Manifestoes lack economic rationale!

EDITORIAL: Pledges by the two political parties, the Pakistan Muslim League-Nawaz and the Pakistan People’s Party, that are most likely to either lead or be a major partner in the next government with respect to tackling the deepening economic impasse are extremely concerning as the focus is on political as opposed to economic considerations.

Nawaz Sharif, the PML-N supremo, during his recent interaction with his senior party leadership pledged to undertake measures to (i) reduce the rate of inflation, currently at around 30 percent, with the weekly Sensitive Price Index higher by more than 12 percentage points; (ii) reduce the 22 percent discount rate to lower this major input cost mainly associated with the large-scale manufacturing sector; (iii) provide fiscal incentives, inclusive of lower utility charges, measures that were implemented during all PML-N tenures, including during Ishaq Dar’s tenure as finance minister from 27 September 2022; and (iv) initiate mega projects.

Needless to add, all these policy measures are violative of the ongoing Stand-By Arrangement (SBA) — International Monetary Fund (IMF) programme — and if implemented will end any possibility of securing another Fund programme after SBA expires in the second week of April as per schedule.

The IMF is no longer willing to support Pakistan in delaying/postponing the implementation of reforms that envisage ending the elite capture with respect to revenue measures. In the current year’s budget presented by Ishaq Dar as finance minister on 9 June 2023, before prior conditions under the SBA led to some revisions, the heavy reliance on indirect taxes continued whose incidence on the poor is greater than on the rich.

The estimated reliance on indirect taxes this fiscal year is over 85 percent, given that 75 to 80 percent of all collections inaccurately credited under direct taxes consist of withholding taxes imposed in the sales tax mode.

In addition, the Fund is opposed to supporting Pakistan provide fiscal and monetary incentives to industrialists/exporters, politically influential group, while seeking a higher outlay for the poor under the Benazir Income Support Programme considering poverty has reached a high of 40 percent in this country.

While the Fund is supportive of privatisation as a policy measure, though the climate domestically and internationally today is not conducive to its implementation, one would hope that the economic managers not only consider the sale of each SOE separately to ensure that monopolistic conditions do not prevail and the entity does not require subsidies.

And finally, administrative measures, read the linkage between full cost recovery and utility rates, have been prior conditions from the Fund since 2019, given that in the previous twenty-two programmes all administrations accepted this condition but failed to implement it as the political cost would have been steep.

The luxury to defer this condition is no longer available, given that all administrations till date have opted to pass on the burden on the general public instead of implementing structural reforms to end existing inefficiencies of various sectors and bad policies.

The overarching reason why the Shehbaz Sharif-led government agreed to the very harsh SBA prior conditions, which began to be implemented on 26 June 2023 or three days prior to the announcement that a staff-level agreement was reached, was because of the looming threat of default as all multilaterals/friendly countries/bilaterals linked all rollover/additional lending to going back on an IMF programme, which envisages implementation of time-bound structural benchmarks and actions.

Ishaq Dar, considered the preferred candidate for the position of finance minister in the event of a PML-N-led government for the fifth time, while talking on a private channel acknowledged that if a decision was taken not to go on another IMF programme then “we would have to tighten our belts” and proactively privatise state-owned entities (SOEs) with the objective of reducing the budgetary outlay to prop them up.

He added that during the Shehbaz Sharif-led government the agenda was to help the country successfully avert default. This statement must be a source of serious concern to the stakeholders because the threat of a looming default has not abated especially as 6.1 billion dollars budgeted by Dar as commercial loans from aboard and issuance of sukuk/Eurobonds had not materialised, given that our rating has not been upgraded by any rating agency in spite of the successful completion of the first SBA review.

In other words, the threat of default looms large in the event that the country does not succeed in securing another IMF loan after the expiry of the ongoing SBA. His assertion of “tightening our belts” is not credible in view of the fact that he raised current expenditure by 21 percent from what was budgeted by his predecessor in 2022-23 and in the current year’s budget raised it by another 26.5 percent. This outlay is not backed by any increase in output and is highly inflationary.

The PPP Chairman, Bilawal Bhutto-Zardari, is pledging higher allocations for the poor under BISP, free electricity for the poor and vulnerable and an 8 percent annual pay rise, which incidentally is still 22 percent lower than the rate of inflation, during his campaign speeches.

While the focus is the poor in his case yet the country simply does not have the requisite funds. The PPP in the past also proactively supported using SOEs as a recruitment centre for party loyalists, a measure that accounts for gross overstaffing, which is a major reason for massive losses in several of these entities.

Bilawal Bhutto-Zardari, a first-time PPP proclaimed candidate for the post of chief executive of this country, is clearly focused on electioneering rather than on providing a comprehensive economic plan in the event that his party leads the federal government, and therefore he needs to engage with economists within and/or outside his party.

The PML-N touting itself as an experienced party, based on recent comments by Nawaz Sharif and Ishaq Dar, is clearly unwilling to acknowledge their past blunders and, more concerning, are clearly embarked on the same destructive path.

One can only hope that all political parties realise that the economy in general and the poor in particular can no longer subsist in the current economic scenario. And all must realise that a manifesto is a solemn pledge by the party leadership to the electorate and hence must be backed by a reality check.

Copyright Business Recorder, 2024