EDITORIAL: Prime Minister Shehbaz Sharif pledged to break the “begging bowl” by curtailing government expenses – an approach that can be fully supported for four reasons.

First and foremost, there is massive potential to reduce current non-development expenditure on three major counts: (i) all subjects devolved after the 2010 passage of the eighteenth constitutional amendment are still being funded at the federal level in spite of the associated transfer of divisible pool taxes to provinces.

This alone would reduce expenditure by close to three quarters of a trillion rupees per annum; (ii) the state-owned entities (SOEs) being run inefficiently require one trillion rupees per annum to operate – an amount that can be saved if the administration is empowered to make appointments on the basis of education and merit rather than on the basis of political affiliations.

In this context, recent reports indicate that political compulsions are being allowed to prevail in view of the impending elections with the eleven-member coalition government visibly energised to appoint boards of directors of various SOEs as well as make transfers and appointments, an exercise fraught with higher costs; (iii) the elite capture in terms of current expenditure allocations needs to be revisited because at the current state of the economy there is simply not enough fiscal space to accommodate it; and (iv) reforms are critical especially in the pension system, acknowledged by several administrations, past and present, however the system of no employee contribution with the entire payable at the taxpayers’ expense continues.

Shehbaz Sharif undoubtedly deserves credit for the approval of the 3 billion dollar nine-month Stand By Arrangement by proactively engaging with the IMF Managing Director which then resulted in the release of pledged assistance (rollovers and additional deposits) by the three friendly countries and thereby averting the impending default; however, he must acknowledge that the 9 June budget presented by his government made no attempt to curtail current expenditure, and instead envisaged raising it from the 2022-23 budgeted 8.7 trillion rupees to the revised 10.5 trillion rupees to 13.13 trillion rupees for the current year – a 52.9 percent rise from what was budgeted last year and a 26.5 percent rise from the revised estimates of last year.

The revised budget 2023-24 passed on 23 June, revised after approval from the IMF which subsequently led to the approval of SBA, envisaged a reduction of 85 billion rupees in current expenditure (with taxes revised upward from 9.2 to 9.4 trillion rupees); however, this amount, be it meager, is not indicated in the revised budget documents uploaded on the Finance Division website.

In other words, there is a need to put his money where his mouth is and one would sincerely hope that before the scheduled end of the incumbent government the Prime Minister ensures rationalisation of current expenditure by a reduction of 85 billion rupees as pledged by the Finance Minister to parliament.

The breaking of the begging bowl is not possible for the next two to three years, given the over 20 to 21 billion dollar annual repayments on external borrowings (from multilaterals/bilaterals/commercial banks) - interest and principal as and when due - debt equity payments (on sukuk/Eurobonds) and support required for the balance of payments.

However, the process can be expedited if the government of the day successfully curtails current expenditure. While parliament is engaged in strengthening the Caretakers’ powers to raise taxes to ensure that SBA targets are met yet another way preferable from the perspective of the general public would be to empower the caretakers to curtail expenditure in direct proportion to the shortfall in revenue collections.

We would overwhelmingly support a government effort to curtail its expenditure especially expenditure that reflects elite capture of the very limited fiscal space available to it; and instead not only implements tax reforms that would widen the tax net instead of raising taxes on existing taxpayers while legitimizing the non-filers but also begins to cut its own current expenditure.

No effort, no reforms in the 23 June budget are manifest with regard to these two reforms that would be critical to breaking the begging bowl.

Copyright Business Recorder, 2023