Continued deterioration of key macroeconomic statistics pertaining to the general state of the economy as well as to the quality of life of the general public has become a source of serious concern not only at an academic level that can be handled through media manipulation but also at the level of a householder which necessitates action before anger spills out on the streets, further compromising economic activity.
While macroeconomic data for September (except current account deficit that has shrunk substantially) has yet to be released (there is a month long gap in data compilation on average) yet the general perception is that the situation has worsened on all counts since the caretaker cabinet took oath on 17 August which led the World Bank to downgrade the growth projection for the current fiscal year to 1.7 percent instead of the admittedly unrealistic budgeted 3.1 percent.
The International Monetary Fund (IMF) is projecting a 2.5 percent growth for this year on its website with the distinct possibility of a downgrade as and when the first review under the Stand-By Arrangement (SBA) is successfully completed.
The economic impasse continues to reflect sustained failure by administration after administration to contain the steady rise in the budgeted current expenditure - this year’s budget envisages a raise of 26 percent from the revised estimates of last year and 52 percent from the budgeted allocation in 2022-23 while failure to achieve revenue targets is not only attributable to unrealistic targets but also to lower than budgeted growth, which is a significant contributor to the annual rise/fall in revenue collections.
Budgets in this country routinely over-estimate the growth rate and revenue collections and understate current expenditure, which accounts for almost a routine diversion of funds from the public sector development programme to current expenditure – a highly inflationary anti-growth policy.
The economy today presents a dismal picture of low growth coupled with still pending reforms in the existing inequitable tax structure that remains heavily reliant on indirect taxes whose incidence on the poor is greater than on the rich, a massive raise in current expenditure that necessitates borrowing both domestically and from external sources at high rates of return, and contracting exports.
Remittance inflows rose to 2206.3 million dollars in September 2023 from 2094 million dollars in the previous month.
The question is whether this rise is due to the 16 September announcement by the Caretaker finance minister, Dr Shamshad Akhtar, that 80 billion rupees has been earmarked for various schemes to encourage home remittances with 20 billion rupees (around 71.618 million dollars calculated at 279 rupees to the dollar) released to the State Bank of Pakistan (SBP) the same day.
If one assumes that the rise in remittances is entirely due to this disbursement to the SBP, an assumption that is simply untenable as it necessitates ignoring all other factors that are known to impact on official inflows, then the cost of the additional 111.8 million dollars of remittances in September against August was 71 million dollars of the taxpayers’ money.
And while Dr Shamshad Akhtar is not responsible for the damage to remittance inflows due to her predecessor Ishaq Dar’s inane policy to control the interbank rate without the reserves to intervene in the market prompting the remitters to revert to the illegal hawala/hundi system, yet the caretakers need reminding that the September 2023 remittance inflow is 280.9 million dollars less than in September 2022 (the pre-Dar month) and a whopping 573.6 million dollars less than in September 2021.
Given the appalling state of the economy and the growing criticism of the general public as to foreign tours by members of the caretaker cabinet that entail an outlay, which may be less than a percentage or two of the total budget but has significance in terms of optics and does not send the right message to an increasingly restive public.
Special Investment Facilitation Council (SIFC) staffed by federal and provincial government personnel, senior civilian and military officials, has asked for proposals for provinces sharing project cost and subsidies on a 50:50 basis with the federal government, fast-tracking privatization, particularly those units requiring massive annual injections, and implementing the 2010 eighteenth constitutional amendment to devolve ministries and hopefully transfer the staff to provinces - measures that, if implemented, would create fiscal space as well as enhance productivity yet these alone are not likely to bring about a sea change anytime soon.
The ongoing crackdown on the currency market, against smugglers of essential and non-essential items and electricity defaulters is greatly appreciated though law enforcement personnel must be deputed to check on these illegal operators on a permanent basis to sustain these gains; yet these measures alone will not be able to either propel growth or encourage exports or indeed reduce the country’s massive dependence on domestic and external borrowing. That requires a competent finance minister qualified and dedicated to reversing the existing economic impasse.
We assume that the caretaker finance minister has the support of the establishment and hope that she would focus and succeed in convincing the current expenditure budget guzzlers to voluntarily sacrifice the funds earmarked for them in the current budget, at this stage by giving up on their procurement allocation as a reversal of the 30 to 35 percent budgeted salary increase is unlikely, launch pension reforms for the serving officials (which may require her to take advantage of the detailed recommendations compiled by her colleague Waqar Masood), tax the untaxed sectors (traders, wholesalers and farmers) given that as a caretaker she is not guided by any political considerations or any long term ambition to retain the finance portfolio.
To conclude, the performance of the caretakers so far has been below par as the general public expects them to take bold and far reaching decisions on long pending reforms and one sincerely hopes that they will begin to deliver on that expectation.
Copyright Business Recorder, 2023