Special Assistant to Prime Minister on Information and Broadcasting Dr Firdous Ashiq Awan waxed eloquent as usual about the finance ministry's many achievements as she explained its Budget Strategy Paper for 2020, duly approved by cabinet, to the press, yet there was precious little about new measures to meet growth and revenue challenges over the rest of the year. The Paper was meant, after all, to review the federal fiscal budget in the backdrop of the coronavirus outbreak that is presently derailing economies of a good 150 countries, including Pakistan's. Even as Dr Awan spoke in Islamabad, textile exporters in Faisalabad lamented that foreign buyers had already started cancelling export orders and warned of 'massive de-industrialisation' and 'unmanageable unemployment' if the government didn't help manage the matter soon. Also, Moody's - the rating agency our governments love to quote whenever it moves Pakistan's profile up a notch - lowered its forecast for Pakistan's GDP growth rate to 2.5 percent. Just last December, it had put the number at 2.9 percent, even though some other institutions have been rather more conservative in their estimates. The State Bank of Pakistan, however, still expects the economy to grow at three percent, just revised down from 3.5 percent.
No doubt the government has scored some impressive points in terms of plugging some leaks, especially putting a lid on the current account deficit; even if some of the measures adopted might have left a little something to be desired. Yet its two most crucial indicators, revenue collection and growth, had been under tremendous strain even before the coronavirus crisis. And that, precisely, is what the Budget Strategy Paper should have been big on. However on track the government's growth strategy has been till now, it will clearly need to do more considering the huge financial impact of the virus; as almost all other affected countries are already doing. Yet there's only so much room for out-of-the-box thinking in the present environment. So long as we are bound to the IMF programme, the lender will have the final say in all important targets. Indeed, it was only after exhaustive negotiations that the Fund cleared disbursement of the second tranche recently after expressing a fair bit of disappointment with our revenue collection numbers. Going forward, revenue collection will surely become an even bigger issue. Not only is the idea of adequate tax collection still a bit far-fetched, to say the least, but the finance ministry should seriously be factoring in marked reduction in exports as well as remittances.
With a global recession imminent, it is only natural for Pakistanis working abroad to feel the pinch as well, which will limit their ability to earn and send money home. And with most economies slowing sharply, not to mention indefinite closure of ports and airports everywhere, the contraction in international commerce will affect countries like Pakistan, with miniscule export baskets and little or no value addition, the most. This mix could prove deadly for GDP growth, which has already dropped to one of the lowest in the region. Therefore, rather than dwell on what little good it might have done so far, or how bad all previous dispensations were, the government should be formulating strategies to stimulate revenue and trigger growth in the near term. It should also, as part of the Budget Strategy Paper, have already announced reforms in governance, especially in the power sector. Just implying that things are improving, appreciated as that might be, will not be enough going forward. It is already painfully clear that the entire global economy will have to reorient in the wake of the coronavirus threat. Economies like Pakistan need to be that much more vigilant and ahead of the curve because, owing to their small size, they tend to be among the first to be wiped out in the event of a protracted crisis. The government should provide more clarity on the points it missed out in the Budget Paper, especially about growth, reforms, revenue, etc., lest any more unnecessary panic builds in the market. Only when a credible action plan is ready can the unenviable task of negotiating new measures and fresh targets with the Fund really begin. But if no extraordinary steps are taken, the present mix of lower growth and lower earnings could well prove fatal.