EDITORIAL: The government has constituted a National Austerity Committee (NAC) with the objective of compiling a list of austerity measures to ensure rational utilisation of public money and curtailing expenditure to reduce the fiscal deficit. While fully supporting the objectives of the committee, three observations are critical.
First, a budget deficit is inflationary in nature and with Pakistan subjected to unsustainable budget deficits since 2018, well above 7 percent of Gross Domestic Product, one major cause of inflation has disturbingly remained undealt with.
Secondly, the budgeted revenue shortfall due to curtailment of revenue from imports, an outcome of administrative and exchange measures to ease pressure on the balance of payments position, has compelled the government to consider a mini-budget — reportedly a prior condition set by the International Monetary Fund (IMF) to start talks on the ninth stalled review.
Given the emergent need for disbursement of the next Fund tranche to which is linked disbursements of pledged loans from the three friendly countries it is likely that the mini-budget will be approved by the cabinet.
The mini-budget includes proposals to raise existing taxes and/or widen the ambit of existing indirect taxes whose incidence on the poor is greater than on the rich and, when approved, would further erode incomes.
Given that the part of private sector has been unable to raise salaries for the past few years in spite of double-digit inflation (though that did not apply to public sector employees paid for by the taxpayers’ money) the possibility of civil unrest may rise. And finally, the ongoing Fund programme had initially focused on primary balance and not the fiscal deficit — the former defined as fiscal balance adjusted for net interest payment on public debt while the latter includes it.
Given the sustained fiscal irresponsibility, also evident in the current year’s budget with a trillion rupee increase in current expenditure and the 110 billion rupee unfunded electricity subsidy to exporters announced on 6 October 2022 in spite of the debilitating economic impasse facing the country, the need for containing the budget deficit has, no doubt, assumed great relevance.
The question, however, is not whether the committee will be able to draft appropriate recommendations, as past precedence indicates that committees have been extremely effective in identifying issues and making appropriate policy recommendations but on how many of these recommendations, if any, are actually implemented.
The convener of the NAC will be a retired bureaucrat of good repute, Nasir Mahmood Khosa, who left public service in 2017, and Minister of State for Finance Aisha Ghous Pasha, a qualified economist, has been appointed as co-convener.
However, as stated above, in this country the issue has rarely been in identifying problems and making appropriate recommendations — be it in reports/studies undertaken by consultants, domestic and international, or high-powered committees — but one of implementation.
It is hoped that the current practice of not disbursing authorised funds for the Public Sector Development Programme, a major contributor to growth, is abandoned in favour of limiting current expenditure outflows with the electricity subsidy to exporters withdrawn, other subsidies targeted to the poor and vulnerable through the Benazir Income Support Programme, reform in the pension system by seeking employee contributions, and a voluntary sacrifice by civilian and military personnel through agreeing to a freeze in their salaries for the next year or two as part of the austerity measures.
Copyright Business Recorder, 2023