EDITORIAL: Federal Minister for Planning, Development and Special Initiatives, Ahsan Iqbal, while briefing the media on the decisions taken by the National Economic Council (NEC) made two startling claims that require clarification.
First, that a 1,150 billion rupee federal Public Sector Development Programme (PSDP) was approved by the NEC, an estimated 58 percent higher than the budgeted 727 billion rupees for the current year which was approved by the International Monetary Fund (IMF), a contention premised on the fact that the budget was followed by the successful completion of the seventh/eighth review a couple of months later; however the Fund’s approval of the budget 2023-24 remains pending reflected by the pending ninth review.
The agenda of the next IMF Board meeting whose approval of a pending review is necessary before a tranche is released is perhaps not as definitive as is being debated in the country as an agenda item can easily be inserted at any time prior to the meeting.
It is, however, important to note that actual disbursements for PSDP in the current year should have been used as a yardstick for determining a realistic next year development budget premised on available domestic and external resources.
Sadly, what has been ignored is data on the Ministry of Planning website which notes that during the first three quarters (July-March 2022-23) allocation was a high of 544,452 million rupees while actual authorisation/disbursement was considerably lower at 314,419 million rupees (19,545 million rupees foreign aid) with actual expenditure at only 206,234 million rupees. With resources even more severely constrained during the last quarter of the current year one may safely assume that authorisation/disbursement fell further short of the budgeted PSDP amount.
It is therefore very doubtful if this massive increase in PSDP for next year will either convince the general public of PML-N’s pro-development credentials, the lead player in ministries with an economic fallout other than commerce, or the general public grappling with a consumer price index of 38 percent in May 2023, up from September’s 23.3 percent - the last month the monetary and fiscal policies agreed with the IMF were followed and a core inflation of 20 percent in May (against 14.4 percent in September).
Secondly, planning minister Ahsan Iqbal insisted that the 3.5 percent growth rate is quite realistic. One would tend to agree with him, given the extremely low growth rate for the current year – 0.3 percent as per the government with many independent economists claiming that growth in the current year would be in the negative realm, given the massive destruction wrought by the devastating floods last summer.
And needless to add in the event that post-September 2022 policies continue to be supported into next fiscal year, which are violative of the agreement with the Fund dating back not to the previous administration but to the time when the eleven-party coalition was in government, there is the likelihood that with increased reliance on domestic borrowing, which will further reduce private sector credit (from the 80.4 percent decline July-April 2023 compared to the year before) with negative implications on growth and unemployment, and a pre-election strategy to release funds either directly to parliamentarians or through subsidies to the general public (which unless channeled through the Benazir Income Support Programme would continue the existing flawed mechanism associated with untargeted subsidies rightly opposed by international lenders – both multilaterals and bilaterals).
If one adds the element of budgeting revenue generation from taxes that are likely to be challenged in the courts, as in the past, or opposed by a major political support base (traders) or increasing exemptions for exporters (an elite group) that will be challenged not only by the lenders but also by a very large number of people being pushed under the poverty line through rising unemployment and inflation and one has the elements of a budget that is beyond unrealistic or, in other words, in fantasy land that is unlikely to convince anyone that any of its features would be implementable.
Iqbal also stated that the NEC had approved shutting down shops at 8pm, a proposal that has been debated many times in the past but abandoned because no administration was able to withstand the countrywide opposition to this scheme by traders even when elections were not imminent. With the next elections imminent staying the course on this may fall by the wayside yet again.
NEC decisions, without reforms in line with the agreement with the IMF that must begin with tax reforms (widen and not raise taxes on existing taxpayers) and power sector reforms (a major source of government debt) that envisage not raising tariffs as has been the practice to-date to attain full cost recovery but to improve governance are unlikely to weaken the ongoing economic impasse or improve the quality of life of the general public.
Copyright Business Recorder, 2023