from 16.5 trillion rupees in 2018 to over 27 trillion rupees today and this too needs to not only be arrested but reversed. The Pakistani public well knows that the solution to this as per the International Monetary Fund (IMF) is severely contractionary fiscal and monetary policies.
Monetary policy is already extremely tight with an eroding rupee and a discount rate of 12.25 percent — over 3 percentage points in excess of core inflation and thus further manoeuvrability may be at a very high political and economic cost.
The onus therefore would be on raising tax collections which would also be at a high political as well as economic cost. This newspaper, during the past three years, has consistently urged the government to massively reduce current expenditure which requires sacrifice of the recipients plus immediate reforms especially in the pension system and last but not least debt retirement — domestic and foreign as a policy (as opposed to a rhetorical) objective with time bound targets.
That the requirement is for the budget to be passed by June 30 is not in question; however, there are three more pressing questions that require an immediate response from the government.
Firstly, what is the government likely to propose to the IMF and at what cost to the general public’s quality of life? Finance Minister Miftah Ismail has publicly stated that he does not support continuing the subsidies on petroleum and products, in line with the IMF demand for the success of the seventh review, however he has also stated that he has been instructed by the Prime Minister to continue the subsidies which raises the question as to whether Ismail is the best person to convince the IMF not to make withdrawal of unfunded subsidies a condition for the seventh review.
One would have hoped that, like his predecessor Shaukat Tarin, he would have proposed economies and/or other sources of revenue to meet the unfunded subsidies — options that include turning the state-owned entities (SOEs) around by ceasing all budgetary support at least for next year, immediate sale/restructuring of some loss-making units, reducing current expenditure and supporting a fiscal policy which is fair, equitable and non-anomalous and desist from supporting pro-elite tax measures.
It must be borne in mind that the then Prime Minister, Imran Khan, had announced the relief package to be implemented till 30 June 2022 and there appears to be little likelihood that by 1 July petroleum and products’ prices would have plummeted in the international market to Pakistan’s politically feasible levels and hence untenable decisions will have to be made within the next month and a half at the latest.
And one would hope that, unlike Tarin, Ismail comes up with proposals that are realistic and acceptable to the Fund.
Secondly, the fact that the budget deficit of the current year will impact on next year’s budget stands to reason; therefore, there is a need for the government to propose a deficit for next fiscal year that is achievable and not just one which is budgeted but not achieved like in the previous three budgets.
A lower sustainable budget deficit would reduce the inflation rate by perhaps more within the next year than direct subsidies for petroleum and products and electricity rates. Thirdly and finally, the government needs to coordinate with the provinces to determine a realistic provincial surplus.
It stands to reason that Khyber Pakhtunkhwa, with a PTI government, is not likely to meet any targets set even if they agree to sit on the table; however, the major contributors to provincial surplus are Sindh and Punjab and therefore it is an achievable target.
It is unusual, to put it mildly, that the Finance Minister is presenting a view at odds with the Prime Minister and this is generating more uncertainty than the eleven plus coalition members’ reservations with respect to proposed policy options. This must cease forthwith especially as talks with the IMF loom large on the horizon as does the budget presentation.
Copyright Business Recorder, 2022
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