EDITORIAL: Tenth of June has been earmarked for the presentation of the budget in parliament with political and the more usual economic pundits weighing in on the numerous “prior” conditions required to make it happen — the former focusing on the political cost of a harsh budget if elections are imminent and the latter focusing on the need for those very harsh upfront conditions to achieve stabilisation that is simply not possible before a year to a year and a half.
The stark options under consideration within the PML-N are to present an unpopular budget, a stance that the party is naturally reluctant to take without a guarantee that the government would have at least a year, the minimum period required to see some positive outcome of the critical harsh budget provisions, or to resign soon after legislation on electoral reforms and let the caretakers take these economically harsh and politically untenable decisions; the remaining coalition partners are unlikely to bear the major political brunt of harsh economic decisions, given that all key economic-related ministries are currently held by the PML-N.
While technically the caretakers are not sensitive to public opinion yet in today’s highly charged political atmosphere there is the distinct possibility of dithering over the choice of candidates for a caretaker setup, with institutions being made the scapegoat by the leadership of multiple parties.
Concurrently, however, negotiations with the International Monetary Fund (IMF) are ongoing in Doha on the seventh review and are reportedly near completion with the government agreeing to the harsh prior conditions. However, given the dichotomy of opinion within the PML-N, it would be tantamount to political hara-kiri if the present government signs on the dotted line without the assurance of its survival beyond the calendar year. And therein lies the stalemate.
Within this milieu, a two-pronged diplomatic initiative was launched spanning the seven weeks of the Shehbaz Sharif-led government — the Sharifs focusing on two Arab countries so far, Saudi Arabia and the United Arab Emirates so far, as well as a tentatively scheduled Qatar initiative, and Bilawal Bhutto Zardari in China and the United States — a country that has assisted Pakistan in the past to ease IMF’s harsh upfront conditions with implications on the cost of living and the quality of life of the common man and, if possible, to augment the 6 billion dollar package to ease the growing current account deficit.
The government issued a statutory regulatory order effective 19 May banning an entire range of luxury items, projected to reduce the need for foreign exchange by at least 6 billion dollars per year, instead of raising the regulatory duties that would have raised revenue collection (in rupees) but at the cost of raising the need for foreign exchange — a sound economic decision.
However, what the government has been reluctant to withdraw are subsidies — funded (essential food subsidies) or unfunded (petroleum and products and electricity announced by former Prime Minister Imran Khan on 28 February) with the incumbent Prime Minister already making some populist announcements, including a rise in the civilian administration’s wage bill, more subsidies on essential food items and a rise in the minimum wage.
This necessitates a sacrifice by the recipients of other budgeted current expenditure items including domestic debt servicing (through adjustments in existing government debt held by banks — the major contributor to hefty commercial bank profits), reducing the outlay on defence (with a cap on all procurement for next year’s budget), slashing civilian administrative expenditure (by ensuring subjects are finally devolved as per the Eighteenth Amendment) and restructuring/privatising loss-making state-owned entities.
Public acceptability of budget provisions would depend on expenditure curtailment rather than on revenue enhancement with the latter focused on widening the net rather than on getting the low hanging fruit as in the past.
While the Managing Director of the IMF recently urged countries to subsidise fuel and food, a recommendation in light of the ongoing Russia-Ukraine war, yet sadly the negotiating Fund team is unlikely to allow Pakistan to continue with the extent and range of subsidies on fuel and food applicable at present though one may surmise that some room to manoeuvre may now be possible. The question is how much and one hopes the current negotiating team has the capacity to maximise it.
Copyright Business Recorder, 2022