EDITORIAL: The Caretaker government’s discernible approach to dealing with the economic impasse is twofold: success of the recently established Special Investment Facilitation Council (SIFC) in securing the pledged 25 billion dollar foreign direct investment (FDI) in the short term and over 100 billion dollars in the medium to long term and fast tracking privatisation.
These two strategies were fully supported by previous elected governments and pledged in the four recent programmes with the International Monetary Fund (IMF) – 2008, 2016, 2019 and the ongoing Stand-By Arrangement approved by the Board on 12 July 2023.
This consensus, however, did not lead to any positive outcome because the state of Pakistan’s economy did not provide fertile ground for FDI inflows, which is reflected by FDI peaking in 2017-18 to only 2.78 billion dollars (under the umbrella of the China Pakistan Economic Corridor) but with disadvantageous contractual obligations - a recent example being visible public discontent after receiving the August 2023 bills.
Privatisation has also met with little success due to the prevailing domestic economic situation, as well as organised trade unions that have successfully resisted any such attempt in the past through street protests and/or legal action.
Today, the state of the economy is even more precarious and a source of considerably more serious concern than in the past: Gross Domestic Product for the year past, plummeted to 0.5 percent (though independent economists maintain that it was, in fact, in the negative realm), growth in large-scale manufacturing registered negative 10.3 percent, consumer price index was 24.9 percent, remittances declined by 19.3 percent and exports by 4.6 percent.
Fiscal deficit rose by 24 percent no doubt funded by a rise in government domestic borrowing that shrivelled credit to private sector by a whopping 178.6 percent.
The annual data for last fiscal year must be seen in the context of more viable economic policies producing better statistics during the first three months of 2022-23 relative to the last nine months when Dar was the Finance Minister – a fact which indicates better performance for the year than the average of the past nine months; yet the annual data is neither conducive to FDI inflows or privatisation in the short to medium term.
The Caretaker cabinet took oath on 17 August and after a little more than six weeks has been able to do little to implement reforms in spirit (specifically those targeted to improve governance in poorly performing sectors particularly the power and tax sectors) though they are implementing reforms as per the letter of stipulated terms that were agreed with the International Monetary Fund under the Stand By Arrangement – reforms that are targeting the general public as opposed to making some inroads into reducing the elite capture of budgeted expenditure and budgeted revenue sources.
While the constitution stipulates the duration of a caretaker setup as no more than three months, scheduled to end on 14 November, yet the delimitation exercise by the Election Commission of Pakistan has extended this period by at least another two to three months – sufficient time to begin the reforms in spirit as well.
The Caretaker Finance Minister has touched upon some reforms under consideration, reforms that were also periodically voiced by the previous three elected governments but never enforced for political reasons, notably the need for provinces to take full responsibility for the gains/losses of their budgeted expenditure and a more proactive role in terms of revenue generation in synch with the 18th Constitutional Amendment (take full charge of devolved subjects) and National Finance Commission award (with higher access to revenue from the divisible pool).
She has also directed the FBR to think out of the box – a directive that previous administrations also issued though with no success – as the focus remained on raising revenue from existing sources as opposed to reforming the existing unfair, inequitable and anomalous tax structure.
Ironically, there are numerous studies undertaken by domestic as well as international consultants gathering dust in the relevant ministry and Board of Revenue that recommend specific ways to reform this structure.
The government has announced an 80 billion rupee scheme to encourage remittance inflows through official channels and while time will tell whether it succeeds in this endeavour yet it is critical to acknowledge that if the government can divert this unbudgeted allocation (nearly 17 percent of the total amount budgeted for Benazir Income Support Programme) then why is it not negotiating with the elite stakeholders to voluntarily reduce their allocated outlay – stakeholders who are the major recipients of the budgeted current non-development expenditure.
Copyright Business Recorder, 2023