EDITORIAL: The federal government is presenting the country’s annual budget in parliament today. It would like to keep its political constituents happy by offering them ‘goodies’. In other words, given the electoral timetable, there is an expectation that the budget could be populist, if not profligate, in nature.
But the government must not lose sight of the fact that it is required by the International Monetary Fund (IMF) to ensure fiscal discipline at all cost. Undoubtedly, the success or failure of IMF ninth review or the release of the stalled bailout is strongly linked to the government’s approach to the budget.
Needless to say, the obtaining situation warrants neither complacency nor profligacy. The government must enforce its writ to implement energy and tax reforms without any further loss of time; it must work harder to find an answer to the problem of State-Owned Enterprises (SOEs). More importantly, government’s political will to take unsavoury but much-needed decisions must clearly stipulate in the budget documents.
The way the state has successfully established its writ against the perceived and real 9th May rioters, it must deal with the challenges of energy and taxation reforms in a similar manner and with identical zeal. There cannot be any sacred (economic) cows anywhere anymore. After all, the country’s economic sovereignty cannot be treated as a child of a lesser god.
Successive governments tried and failed to bring energy discipline in the retail sector by reducing working hours post-sunset. They have failed to reduce the transmission and distribution losses, particularly in Discos. Their abject failure to tax the wholesale, retail trade, and real estate sectors is well known. They have also failed to curb smuggling and tax evasion practices.
The reason for this multiple failures is simple: the state doesn’t have the will to enforce its writ when it comes to the compelling economic reforms. This lack of will to establish its writ to bring its house in order is nudging the country towards a disaster that is looming large on the horizon. The strategy was and inexplicably still seems to be to have higher growth close to election years and in times when the commodity cycle is in favour of an import-based economy.
And to revert to the IMF, whenever Pakistan faces a balance of payment crisis, it opts to balance the fiscal numbers in the short term by curbing development and taxing the already taxed. In the process, more debt is acquired, which fuels growth for another cycle. However, over the period, repeated resort to this strategy has resulted in the cycle becoming shorter and shorter. This, coupled with an end to geopolitical rents, the perceived method in the madness is coming to its logical end.
Now is the time to act and act decisively. The litmus test would be the contents of the budget for the year 2023-24. SOEs’ reform must be on top of the agenda, as mere words of carrying out structural reforms are as empty as the government’s kitty. The buzzword of taxing the untaxed must be backed by an actionable plan and resolve.
The declaration of having energy conservation and reforming electricity distribution units must be spelled out in concrete action plans. Or else, the situation is going to get worse, and any improvement would not come without a hard reset which is going to be very painful.
And eventually, the reforms will be imposed on an already shrunken economy. It is better to act on the imperatives while the state is still in control. As without it, no one would be in control. Last but not least, allowing the economic slide to persist for months together is nothing but an abdication of sovereignty.
Copyright Business Recorder, 2023